A complete and rational refutation of the Labour Theory of Value

Model_Econ

The Labour Theory of Value (LTV) is the conceit of socialist thought to persist in using an outdated and incorrect definition of value to those used by the more factual definitions used in the more refined approach of mainstream economics. The labour theory of value seeks to determine the worth of a good by the amount of exerted effort regardless of the skill that that effort entails or the acknowledgement that some elements used in production might be more scarce than others.

This paper will seek to explore and discuss the evident flaws that appear in the LTV when examined by one with superior training and insight. To do this several questions will be posed to build a natural flow that will force the reader to admit to the gaping holes that were evident to people who died over 200 years ago.

The first question we must ask is whether or not we can consider chocolate to be capital. Now while LTV doesn't consider the use of capital directly when considering the value of a good, all rational systems do. So we must consider how the value of a good changes depending on the intended usage. Taking the example of a chef who has the ability to purchase a volume of chocolate, to the vendor they bear no knowledge of what the chef intends to use said chocolate for, whether to eat or to bake with. In such a situation the vendor must either always sell the good with the presumption that it will be consumed rather than to build a further capital stock. It is as such that we can consider capital to always be defined by the user and never the seller.

Thus we can see that socialists are unable to discriminate against those who will use any consumption good as a means to produce and the value of the good will be determined by the sellers true value for it based on the input costs. In real economic models this can be seen as the costs of producing it based on the inputs, in the LTV it is the total amount of labour that has gone into producing a good.

So we have seen that capital can only be defined by the purchaser, however what do we quantify as capital? It is possible to define capital by any manner of means and pernickety fringe armchair economists will debate the merits on which the true economics uses capital. However to disprove the LTV we will need to use a solid definition, as such we discount those static or disposable forms of capital such as fields or ore that are acted upon with no return action. Instead the focus will rest on forms of capital that are used to further develop capital, items such as tools and machines. These forms of capital are more important to our consideration as they are what truly determines the value of goods given relative labour inputs as their production is a result of labour. Indeed there is also the fact that as previously noted the LTV foolishly dismisses the intricacies of supply and demand that has been accepted by all sensible people who actually understand economics.

So having defined capital and solving that debate we now move onto the next question that will help fundamentally disprove the LTV. Is the LTV fully consistent? This is the fundamental issue that will unravel the whole use of the LTV in “modern” socialist economics. To consider this question we now must factor the use of capital into the LTV, while normally implicitly considered through the constituting labour hours that exist in the production of the capital unit the capital good itself does exist in practice if not accounting. So looking at the definition of capital as a good that is used to develop new goods as opposed to consumption we can work backwards from the modern day capital. Each good that is nowadays consumed is a result of the use of a tool, whether this is a spoon in cooking, combine harvester in farming, or a whip in politics. Any good produced is always a result of existing capital, although each is valued on their constituent labour time inputs, however each of those capital goods themselves were produced through a combination of capital and labour. Taking this back to its eventual conclusion we find ourselves back at the origin of human society and the fundamental unravelling of all of socialist framework, back where their theories last saw real development. To lay out the issue simply we consider the first produced capital good, this would be most likely a primitive knife or hammer produced using a simple stone as a tool. It is here were we find a capital good that has been created through no labour nor capital but a simple use of a static good that we have previously excluded from the definition of capital. So we see that the second produced capital good is produced by some form of labour and capital, yet we are unable to represent the capital good by its labour inputs. As such with each increase in productivity constructed by previous capital goods, as we have previously established they must, there becomes a greater debt owed to the progenitor capital and a larger fraction of value that the LTV is unable to ascribe to labour inputs.