Marx’s theory on labour still has capital

Edmund Conway, economics editor of The Daily Telegraph, looks at Karl Marx and Communism, in an extract from his new book – “50 Economic Ideas You Really Need To Know”.

“At the heart of Marx’s theories was the labour theory of value. This idea, laid out in Das Kapital (1867), states that a commodity is worth the amount of time it takes for someone to make it. So, for instance, a jacket that takes twice as long as a pair of trousers to stitch and sew ought to be worth twice as much. However, he argued, those who ran companies pocketed disproportionate amounts of the profits themselves. The reason bosses get away with this, Marx argued, is that they own the means of production and so are able to exploit their workers.”

In this statement lie the key flaws in Marx’s economic theory.

First, it is commonplace experience that a commodity is not worth the amount of time it takes for someone to make it. This obvious fact led to a denial that there was any relationship at all between labour and value. An alternative theory of marginal utility was devised, spreading a cloud of confusion over the whole issue. Yet labour and value are related. It was left to Henry George to point out the obvious fact that the value of an object is the labour that someone will give in order to acquire it.

Second, equal inputs of labour do not necessarily result in the creation of equal quantities of added value. Through the use of machinery, that is physical capital, the productive power of labour is multiplied hundreds, perhaps thousands, of times compared to what labour is capable of with bare hands or the simplest of tools.

It is also the case that location counts. In the classic example given by Ricardo, the best field available might produce ten tons of corn whereas the marginal field, the least fertile field in use, produces only one ton. The surplus production of 9 tons in the best field, over that of the marginal field, is an attribute of the land itself and gives rise to a rental value, known as “Economic Rent of Land”.

The differential production of urban land can be thousands of times more than that of agricultural land, due to the advantages of location. The neglect of this commonplace experience is one of the reasons why Marxist economies have always failed and must always fail. The theory is deficient.

The “Surplus Value” is land value.