The Labor Theory of Value
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What Is The Labor Theory of Value?
The labor theory of value holds that the value of a commodity is determined by the amount of labor required to produce it. In the form used by Karl Marx in Das Kapital (1867), the relevant measure is the socially necessary labor time needed to make a good under prevailing conditions. Versions of the theory appeared earlier in classical economics, but Marx developed it into the foundation of his analysis of capitalism, arguing that the gap between the value workers produce and the wages they receive is the source of capitalist profit. The theory locates the origin of value in production and human effort rather than in the preferences of buyers.
Why It Matters
The labor theory of value matters both for what it claimed and for the reaction it provoked. It underpinned Marx's account of exploitation and class conflict, ideas that shaped political movements worldwide. Yet within economics it was displaced by the Marginal Revolution of the 1870s, when Menger, Jevons, and Walras argued that value is set at the margin by the utility of the last unit consumed, not by embodied labor. That shift became mainstream, and most modern economists reject the labor theory as a general explanation of prices. Understanding it clarifies the dividing line between classical and Marxian economics on one side and neoclassical value theory on the other.