The labour theory of value is the view that the value of an article is determined by its cost of production in human labour power—according to the conditions of the time. In its fully developed form it was analysed and explained in detail by Karl Marx in “Capital.” We are not concerned at the moment with the theory as it was finally worked out. We are only concerned with the forerunners of Marx, who contributed something to the view. Owing to limits of space we can only consider briefly the most outstanding of these forerunners.
Value presented an insoluble problem for over two thousand years. The first glimmerings of a solution did not appear until the middle of the seventeenth century, when a society mainly concerned with the buying and selling of goods began to take definite shape in this country and was in process of taking shape on the Continent.
As far back as the time of Aristotle—two thousand three hundred years ago—the problem was in the air. Aristotle himself, in his “Politics,” and in his “Ethics,” had something to say about it. He knew that there must be some property common to objects as unlike as bread and shoes that made it possible to measure them against each other. He knew that the common property was not their usefulness, but he was unable to find out what it really was. He ends his examination rather lamely with the remark that people have agreed to estimate value in money. And this after he had already pointed out that exchange existed before money. He makes the illuminating remark, however, that profit-making originated with coin.
For hundreds of years this formed the limit of knowledge on the subject.
As commerce spread over society and accumulating money became increasingly the aim in social dealings, the question of the value of money came more and more to the front, particularly when succeeding representatives of the royal treasury sought to build up waning funds by debasing the coinage. Consequently, during the later middle ages, a considerable literature grew up around monetary matters. With the dawn of capitalist society, in the 17th century, the question became acute. The problem before the writers was: How did wealth originate? Or, as we would put, it: What was the source of surplus-value?
Out of these discussions two main schools of thought developed. The Mercantilists and the Physiocrats, one English and the other French. The Mercantilists claimed that wealth accumulated by means of trade, through buying from the foreigner cheap and selling to him dear. In other words, by having a favourable balance of trade,” an idea that still persists, as witness the nature of the discussions during the recent financial crisis. The Mercantilists, consequently, propagated the view that the traders were the most important group in the nation and were the builders of the nation’s wealth. An idea quite in harmony with conditions that were raising the trader to the most influential position in society.
Thomas Mun, a leading merchant of the time and a director of the East India Company, wrote a book that was published in 1664 entitled “England’s Treasure by Foreign Trade,” which puts forward the Mercantilist view very clearly and vigorously.
The Physiocrats, a group that originated nearly a hundred years later in France, a country whose main prop at the time was agriculture, held an entirely different view. According to them, wealth originated solely in agricultural production, as it was only by farming that a man received back for his work more than it cost to keep him, and, out of the surplus, the trader and the rest of the population lived. Turgot, a prominent Physiocratic writer, who appeared towards the end of their influence, puts their outlook very clearly in his book, “Reflections on the Formation and the Distribution of Riches,” published in 1766.. The Physiocratic doctrines were an expression of the interests and outlook of the capitalist farmer, and Mirabeau, one of their leading political representatives, took a prominent part in the French Revolution.
Turgot was a very clear thinker. He had a considerable knowledge of history and had travelled far enough intellectually to point out that the labourer’s wage was determined by his cost of subsistence.
Sir William Petty, an important member of the Mercantilist school of thought, was the first to make a real contribution to the labour theory of value. In a book he wrote that was published in 1662 and entitled “A Treatise on Taxes,” he states quite plainly that it is labour that gives value to things, but, under the influence of his trading outlook, he defines exchange-value as money, and the particular labour employed in the production of gold and silver as the value-producing labour. Hence he was led into confusion.
He wrote a series of essays in "Political Arithmetic,” which represents the first form in which economics is treated as a separate department of knowledge. These essays are remarkable for brevity and clarity. In one of them he explains in a paragraph the significance of the division of labour as illustrated by a watch, and he does it in a manner that showed he had a clearer grasp of the point than Adam Smith, although, writing a hundred years earlier. Adam Smith confused the social division of labour with the division of labour inside a single workshop, but Petty made no such mistake.
In 1733, Richard Cantillon, another merchant, wrote his book “On the Nature of Commerce in General." In it he stated that the value of a thing was nothing more than the measure of the land and the labour which enters into its production. He was influenced by the Physiocratic idea of the importance of agriculture, as also to some extent was Adam Smith. Cantillon held the view that the daily work of the humblest slave corresponded in value to twice the produce of the land on which he subsisted.
After Petty there was another thinker, probably the clearest thinker of his age, who put forward the labour theory of value in a broad form. This man was Benjamin Franklin, who, in 1729, when barely twenty-three years of age, wrote an essay entitled “A Modest Inquiry into the Nature and Necessity of a Paper Currency." In this essay he argues that the value of articles is measured by the time taken to produce them, but he considers that money has an extra value on account of the way in which it facilitates exchanges. In spite of his clearness of thought he, like his predecessors, was lost in the mystery of money. In fact, all those who preceded Marx got into difficulties when they came to treat of money. In their efforts to analyse money they frequently contradicted the sound views they had previously put forward on value in general.
Another youthful writer, an Italian named Ferdinando Galiani, published a book, in 1750, entitled, “Dell Moneta." He was only twenty-two years old when he wrote it. In this book he pointed out that labour was the sole source of value, but he confused the wages of the worker with the value of the article produced. For instance, he contended that the value of a woollen article was equal to the cost of the raw wool plus the cost of supporting the men who produced the woollen article.
In 1777, Adam Smith’s “Wealth of Nations" appeared. In it he attributed the accumulation of wealth to the division of labour. He made a considerable advance in the analysis of questions concerning economics, but he was still far from understanding the real nature of value. He held that the determination of the value of an article by the labour-time taken to produce it was true of earlier times, but not of the developed capitalism of his day. He also fell into the same error as Galiani, confusing the value of what a man produces with the value of what he gets—his wages. If this view were accepted, then the value of all the articles produced would only be equal to the total wages paid to the workers who produced them.. This was the state of affairs the later Utopians yearned for and what they would have called “fair exchanges." Adam Smith also failed to see that the labour of an engineer and the labour of a bootmaker could not be compared as such—they had both to be reduced to a common basis, the simple expenditure of human energy.
How weak Adam Smith’s grasp of the problem was may be gathered from the fact that he put “labouring cattle" under the heading of productive labourers, and also attributed value-creating properties to “profits of stock” and to the forces of nature.
The progress in knowledge of the labour theory before Marx really ended with David Ricardo, a stockbroker, who made the final contribution in his book, "On the Principles of Political Economy and Taxation,” published in 1817. His fundamental proposition is that the values of all articles, including the value of labour-power, is determined by the labour required to produce them with the prevailing skill and methods. But, as Frederick Engels has pointed out, Ricardo did not see that it was labour-power and not labour that was the value-producing quality, and hence, that the transformation of money into capital was based upon the buying and selling of labour-power. It was the discovery of this fact that gave Marx the key to the problem, and it was Ricardo’s failure to see it that landed him into difficulties when he came to treat of the more complex forms of money.
As a capitalist himself, and one who made a fortune on the stock exchange, Ricardo was quite clear, in fact brutally clear, about the basis of the present social system and its aim, which, he pointed out, was production for profit. He was against State interference in industry, and contended that wages should be left to free competition. He also held the view that the prevailing economic tendency was for wages and rent mutually to increase until they swallowed profit, and he foresaw a time when all property would belong to owners of land and receivers of tithes and taxes. He was quite clear, however, about the fact that neither wages nor profit, nor rent, entered into the determination of the value of an article. Surplus-value, he showed, was the portion of value left after deducting the wages of the producer from the value he added, but he was inclined to confound surplus-value with profit.
As already mentioned, the analysis of value really ended with Ricardo. Nobody after him added anything of importance to his work. The so-called “Ricardian Socialists” who followed him accepted his view that labour was the source of value, and, on the basis of it, demanded that all products should belong to the labourer.
The first of these writers was William Thompson, an Irish landlord, who, in 1824, wrote a book entitled “An Inquiry into the Principles of the Distribution of Wealth most conducive to human Happiness.” As the title of his book suggests, the ideas of the “Utilitarian” philosopher, Bentham, had an influence on his outlook. He defined the existing social system as one of force and fraud, and he proposed a new system on Owenite principles. He was very much interested in the Owenite co-operative experiments and visited the Owenite colony at Ralahine, in Ireland.
He took as his basis the view that all wealth is the product of labour. He contended that all men are equal, or nearly so, and therefore capable of producing equal quantities of wealth. Wealth is unequally divided, therefore the few possessors must abstract it from the many producers.
Neither he nor those of the same group who followed him really understood the nature of value. They thought the seller arbitrarily raised the value of articles above the wages paid to the producers, which they took to be the real value. He held that labour was not, at present, an accurate measure of value, on the ground that desires are apt to vary, but he contended that in a future social system such as he proposed, commodities would exchange at the “ value of real use." He assumed that the future system would also be a system of commodity production, but “fair" exchange would be the social principle.
Thompson's confused views of value are illustrated by the fact that he believed machinery added additional value to products beyond the value as mere instruments of production, and also that, in certain instances where labour is saved in the production of an article, value is added to it by this saving of labour.
In 1825, a year after Thompson's book, appeared, Thomas Hodgskin wrote his “Labour Defended against the Claims of Capital," and, in 1827, “Popular Political Economy." Hodgskin, a retired naval officer, was a friend of ] Francis Place and a member of the radical circle that gathered round Jeremy Bentham.
He also argued that the labourer should receive the whole of his product, but he included in the term "labourer" the master and the buyer and seller. He accepted commodity-production as the basis of a future society, but wanted to rule out profit. On the question of value, he was not clear. He confused the value of goods with the quantity, and asserted that the more goods there were the greater was the total value, in spite of a proportional decrease in the quantity of labour required to produce them. He also appeared to think that profit and rent were amounts added on to the value of articles.
Although his outlook on this fundamental question was confused, Hodgskin’s destructive criticism of existing society provided the Chartists with useful weapons in their struggle. He did a considerable amount of lecturing, founded with Robertson the “Mechanics' Magazine," in 1823, and was instrumental in the founding of the Mechanics' Institute, where he lectured. He later joined the staff of the Economist and the Morning Chronicle, dropped out of the active propaganda movement, and lived to a ripe old age.
After Hodgskin comes John Gray, a successful business man, who delivered a series of lectures on "The Nature and Use of Money," which were published in book form in 1831 and again later in 1848. In these lectures he claimed to have discovered the real source of social troubles, which he attributed to a flaw in the monetary system. He urged that demand should be based upon production, instead of production being based upon demand, which, he claimed, was the basis of the existing system. He proposed to rectify matters by establishing standard banks which would issue credit in the form of transferable vouchers based upon the stock, etc., or, in other words, based upon the powers of production.
So convinced was Gray of the soundness and the magnitude of his discovery that he had his book widely distributed, particularly to economists and universities, and he offered a hundred guineas to anyone who could refute his views. In recent times the Douglas Credit Theory has had a certain popularity, but there is little in the fallacious theories of the Douglas scheme that was not anticipated by Gray a hundred years ago.
Gray's views on value were quite erroneous. He believed that gold was no true measure of value and that there was none. He contended that the scarcity of gold prevented its value from being determined by labour. He, again, took for granted the continuation of commodity-production, but proposed that, in future, labour should be the measure of value. This was to be accomplished by the producer fixing his own price for his product and the competition of producers determining whether this price was right or not!
Gray was, at one time, considerably influenced by the views of Robert Owen, and, in 1815, he managed an Owenite colony at Orbiston.
The last writer we will refer to is J. F. Bray, a journeyman printer and the author of "Labour’s Wrongs and Labour's Remedy," published in 1839. His book is long and very wordy and full of conceptions of justice and equal rights, inspired by the economic analysis of Ricardo. His fundamental proposition is that as the earth is common to all, and labour is the sole source of wealth, each human being has a right to the fruits of his own labour. He claimed that as wealth was produced by labour, the capitalist, who did not work, lived by the legalised robbery of the producer. He claimed further that the problem was the same in all countries, whatever their form of government, and that, therefore, the solution applied internationally. A strain of anarchism runs through his writings, but he made some very apt criticisms of existing arrangements and had very clear conceptions on particular points.
His fundamental ideas, however, clouded his analysis of the present economic framework. He believed that the capitalist made his profit through unequal exchanges—buying goods at their values and selling them for more than their values. For instance, he saw that the capitalist paid the worker for a day’s labour a wage that was only equivalent in value to the product of half a day’s labour, but he did not see that what the worker was paid was the value of his labour-power. He did not realise the implication of his view. He fell into the same error as many before him and believed that value was equivalent to the wages paid to the producer.
Like the rest of the Utopians, Bray believed that the world had been searching for thousands of years for a just form of society and it was now discovered. To him the correct society was the result of knowledge based upon first principles which were true for all time, and could have been established as easily two thousand years ago as to-day.
It will, therefore, be seen that he had no fresh contribution to make to the labour theory of value. On one point, however, he was quite clear and emphatic—that mere governmental changes would not alter the worker’s position. Hence he advocated a complete change in the social basis—but it was not really so complete as he imagined.
To sum up, it may be said that the analysis of value from the point of view of the labour theory begins in 1662 with Petty, and ends in 1817 with Ricardo. Although the Utopians did not further this analysis, they did excellent service in pushing forward the worker’s case, in the course of which they made valuable and biting criticisms of capitalist society. As Marx has pointed out, the kernel of the matter was contained in their outlook, and their attitude logically led to Socialist ideas.