The Economic Inadequacy of the Labor Theory of Value
The Labor Theory of Value, as articulated by Karl Marx, posits that the economic value of a good is objectively determined by the socially necessary labor time required for its production.1 While this theory provided a potent rhetorical tool for 19th-century industrial critiques, it fails to describe how value actually functions in a modern economy. The fundamental error lies in the assumption that value is an inherent property derived from production inputs rather than a subjective assessment made by consumers.2 This is most evident in the “transformation problem,” where Marx struggled to mathematically reconcile labor values with actual market prices.3 If labor were the sole source of value, capital-intensive industries would logically be less profitable than labor-intensive ones, yet in reality, profit rates tend to equalize across sectors regardless of their labor composition.