The Labor Theory of Value
With influences from the work of the Greek philosopher Aristotle (384-322 BC), the labor theory of value became a central or core feature in social analyses by such writers as John Locke (August 29, 1632 – October 28, 1704), and later John Stuart Mill (May 20,1806 – May 8, 1873 ) the utilitarian who had studied economists such as the Scottish writer Adam Smith (1723-1790) and the English theorist David Ricardo (1772-1823). These writers argued against Thomas Malthus who argued that subsistence and scarcity determined the worth of things.
The utilitarian economists argued instead how the value of a commodity; its worth or economic importance was determined by the quantity of labor needed to produce it. Work, such as repairing a roof with fresh thatch as shown here, possesses an importance in proportion to the inherent time and skill needed to perform the job. This idea of labor's value contributed to a thing's utility.
Work, these analysts insisted --or that effort of the laborers, or the level of skill and amount of labor of others-- obtained in exchange was the source of the value of products or resources. Worth then, was a measure of the work expended over time to perfect a product. This meant that craft and skill were part of the expense in determining the relative worth, or value and thus the cost of services performed or products.
The German political theorist, historian, and writer Karl Marx (1818-1883) further argued that while labor might dictate a good's value, the existence of capitalists extracting profits meant that labor did not get to keep the surplus value of the work they performed.
Labor theory of value was superseded by the marginal productivity theory of distribution at the end of the 19th century, which emphasized that many factors determined the value of a good.
Proposed in the late 19th century by the Marginalist group of economists, such as William S. Jevons, used differential calculus to study the impact of small changes in economic quantities, marginal utility refers to the additional satisfaction a consumer derives from the consumption of one extra unit of a product.
Thus, an individual's demand for a product is determined not by the total utility of it but by its marginal utility. Therefore, the greater the supply of a product, the smaller its marginal utility. These economists rejected the labor theory of value which previously had been so central --or essential-- to classical economics.
R D Black, A W Coats and C D W Goodwin, The Marginal Revolution in Economics (Durham, NC, 1973)