The responsible answer to a query such as “I would be curious to know what you consider the biggest flaw in the labor theory of value to be” is “to which labor theory of value are you referring?” But that’s not how Tyler Cowen responds. Instead, he repeats the familiar misunderstanding of Marx’s labor theory of value and, having erected a straw man, proceeds to identify its “fatal flaw.”
What Cowen fails to understand, or reveal to his reader, is that there are different theories of value based on labor. Ricardo’s labor theory of value is not the same as the labor theory of value elaborated by Marx. In fact, Marx’s is a critique of Ricardo’s approach. They are radically different labor theories of value, oriented by different questions and concepts, and they provide very different conclusions, about the value of capitalist commodities and much else.
It is a sad fact about contemporary economics that students are not exposed to the Marxian labor theory of value, much less the differences between it and other (e.g., classical and neoclassical) theories of value. That’s because most practicing mainstream economists have chosen not to learn about the different theories. They have no interest or background in theories of value other than the neoclassical one, and they simply cannot teach them.
This is not the place to teach the history of economic thought (which has been eliminated from most economics curricula, especially at the graduate level) or the analytical differences among theories of value (which are rarely taught in microeconomics courses and are never discussed in the mainstream journals). Suffice it to say, whereas the point of Ricardo’s labor theory of value is to show that the value of capitalist commodities can be reduced to and explained in terms of nature (especially population growth, soil fertility, and the rate of capital accumulation), Marx’s labor theory of value shows how a surplus-value arises from exploitation and is in turn distributed through a capitalist economy.
So, as my friends and colleagues Richard Wolff, Bruce Roberts, and Antonio Callari showed back in the 1980s, Marx’s approach to the “transformation problem” should not be confused with the problems that arise in Ricardo’s theory of value.* Therefore, Cowen’s “simplest response, . . .to give up the labor theory of value,” would mean abandoning a project that no other theory of value can accomplish: to show how flows of unpaid labor affect (and, of course, are affected by) the exchange ratios among capitalist commodities.
* R. D. Wolff, B. Roberts, and A. Callari, “Marx’s (not Ricardo’s) ‘Transformation Problem’: A Radical Reconceptualization,” History of Political Economy 16 (1982) and “A Marxian Alternative to the Traditional Transformation Problem,” Review of Radical Political Economics 16 (1984).