Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought

The Economic Role of Labor in Smith and Marx

Okan Ecem, University of Lorraine
Badiei Sina , University of Lausanne

It is well known that the shortcomings of the labor theory of value led to the abandoning of the latter in favor of a subjective theory of value, which resulted in a relative neglect of the role of labor in economic theory. While the critiques of marginalist economists against the labor theory of value were largely justified, focusing on labor allowed classical economists, especially Smith, to elucidate important aspects of the economic role of labor. This paper first examines the critiques formulated by Jevons and Menger against the labor theory of value. We will argue that these critiques are relevant when applied to Marx’s labor theory of value since Marx’s theory fails to overcome three crucial difficulties facing his analysis of labor: 1. Marx’s explanation of the relationship between simple and qualified forms of labor fails to offer a satisfactory method for measuring the link between labor time and the form or use-value of labor. 2. The criteria introduced by Marx to explain the distinction between productive and unproductive labor are contradictory and do not clarify the nature of the distinction. 3. Marx does not offer solid arguments to explain why only the employees’ labor produces value, and the capitalists’ entrepreneurial activity produces no value. We will argue that Marx’s theory does not resolve these difficulties since his analysis of labor is overdetermined by his attempt to prove the hypothesis of the tendency of the rate of profit to fall. It is due to the latter’s central role that Marx does not try to offer a more nuanced analysis of the economic role of labor. The paper then focuses on Smith and discusses how he differs from Marx in his analysis of the falling rate of profit, productive/unproductive labor, and measure and determination of value so as to emphasize that Smith’s less systematic economic synthesis resists better marginalist critiques. Smith had long been criticized for his inability to propound a proper labor theory of value. Accordingly, the main proponents of the labor theory of value, such as Marx, overlooked several important insights in Smith’s analysis of labor. We will argue that, rather than a symptom of weakness, Smith’s treatment of labor should be assessed in its complexity as it contains important counterarguments to the objections of Jevons and Menger. By pursuing and developing these insights, classical economists could have developed more nuanced examinations of the economic role of labor and offered better arguments to challenge the marginalization of the role of labor by marginalist economists. Beyond the opposition between classical economics and marginalism, Smith’s insights are still relevant for renewed attempts to examine the role of labor in economics.

Area: Eshet Conference

Keywords: Smith, Marx, Jevons, Menger, labor

Please Login in order to download this file