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For the most part, we have to leave it to institutions and businesses to decide how to hire employees and price services, confident that successful enterprises are usually better able to make this call than legislatures or judges.

   --  Adam Smith

That money, or those goods, indeed, save us this toil. They contain the value of a certain quantity of labour, which we exchange for what is supposed at the time to contain the value of an equal quantity. Labour was the first price, the original purchase money that was paid for all things.

   --  Adam Smith

Labour is one of the 3 inputs to production
  • Labour
  • Capital
  • Land

Labour theory of value

Some people claim that all value is created through labour and that capital does not create value.(clearly wrong it definitely can enhance labour). Or that capital was created from labour, and therefore all value is created from labour.

The absurdity of linking value with labour. It is quite possible to labour all day and have nothing of value to show for it.
Quote 1310

"The result of one month's labour on the part of a famous artist is, quite regularly, a hundred times more valuable than the same period of labour on the part of a common carpenter. How could that be possible if trouble were really the principle of value?" 

   --  Eugen von Böhm-Bawerk

Furthermore the whole concept of an objective value is merit-less. 2 people may be willing to sell their labour at different prices. Trade makes us all richer, but trade can only happen when people value things differently. If we all valued things at the same value, we would not bother trading as we would gain no value.
It is necessary that the employer expects to gain more than they pay, otherwise they would not take the bother to employ. This is the same whether it is a government employer or private employer.

The problem with the labour value of money is it is assumed that the worker should get all the proceeds of work. This is oversimplification. Eugen illustrates in an example below shows why.

Quote 1304

"The perfectly just proposition that the labourer should receive the entire value of his product may be understood to mean, either that the labourer should now receive the entire present value of his product, or should receive the entire future value of his product in the future. But Rodbertus and the socialists expound it as if it meant that the labourer should now receive the entire future value of his product, and they speak as if this were quite self-evident, and indeed the only possible explanation of the proposition. Let us illustrate the matter by a concrete example. Suppose that the production of a steam-engine costs five years of labour, and that the price which the completed engine fetches is £550. Suppose further, putting aside meanwhile the fact that such work would actually be divided among several persons, that a worker by his own continuous labour during five years makes the engine. We ask, What is due to him as wages in the light of the principle that to the labourer should belong his entire product, or the entire value of his product? There cannot be a moment's doubt about the answer. The whole steam-engine belongs to him, or the whole of its price, £550. But at what time is this due to him? There cannot be the slightest doubt about that either. Clearly it is due on the expiry of five years. For of course he cannot get the steam-engine before it exists; he cannot take possession of a value of £550 created by himself before it is created. He will, in this case, have to get his compensation according to the formula, The whole future product, or its whole future value, at a future period of time. But it very often happens that the labourer cannot or will not wait till his product be fully completed. Our labourer, for instance, at the expiry of a year, wishes to receive a part payment corresponding to the time he has worked. The question is, How is this to be measured in accordance with the above proposition? I do not think there can be a moment's doubt about the answer. The labourer has got his due if he now receives the whole of what he has made up till now. Thus, for example, if up till now he has produced a heap of brass, iron, or steel, in the raw state, then he will receive his due if he is handed over just this entire heap of brass, iron, or steel, or the entire value which this heap of materials has, and of course the value which it has now. I do not think that any socialist whatever could have anything to object to in this conclusion. Now, how great will this value be in proportion to the value of the completed steam-engine? This is a point on which a superficial thinker may easily make a mistake. The point is, the labourer has up till now performed a fifth part of the technical work which the production of the whole engine requires. Consequently, on a superficial glance, one is tempted to infer that his present product will possess a fifth part of the value of the whole product—that is, a value of £110. On this view the labourer ought to receive a year's wage of £110. This, however, is incorrect. £110 are a fifth part of the value of a steam-engine when completed. But what the labourer has produced up till now is not a fifth part of an engine that is already completed, but only a fifth part of an engine that will not be completed till four years more have elapsed. And these are two different things; not different in virtue of a sophistical quibble, but different in very fact. The one-fifth part has a different value from the other so surely as, in the valuation of to-day, an entire and finished engine has a different value from an engine that will only be ready for use in four years; so surely as, generally speaking, present goods have a different value in the present from future goods." 

   --  Eugen von Böhm-Bawerk

The time value of money is not only important to the capitalist, but also the labourer. If the situation reversed and the labourer was payed their $200 days wage in a year, rather than today, they would be deeply unhappy about it.

Heres another example

Quote 1309

"The owner of a vineyard has harvested a cask of good young wine. Immediately after the vintage it has an exchange value of £10. He lets the wine lie undisturbed in the cellar, and after a dozen years the wine, now of course an old wine, has an exchange value of £20. This is a well-known fact. The difference of £10 falls to the owner of the wine as interest on the capital contained in the wine. Now who are the labourers that are exploited by this profit of capital? During the storage there has been no further labour expended on the wine. The only conceivable thing is that the exploitation has been at the expense of those labourers who produced the new wine. The owner of the vineyard has paid them too small a wage. But I ask, How much ought he "in justice" to have paid them as wage? Even if he pays them the entire £10, which was the value of the new wine at the time of harvest, there stills remains to him the increment in value of £10, which Rodbertus brands as profit of plunder. Indeed even if he pays them £12 or £15 as wages, the accusation of plundering will still hang over him; he will only be free from it if he has paid the full £20. Now can any one seriously ask that £20 should be paid as "just wages of labour" for a product that is not worth more than £10? Does the owner know beforehand whether the product will ever be worth £20? Is it not possible that he might be forced, contrary to his original intention, to use or to sell the wine before the expiry of twelve years? And would he not then have paid £20 for a product that was never worth more than £10 or perhaps £12? And then, how is he to pay the labourers who produce that other new wine which he sells at once for £10? Is he to pay them also £20? Then he will be ruined. Or only £10? Then different labourers will receive different wages for precisely similar work, which again is unjust; not to mention the fact that a man cannot very well know beforehand whose product it is that will be sold at once, and whose stored up for a dozen years. But still further. Even a £20 wage for a cask of new wine would not be enough to protect the vine-grower from the accusation of robbery; for he might let the wine lie in the cellar twenty-four years instead of twelve, and then it would be worth not £20 but £40. Is he then, justly speaking, bound to pay the labourers who, twenty-four years before that, have produced the wine, £40 instead of £10? The idea is too absurd. But if he pays them only £10 or £20, then he makes a profit on capital, and Rodbertus declares that he has curtailed the labourer's just wage by keeping back a part of the value of his product!" 

   --  Eugen von Böhm-Bawerk

Labour may be the first price paid for something, but it has no bearing on value. Price and value have only a loose correlation.

Exploitation of the firm

Each person is a miniature firm selling their labour.

Is it the company being exploited or the worker?


You can own, land and capital or lease or borrow it, but you can't own Labour except your own.

  Can be legally owned Can be leased or borrowed Compensation for a days work
 Land Yes Yes N/A
 Capital Yes Yes Interest
 LabourOnly by self Yes Wages

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Subpages (1): Exploitation