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Investments glossary

Labor Theory Of Value

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I, on the other hand, have a degree from the University of Life, a diploma from the School of Hard Knocks, and three gold stars from the Kindergarten of Getting the Shit Kicked Out of Me.

— Captain Edmund Blackadder, Blackadder Goes Forth

The labor theory of value (LTV) was an early attempt by economists to explain why goods were exchanged for certain relative prices on the market. It suggested that the value of a commodity was determined by and could be measured objectively by the average number of labor hours necessary to produce it. In the labor theory of value, the amount of labor that goes into producing an economic good is the source of that good’s value. The best-known advocates of the labor theory were Adam Smith, David Ricardo, and Karl Marx. Since the 19th century, the labor theory of value has fallen out of favor among most mainstream economists.


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