ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Classical economist David Ricardo’s labor theory of value holds that the value of a good (how much of another good or service it exchanges for in the market) is proportional to how much labor was required to produce it, including the labor required to produce the raw materials and machinery used in the process.

Detailed explanation-2: -The labor theory of value is a major pillar of traditional Marxian economics, which is evident in Marx’s masterpiece, Capital (1867). The theory’s basic claim is simple: the value of a commodity can be objectively measured by the average number of labor hours required to produce that commodity.

Detailed explanation-3: -The labor theory of value argues that the economic value of a good or service is determined by the total amount of “socially necessary labor” required to produce it. It is central to Marxist theory, Karl Marx (1818–83) took the labor theory developed by David Ricardo (1772–1823) and constructed it in a societal manner.

Detailed explanation-4: -The value of labour power is thus a historical norm, which is the outcome of a combination of factors: productivity; the supply and demand for labour; the assertion of human needs; the costs of acquiring skills; state laws stipulating minimum or maximum wages, the balance of power between social classes, etc.

Detailed explanation-5: -That is, according to the theory developed by Karl Marx, the worker is paid less than he actually produces. Thus, the difference between what he actually produces and his wage is what is known as surplus value. This surplus value constitutes the extra profit of the employer.