Perfman HR Blog

Karl Marx, False Prophet?

3 Million Germans were polled a few years back and the results threw up Karl Marx as the third ‘best German’ of all time. Karl Marx’s Labour theory still wields a major influence over our modern day concepts of price and value.

Here is how Marx explained his theory in Value, Price and Profit,which was published in the year 1865:

A commodity has a value, because it is a crystallisation of social labour. The greatness of its value, or its relative value, depends upon the greater or less amount of that social substance contained

in it; that is to say, on the relative mass of labour necessary for its production. The relative values of commodities are, therefore, determined by the respective quantities or amounts of labour,

worked up, realised, fixed in them. The correlative quantities of commodities which can be produced in the same time of labour are equal (Marx 1995: 31).

The above passage sounds reasonable but try putting this theory to test in the real world and in the real marketplace pertaining to how people send their money and Marx’s theory will be proved false. To begin with Marx’s theory cannot really explain how land and the natural resources inherent on earth have value since there is no labour contained within them. A laughable outcome of Marx’s theory would mean that China and India would have the highest standards of living! But on the other hand, history proves that countries that have less labour and more entrepreneurship have immeasurably higher standards of living and what’s more – these countries have shorter hours for workers!

If Marx’s theory was correct, a piece of stone found right next to a diamond in a diamond quarry in India would be of the same value – since each took the same amount of labour hours to locate and extract! Marx’s theory did not also take in account the ‘law of diminishing returns’ which dictates most of the demand value of items in today’s marketplace. The law of diminishing returns states that the value to the customer declines additional consumption of any good – such as an ice cream cone’s value and appeal on a hot summer day declines with every consecutive ice-cream you have after the first one. Under Marx’s theory though, if you were to have pizza, your eighth slice would be just as precious as your first since each slice took the same amount of labour hours to make. Similarly you and your friend emerging from the latest Bollywood superstar flick would have to have enjoyed it equally since the film took the same amount of labour to produce for both you and your friend and therefore both of your should have valued it uniformly.