Why are so many students convinced that they should get good grades just because they spent so many hours on a particular paper? It is not a belief about the quality of those papers rather it is a belief about the hours and hours spent on writing them. This fundamental misconception about the value of labour lies at the root of Marx’s critique of capitalism.

For hundreds of years, many economists believed that goods should be valued on the basis of the number of hours the labour spent to produce those goods. It was considered that any two goods that took the same time to be produced had the same value. This was termed as the ‘Labour Value of Theory’. One of the best-known advocates of this theory was Karl Marx. However, this theory has fallen out of favour among economists since the 19th century.

The theory did have some superficial plausibility as it does seem that a good which involves a higher number of labour hours should be valued higher. However, the theory got increasingly complicated as it tried to explain some obvious objections. If we go by this theory the value of land should be nil, as there is no amount of labour that goes into ‘producing’ the land. What about the great pieces of art which hold hefty price tags, despite the fact that they do not require intense labour? What about the exorbitant prices paid to Michelin starred chefs? The theory failed to give a logical reason for these exceptions.

For Marx, the labour value of theory lied at the center of the problems related to capitalism. The argument that capitalism exploited labourers depended crucially on the theory that labour was the source of all value-added, and that capitalists stole the profits from these labourers who deserved it more. According to him, capitalism destroyed our ability to enjoy the work that we do and forced us to work under their tyranny. Without the theory, Marx would have failed to justify the problems associated with capitalism.

It became increasingly difficult for the proponents of the theory to come up with logical explanations for the various exceptions to this theory. An individual’s skill set was completely ignored, it failed to account for the difference in the amount of time it takes for different individuals to perform a certain task. Moreover, it is clearly possible to spend a large amount of time on a product that ends up having no value eventually (something like a sandcastle). Additionally, goods that require the same amount of time to be produced should have the same market value, however, this is not always the case. Different goods have varying values in the market.

The opposition to the labour value of theory was proposed by Carl Menger when he stated that the value of goods is ‘subjective’. While the labour theory argued that the price of inputs determines the value of the final good, the subjectivist theory claimed that the value of a good is derived from the human perception of its usefulness. Value is not something that is objective or can be standardised for every person. It is a function of the role that an object plays in the plans of a certain human.

Thus, according to the subjectivists, land has value not because of the labour that goes into tilling it but because of the utility that people expect to derive out of it (such as growing crops to eat). People pay a high amount for solid coloured canvases not because of the painter’s efforts, but because of the beauty that they saw in the painting. Michelin starred restaurants are so pricey not because of the hours and hours that the chef spends in preparation of the food, but because of the satisfaction people get from eating that food. Therefore, the theory drew a line between the economic value of a good and the scientific value of the good.

The subjective theory of value gave a new meaning to the value of labour: the value of inputs like labour depended on the value of outputs that they helped to produce. Hence, labour gets rewarded on the basis of producing things that others value. When you consider that combining labour with capital enables that labour to produce goods that others value, Marx’s arguments seem invalid. Capitalism, hence, provides tools to the labourers to produce valuable goods and thereby increases their remuneration.

Therefore, capitalism is basically a communication process through which humans try to make the best possible use of the limited resources available with them to satisfy their most urgent wants. Many academics are simply unaware of the fact. It depends on an individual what he values more, ‘quality’ or ‘quantity’.