Labor Complexity in Relation to Aggregate Marxian Value — Peter Cooper

Classical economics, including Marx, focused on economic value in real terms, i.e., a non-monetary ground for economic value expressed in markets in nominal terms as prices. That recognized that value is based on some "good" that is actual rather than nominal.

One way to do this is through a numéraire, such as gold or silver. A problem here is that monetary metals don't have actual economic value in real terms that isa determinative in production. Rather, their nominal value is depending on the cost of production. 

Marx choose labor time, following Smith and Ricardo. He expanded on their ideas, which he regarded as inadequate to the task. This is now called "the labor theory of value" (LTV), although Marx never labeled it that way. This is a bit confusing now, since "the labor theory of value" is almost automatically associated with Marx's version of it, even though it was a concept of classical economics, to which Marx was a late comer. Incidentally, while Smith and Ricardo are credited with it in the West, an LTV was first proposed by Tunisian Ibn Khaldun in the 14 century.

Neoclassical economics explains economic value in terms of marginal utility and price theory.  "Utility" purported to account for the good at the basis of value. Economic  value is determined based on opportunity cost, what has to be sacrificed in an environment where scarcity prevails to access a particular good. In nominal terms, the economic value of a good is not the market price, but rather the maximum that one is willing to pay to obtain it rather than choosing something else.

Both the labor theory of value and the marginal theory have been criticized for various reasons. And there are some other theories of economic value as well. See also Theories of Value.

The major issue now is modeling and formalization. The neoclassical theory of value based on marginalism can be formalized, although not without issues. The classical economists did not go this route, which is somewhat surprising in that Newton's work had become the paradigm of doing science. So they are not considered to be doing "economic science."

So a challenge for the labor theory of value is "doing the math."

Since value is so fundamental to economics, getting the theory right is a big deal. So far there is no universal agreement on this issue.

heteconomist

Labor Complexity in Relation to Aggregate Marxian Value
Peter Cooper