Labor Theory Of Value

What is the 'Labor Theory Of Value '

The labor theory of value is the economic theory that stipulates that the value of a good or service is dependent upon the labor used in its production. The theory was first proposed by Adam Smith (1723-1790), the founder of modern economics, and was an important concept in the philosophical ideals of Karl Marx. The labor theory of value suggests that goods which take the same amount of time to produce should cost the same.

BREAKING DOWN 'Labor Theory Of Value '

Opponents of the labor theory of value purport that it is not labor that determines the price of a good or service; rather, it is simply a function of supply and demand for a given good or service that determines its price. According to the theory, if the cost of purchasing something is greater than the amount that the purchaser values the time it would take to produce the good, then he will make it himself rather than buy it.

RELATED TERMS
  1. Accelerator Theory

    An economic theory that suggests that as demand or income increases ...
  2. Demand Theory

    A theory relating to the relationship between consumer demand ...
  3. Market Segmentation Theory

    A modern theory pertaining to interest rates stipulating that ...
  4. Labor Productivity

    A measurement of economic growth of a country. Labor productivity ...
  5. Dow Theory

    A theory which says the market is in an upward trend if one of ...
  6. Neoclassical Growth Theory

    An economic theory that outlines how a steady economic growth ...
Related Articles
  1. Markets

    Economist Guide: 3 Lessons Karl Marx Teaches Us

    Read about three lessons that modern economic thinkers can learn from German philosopher Karl Marx, the founding father of communism.
  2. Trading

    7 Controversial Investing Theories

    We take a closer look at the theories that attempt to explain and influence the market.
  3. Markets

    Economist Guide: 3 Lessons Adam Smith Teaches Us

    Learn three critical lessons about economics from 18th century philosopher Adam Smith, considered by many to be the father of economics.
  4. Trading

    Modern Portfolio Theory vs. Behavioral Finance

    Modern portfolio theory and behavioral finance represent differing schools of thought that attempt to explain investor behavior. Perhaps the easiest way to think about their arguments and positions ...
  5. Trading

    Dow Theory: Current Relevance

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.comThere is little doubt that Dow theory is of major importance in the history of technical analysis. Many of its tenets and ...
  6. Investing

    Understanding the Random Walk Theory

    The random walk theory states stock prices are independent of other factors, so their past movements cannot predict their future.
  7. Trading

    Dow Theory: Conclusion

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.comDow theory represents the beginning of technical analysis. Understanding this theory should lead you to a better understanding ...
  8. Markets

    Adam Smith: The Father Of Economics

    This free thinker promoted free trade at a time when governments controlled most commercial interests.
  9. Trading

    Dow Theory: Introduction

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.comAny attempt to trace the origins of technical analysis would inevitably lead to Dow theory. While more than 100 years old, ...
  10. Managing Wealth

    Redefining Investor Risk

    Changing the way you think about time and risk can change the way you invest.
RELATED FAQS
  1. Is a good's production cost related to its value?

    Learn about the history and debate regarding the metrics used to determine the value of a good and which theories place emphasis ... Read Answer >>
  2. What is the chaos theory?

    The chaos theory is a complicated and disputed mathematical theory that seeks to explain the effect of seemingly insignificant ... Read Answer >>
  3. What's the difference between agency theory and stakeholder theory?

    Learn how agency theory and stakeholder theory are used in business to understand common business communication problems ... Read Answer >>
  4. What are the differences between weak, strong and semi-strong versions of the Efficient ...

    Discover how the efficient market theory is broken down into three versions, the hallmarks of each and the anomalies that ... Read Answer >>
  5. Why is Game Theory useful in business?

    Game theory was once hailed as a revolutionary interdisciplinary phenomenon bringing together psychology, mathematics, philosophy ... Read Answer >>
  6. How can marginal utility explain the 'diamond/water paradox'?

    Learn why a diamond is valued more highly than a bucket of water or why a professional athlete is valued more highly than ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center