Ricardo’s Labor Theory of Value Is Alive And Well in Contemporary Capitalism

• DOI: https://doi.org/10.13169/worlrevipoliecon.12.4.0493
• Pages: 493-518
• Published date: 01 December 2021
• Date: 01 December 2021
• Author: Lefteris Tsoulfidis
• Subject Matter: David Ricardo,value and distribution,price-value deviations

World revieW of Political economy vol. 12 no. 4 Winter 2021

RICARDO’S LABOR THEORY OF VALUE IS ALIVE

AND WELL IN CONTEMPORARY CAPITALISM

Lefteris Tsoulfidis

Lefteris Tsoulfidis holds a Ph.D. in economics from the New School for Social Research, New

York and he is Professor at the Department of Economics, University of Macedonia, Greece. He

has authored or co-authored books published by national and international publishers and articles

in scientific journals, in most areas of economics, but he is particularly interested in the history of

economic thought and political economy. Email: Lnt@uom.edu.gr

Abstract: This article, by utilizing Ricardo’s numerical examples, derives theoretical

statements about the deviations of relative values (prices) from relative labor times.

These deviations result from the presence of capital and the distributive variables (rate of

profit and wage) and production (turnover) times. Furthermore, Ricardo argued that the

intertemporal changes in relative (market) prices were no different from the respective

changes in natural (or equilibrium) prices. Both depend primarily on changes in unit labor

values and secondarily on capital intensities. The article continues by testing the extent

to which Ricardo’s thesis holds by utilizing input-output data from the US and Chinese

economies. The derived empirical results lend overwhelming support to Ricardo’s thesis,

which is conformable with major aspects of Marx’s theory of value.

Keywords: David Ricardo; value and distribution; price-value deviations

1. Introduction

The objective of this article is two-fold: First, to present and critically evaluate

Ricardo’s theory of value as an explanation of the movement of relative prices of com-

modities depending upon changes in their relative labor times. Second, to test the

validity of this theory using data from actual economies. We argue that Ricardo clearly

defines his theory of value; nevertheless, the differences in interpretation persist and

have to do with the temptation of economists to read in Ricardo their own theory of

value. For example, Marshall (1920) was keen on the idea of continuity in economic

theory and made an effort to fit Ricardo and his theory of value into a partial equilib-

rium garment attributing to him a kind of a cost of production theory of price

DOI:10.13169/worlrevipoliecon.12.4.0493

494 LEFTERIS TSOULFIDIS

WRPE Produced and distributed by Pluto Journals www.plutojournals.com/wrpe/

determination (Marshall 1920, 672). By contrast, S. Hollander (1985) places Ricardo’s

theory of value in the tradition of general equilibrium analysis, which begins with

Smith and culminates in Walras and the modern neoclassical economists. The idea

behind this view is that prices and distributional variables (wages and profits) are co-

determined. Stigler (1958, 366) posited that Ricardo held an empirical labor theory of

value in which the required relative labor times in the production of commodities are

the key determinants of their respective relative prices. However, this should not be

interpreted to suggest an analytical labor cost theory of value. The idea is that the labor

time is only one of the determinants of the relative prices along with others accounting

for the cost of production, providing that rent is excluded in the estimation of the cost.

In the heterodox camp, Sraffian economists (not all) emphasize the sections of

Ricardo’s Works that refer to his valiant but unsuccessful efforts to define an invariable

measure of value presented as something akin to Sraffa’s standard commodity while

Ricardo’s theory of value is regarded merely as a cost of production theory excluding

rent (Steedman 1982). Marxian economists, more often than not, treat Ricardo’s the-

ory of value as if it were similar to Marx’s and not surprisingly find incongruities. As

we argue, Ricardo was chiefly concerned with the parity of relative labor times and

natural or equilibrium prices and he used the word “value” to indicate exchange ratios

or relative prices. By contrast, Marx uses the same word “value” to indicate the socially

necessary abstract labor time embodied in commodities. Furthermore, the monetary

expression of Marx’s value, that is, the “direct price” is closely related to the (average)

price of production, that is, the price reflecting the economy-wide average rate of

profit, which is a more concrete center of gravitation of the ever-fluctuating market

prices (Tsoulfidis 2010, ch. 4 and the literature cited there).

The structure of the remainder of the article is as follows: Section 2 discusses

Ricardo’s statements on the theory of value and his insistence for an explanation

of the variations of relative prices induced by variations in relative labor times

necessary for the production of commodities. Section 3 deals with Ricardo’s labor

theory of value and its modifications arising from the presence of fixed capital, the

changes in wages as well as differences in turnover times. Section 4 shows that the

effects of these variables on the movement of relative prices are not only minimal

but also predictable rendering his theory of value in the same line of research as

that of Marx’s. Section 5 tests empirically Ricardo’s theory of value using data

from input-output tables of China and the USA for meaningfully selected years.

Section 6 summarizes and makes some concluding remarks.

2. Ricardo and the Labor Theory of (Relative) Value

Ricardo in his introduction of the Principles states that his major objective is to

determine the laws of distribution in the economy, and he further argues that