Criticism of Marx’s Theory of Value

2017 marks the 150th anniversary of Marx’s publication of Das Kapital. Even though Marxism has been attempted all over the world for well over a hundred years, no country has ever managed to turn Marx’s ideas into a workable society. Yet every time there is a problem with the free-enterprise system, Marx’s ideas become popular among the population at large again. For example, during the financial crisis of 2007–2008, sales of Marx’s work soared to record highs. And in California, many people still believe that Marxism can be made to work.

The odd thing is that among academic economists, practically no one accepts any of Marx’s theories – even left-wing economists tend to agree that his take on economics is defunct. The ironic thing is that among the people who accept Marxism, many fault right-wingers for not accepting the science on climate change. Yet when it comes to economic theory, the same people happily ignore the consensus among experts.

Let’s just give one reason why Marxist economics are invalid. Marx believed that the value of a commodity was determined by the amount of labor that went into producing that commodity. This is also what a lot of 21^st-century socialists believe. But it’s clearly wrong. For example, according to Marx’s theory, if it takes 10 hours to hunt and kill a rabbit, but five hours to hunt and kill a hare, one rabbit should be worth two hares on the market. But in reality, the value of a commodity is determined by its marginal utility, that is to say, its usefulness to the consumer. For example, if rabbits and hares taste almost the same, then the consumer will not be inclined to pay twice as much for the rabbit. Similarly, the value of something tends to decrease as you get more of it. You might be interested in buying, say, three hares, but there’s no way you’re going to buy a hundred. The price you’re willing to pay for a hare will therefore decrease as you acquire more hares. You might be willing to buy the first hare for 10 bucks, but if you already found yourself with a hundred hares on your hands, you would not be willing to pay very much for the 101^st. In fact, you would probably be looking for people to sell hares to at whatever price they would pay – not going around looking for more hares to acquire. ...