The Labor Theory of Value is not Marx’s invention, originating instead with classical economist David Ricardo, who developed a labor theory of price, which states that the prices of commodities represent the labor that went into making them. However, Marx’s labor theory of value differs from Ricardo’s and is given a drastically different significance within the larger context of his work. Marx’s focus on the nature of value is intended to show that the modern capitalist system of production and exchange is not what it seems. Although economic activity is apparently reducible to the behavior of money, to focus only on money is barely to scratch the surface. Production and exchange are social institutions, and their organization has social consequences. Capitalism, founded on a principle of private ownership, has the owners of the means of production (factories, raw materials) dependant on wage labor to create profits. Modern economists do not accept the Labor Theory of Value as an explanation of prices, but that is not really the sense in which Marx intended the theory to be used. Marx’s point is that the production of commodities is a social process, dependent on exploitation and giving rise to antagonistic relationships among classes, an idea that is not addressed at all in modern economics.

Marx’s account of the exploitative relationship of capitalist to labor remains powerfully compelling and seems by many to be vindicated in history. Essentially, Marx argues that the mechanism of exploitation built into the capitalist economic system is the source of social antagonisms that will eventually lead to the dismantling of capitalism itself. In the early Hegelian writings, Marx looks to a notion of alienation, the estrangement of the worker from his humanity, to support the same prognosis. With the theory of exploitation and surplus value, he shifts away from philosophical language toward an economic frame of reference, though a common element, the idea that the capitalist social relations of production will lead to a destruction of the capitalist mode of production. The later formulation is more effective than the earlier, as it accompanies an analysis of actual historical events rather than purely speculative thought.

Writing in exile in England, Marx was able to view firsthand the workings of the world’s most advanced industrial economy. Scenes of textile laborers in industrial Manchester living in abject squalor and barely clinging to life, the poet William Blake’s evocative and disturbing images of “dark satanic mills,” all impressed on many the downside of growing production and prosperity that had become evident in England and throughout much of Europe. Marx tried to show that such poverty was a permanent feature of capitalism and in fact would grow worse as capitalism advanced. With no means of defense, the working class’s economic well-being is at the mercy of capitalists. But the capitalist, if he wishes to survive in a competitive market, cannot exercise mercy without endangering his enterprise. Classes grow out of this antagonistic relationship that exposes their bare economic interests. The bourgeoisie unite to defend their monopoly over workers using all the means at their disposal, including the state and even religion. While workers, through common association, gradually manage to unite to push back the capitalist. In England, the Parliament, through growing pressure of workers and their sympathetic advocates among the upper classes, finally decided to intervene in this exploitative relationship.