Contrary to popular belief, Marx does not base his LTV on what he dismisses as "ascribing a supernatural creative power to labor", arguing in the Critique of the Gotha Program that:
Here Marx is drawing a distinction between exchange value (which is the subject of the LTV) and use value.
Marx uses the concept of "socially necessary abstract labor-time" to introduce a social perspective distinct from his predecessors and neoclassical economics. Whereas most economists start with the individual's perspective, Marx starts with the perspective of society as a whole. "Social production" involves a complicated and interconnected division of labor of a wide variety of people who depend on each other for their survival and prosperity.
"Abstract" labor refers to a characteristic of commodity-producing labor that is shared by all different kinds of heterogeneous (concrete) types of labor. That is, the concept abstracts from the particular characteristics of all of the labor and is akin to average labor.
"Socially necessary" labor refers to the quantity required to produce a commodity "in a given state of society, under certain social average conditions or production, with a given social average intensity, and average skill of the labour employed." That is, the value of a product is determined more by societal standards than by individual conditions. This explains why technological breakthroughs lower the price of commodities and put less advanced producers out of business. Finally, it is not labor per se, which creates value, but labor power sold by free wage workers to capitalists. Another distinction to be made is that between productive and unproductive labor. Only wage workers of productive sectors of the economy produce value.
Marx uses his LTV to derive his theory of exploitation under capitalism.
Unlike Ricardo or the Ricardian socialists, Marx distinguishes between labor power and labor. "Labor-power" is the potential or ability of workers to work, given their muscles, brains, skills, and capacities. It is the promise of creating value possessed by human labor that has not yet been expended. "Labor" is the actual activity of producing value. The profit or surplus-value arises when workers do more labor than is necessary to pay the cost of hiring their labor-power.
To explain the normality of exploitation, Marx describes Capitalism as having an institutional framework in which a small minority (the capitalists) oligopolize the means of production. The workers cannot survive except by working for capitalists, and the state preserves this inequality of power. In normal role of force is structural, part of the usual workings of the system. The reserve army of unemployed workers continually threatens employed workers, pushing them to work hard to produce for the capitalists.
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