Introduction
Ricardo and Marx have developed an economic approach based on the labor-value. Both authors’ economic theory depends on the labor-added value. As known, the price determination in the markets is the most important mechanism defined in the science of economics. The price is an agreement between the agents in the economy, and the price conveys a lot of information to the agents in the economy. For instance, by using the cross-price demand elasticity statistics, or the income demand elasticity comparison, one agent can see how the price competition is developing, and how successful the market is contributing to the economic development. Even it is possible to see the market failure information from the market price. Therefore, it is an essential information of how the price is determined in the economy (Vienneau 1).
There are three main approaches that explain how the price is set in the economy: 1)Labor-value of the products determines the rate, 2)The competition in the market determines the price, 3)The entrepreneurs determines the price on the markup pricing. Some economists, mostly from the Heterodox (alternative) economic approaches, try to explain the value of a product dependent on the labor used to it. Even, some religious, economic approaches use this. The capitalistic approach is mainly for the price determined through competition in the market. The relation between the labor and the market price disappears in the capitalism, and the people become odd to their labor. Finally, another approach, markup, mainly depends on adding a profit share by the tradesman (Taylor, Rezai and Michl 18 ).
Ricardo is one of the eminent representatives of the classical school in the science of economy. Marx is the most famous ideological enemy of the orthodox economics schools. However, these two authors meet at the labor-value centered price determination. There are similarities and differences between the two writers. Marx and Ricardo are the two eminent economists who explained the price by using the labor value.
Ricardo develops his law of value depending on the production process. The manufacturing process consists of capital, land, machinery and labor. According to the Ricardian law of value, the owners of the production factors get their shares for the price. In simple word, the price of the product is determined by the sum of the shares which are distributed to the production factors' owners. The capital owner receives profit, the landowner receives rent, and the labor-owner receives the wage from the price. Ricardo tries to develop a value theory which might explain many of the products’ prices in the market. Therefore, he avoids rare products and the products with peculiarities because their prices might depend on many other factors. The measuring current value of a product is a complicated process for Ricardo because the price determining variables and their conditions change simultaneously and continuously. Depending on the shift in the variables, the rate changes dynamically in the market.
The primary determinant of the market price is the wages according to Ricardo. He has a similar theory of wage to Malthus; when the population grows, the earnings drops to a very low level, and when the population decreases, the wages goes up. The relation between the wage and the population growth is mutual. Thus, the labor price is determined in the competitive labor market, and the main determinant of the wage is the population growth.
Another determinant of the market price of a product is the rent paid to the land owners. The land is a limited resource, and it is not possible to change the amount of land in the world. Nowadays, new agricultural production techniques can alter the use of land. In Ricardo's time, the land is certainly limited; therefore, the landowner receives the same amount for renting out his land. Considering that there is no change in the rent market for land, Ricardo ignores rent in the determination of the market price.
Finally, the capital owner receives his fair profit from the production. The fairness is an essential term in the classical economy, and the extra high profits are thought as the sin among the classical economist including David Ricardo and Adam Smith. Consequently, the market price is determined mainly by the wages according to the Ricardian approach.
Karl Marx was inspired by the works of David Ricardo in the field of law of value. Marx also gives more importance to the labor value; however, he believes differently from Ricardo about the capital and the land. According to Marx, the main resource of profit is the labor spent in the production process, and it is the right of the workers. However, the capital owners are willing to steal from the workers’ wage to increase their profits. From another perspective, the most value generating factor according to Marx is the labor. The capital and the land cannot generate high amounts of value compared to the labor. Marx develops an idea of transformation of labor spent into value, and he uses labor hours worked for a product. The inputs used in the production process are also measured as working hours. Therefore, the contributions of capital owners, land owners, and labor can be calculated and compared.
Marx claims that the capital owner and the property owner claim more than they deserve from the production value. The capitalist use the political and social power coming from owning money, and he argues that there would be no production if there is no capital. Marx tries to falsify the capitalist approach and seeks to develop a formulation to show that labor has more importance than money has in the production process. His calculations indicate that at least 60% of the whole produced value belongs to labor (Hunt 280).
Ricardo develops its law of value by taking the labor value into the center; however, he has two more essential hypotheses. First, one is that the trade between countries might change the price setting, and the international trade might create more value as independent of labor value in the product. At this point, Ricardo gets closer to the market value determined by the competition in the market. The second one is that Ricardo believes that the technological change might change the price determination process. For instance, the new technology replacing the human workers with the machinery and robotic production systems might increase the contribution of the labor to the produced value (Wolff 301).
Marx thinks completely different from Ricardo about the last two thoughts of Ricardo. According to Marx, the tradesman does not generate value. Trade is the change of ownership, and it does not create value. Replacing human workers with the machinery does not decrease the importance of labor according to Marx because the human workers are the consumers at the same time. Therefore, the production is directly connected with the demand side. If the human workers cannot generate enough income, the produced value by the machineries decreases (Wolff 308).
Works Cited
Hunt, E.K. "Marx as a Social Economist: The Labor Theory Of Value". Review of Social Economy 37.3 (1979): 275-294. Web.
Taylor, Lance, Armon Rezai, and Thomas R Michl. Social Fairness and Economics. New York: Routledge, 2013. 1-432. Print.
Vienneau, Robert. "The Labor Theory of Value - A FAQ". Dreamscape.com, 2016. Web. 12 June 2016.
Wolff, Robert Paul. "The Analytics of the Labor Theory of Value in David Ricardo and Karl Marx". Midwest Studies in Philosophy 7.1 (1982): 301-319. Web.
