Is the labor theory of value true?

[thenondualtankie]

The labor theory of value asserts that the true value of goods and services in the economy comes from the amount of labor that society decided to allocate to that good or service. Here's Adam Smith's argument for why this is the case:

Basically, he's saying that the cost of a good is based on its true, physical cost: the effort that went into it. Labor is arguably the fundamental resource that society has. Society simply decides to allocate labor based on its needs and desires; this is usually done automatically with market forces. This labor then produces the ultimate good or service that we want.

If a pile of mud takes a thousand units of labor to produce, its value would still be zero because society would never bother allocating labor to something so useless. If it did, then market forces would simply drive it out.

Another example of how this works is when there's a highly demanded item but not many units being produced. This of course means that its price will be higher than you might expect from its labor value. But the fact that its over-valued means there is a market gap (an investment opportunity), and if there are no constraints in place such as lack of raw materials, then the market would simply produce more of the good and return the price to 'normal' - something that reflects its labor content.

There are issues though, for instance some things appreciate in value without any labor going into it, for example aging wine. Or alternatively, if two crops require the same amount of labor, but one requires better land, then the one that requires better land will end up having higher value. My opinion is that the crux of the matter is 'what is the literal cost to society' - this includes labor but not only labor. The fact that we needed better land is a cost to society, since we didn't use that better land for something else. We had to give it up.

Edited March 30 by thenondualtankie

[Nilsi]

The labor theory of value no longer holds its ground in our postmodern society. Today, the concept of sign value is more prevalent, wherein the worth of a good or service is influenced largely by its representational and symbolic meanings. The branding, marketing, and cultural significance of a product play a central role in determining its value, much more so than the material and labor costs involved in its production.

Just look at the example of Coca-Cola versus a generic cola brand. The price difference between them is obviously not a reflection of the production costs; instead, it's largely influenced by Coca-Cola's extensive marketing, brand recognition, and cultural symbolism. The crucial point is that this doesn't imply that Coca-Cola is overvalued; rather, these factors contribute to its perceived value, making it more desirable to consumers and thus, in a perverse way, actually more valuable.

[thenondualtankie]

That's a good point. Any other examples?

I think branding places a constraint on production, since not everyone is allowed to produce that brand. And as I said constraints in production can lead to over-valued goods. 

I could be pulling at straws here.