ECON 2540 Political Economy I: Production and Distribution

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Question 1

The labor theory of value contends that the economic worth of a product is attached to the

totality in the labor required for production. The labor theory of value was introduced and

advanced by several economists during the Marxian period (Gintis & Bowles, 1981). Marxian

economics sought for an explanation for the need of prices or money for a certain good or

service. In the production of a product or service, there is amount of labor required.

Karl Max among others, contributed largely on the Labor theory of value. The theory also

faced a challenge with no support from many economists. According to the Marxian economists,

the production of goods and services require labor creating an economic value that can be

measured in monetary value (Gintis & Bowles, 1981). According to Karl Max, capitalists pay for

labor but at a lower rate than their actual value leading to the existence of surplus value.

Surplus value in the contemporary working environment, is created by the excess value

of labor when compared to the actual payments employees receive for their labor. For instance,

the workload and the payments for the labor invested in a good or service is lower than its actual

cost creating a surplus in capitalism. Capitalist investments tend to create more through reduction

of cost and overloading of employees through devaluation of their labor. In Marxian economists,

surplus value is created by the amount of labor that is valued to be unpaid or undervalued by

capitalists (Gintis & Bowles, 1981). Capitalists do not pay for the real value of labor a rampant

trend in the modern society.

 Question 4

Reserve army labor was introduced earlier by other economists and later expounded by

Karl Marx critiquing political economy. According to Karl Marx, reserve army labor, represents

the underemployed and unemployed in the contemporary society of capitalism. Initially, before

the 16th century there was no unemployment unless there was a war or natural calamities (Pollin,

1998). Due to the prevailing conditions it led to unemployment and underemployment that

opened studies by economists. The population was committed to work to avoid starvation.

In the determination of the value of the labor power, the reserve army of labor is

imperative. In determination and evaluation capital, the value of labor power is a fixed variable

in a capitalist society. According to Marx, reserve army labor is applied by trade unions during

the negotiating of other opposing powers. In different periods of the business cycle, and the since

a long time ago run pattern of typical wages. The best weapon of the entrepreneurs in this battle

comprises of their venture choices and the resulting changes in the modern save armed force,

while the primary specialists' weapon comprises of the modern activity they can participate in

(Pollin, 1998). In assurance and assessment of capital, the worth of work power is a decent factor

in an entrepreneur society. As indicated by Marx, hold armed force work is applied in terms of

professional career associations during the haggling of other restricting forces. This loosens the

strain of the modern hold armed force on work supply. The specialists' certainty mounts, and

Trade Unions can establish battles to help claims for wage increments and decreases in the

functioning day. Flourishing blessings the achievement of modern activity.

 References

Gintis, H., & Bowles, S. (1981). Structure and Practice in the Labor Theory of Value. Review of

Radical Political Economics, 12(4), 1-26. doi: 10.1177/048661348101200401

Pollin, R. (1998). The "Reserve Army of Labor" and the "Natural Rate of Unemployment": Can

Marx, Kalecki, Friedman, and Wall Street All Be Wrong? Review of Radical Political

Economics, 30(3), 1-13. doi: 10.1177/048661349803000301