Authored by Allen Gindler via The Mises Institute,

One of the central tenets of Marxism is the labor theory of value, which states that the value of a commodity is determined by the amount of socially necessary labor time required to produce it. In this framework, labor itself becomes a commodity—something that can be bought and sold in the marketplace. Marx argues that, under capitalism, workers are forced to sell their labor power to capitalists, who exploit them by paying wages that are less than the full value their labor produces. This difference - or “surplus value” - is appropriated by the capitalist as profit. However, this analogy between labor and commodities reveals deep flaws when examined critically.

The idea that labor is a commodity has been criticized in the works of many prominent economists, both from the Austrian school of economics and from others. Friedrich Hayek, in his work “The Road to Serfdom” (1944), offers a broader critique of socialist economic planning, which includes the Marxist treatment of labor as a commodity. Hayek’s critique of Marxism is that it leads to the centralization of power, where the state controls labor and other aspects of the economy. He argues that treating labor as a controlled commodity within a planned economy undermines individual freedom and leads to a form of “serfdom.”

According to Hayek, economic freedom, including the freedom to choose one’s work and negotiate wages, is essential for political freedom. His critique implies that the Marxist approach to labor, which treats it as a commodity to be controlled by the state, is fundamentally flawed and dangerous to individual liberty.

Karl Polanyi, in his influential work “The Great Transformation” (1944), introduces the concept of “fictitious commodities“ to describe things like labor, land, and money that are treated as commodities in a market economy but are not truly commodities in the traditional sense. Polanyi argues that labor is a “fictitious commodity” because it is not produced for sale but is an inherent aspect of human life.

Polanyi criticizes the commodification of labor because it reduces human beings to mere inputs in the production process, ignoring their social and moral significance. He argues that treating labor as a commodity is unnatural and harmful, leading to social disintegration and exploitation.

Ludwig von Mises, in his work “Human Action” (1949), critiques the Marxist concept of labor as a commodity from the perspective of the Austrian school of economics. Mises argues that labor cannot be treated as a commodity in the same way as goods and services because it is intrinsically linked to human choice and action. Mises contends that labor is an expression of individual preferences and values, which cannot be reduced to a market price alone. He criticizes Marxist economics for failing to recognize the subjective nature of value in labor, arguing that labor is not a homogeneous commodity and varies in quality and value depending on the individual and the context.

This critique challenges the Marxist framework by asserting that labor cannot be commodified in the same way as physical goods. Mises’s emphasis on individual choice and the subjective theory of value suggests that Marx’s treatment of labor as a commodity is an oversimplification that ignores the complexity of human behavior and economic relationships.

The Strange Case of Labor as a Commodity

According to Marx, labor power is treated as a commodity that workers sell in exchange for wages. But this commodity is unlike any other. Marx himself acknowledges that labor power is unique because it is tied directly to human beings; it cannot be separated from the person who provides it. This intrinsic link between labor and the worker creates several contradictions in Marxist theory.

First, if labor power is a commodity, it is a very strange one indeed. According to Marx, this commodity is always sold below its value. In other words, workers are constantly selling their ability to work for less than it is worth, generating surplus value for the capitalist. But this raises a fundamental question: if labor is a commodity, why is it the only commodity that is consistently sold below its cost? In any other market, selling a commodity below its value would be considered an unsustainable business practice, leading to bankruptcy. Yet, in Marx’s theory, this is not only common but necessary for the functioning of capitalism.

This notion implies that workers are essentially “stupid businessmen” who sell their commodity—labor—at a loss, every working day. This characterization is not only demeaning but also illogical. It is difficult to conceive of any rational actor, let alone an entire class of people, who would consistently engage in such a self-defeating economic practice.

In other words, if we accept the premise that labor power is a commodity, then we must also accept that workers are engaged in a very peculiar form of business—one where they consistently accept less than the market value for their product. This runs counter to basic economic principles, where sellers seek to maximize the price they receive for their goods or services. The idea that an entire class of people would willingly and consistently sell their labor below its value defies logic and undermines the credibility of Marxist theory.

To illustrate the absurdity of treating labor as a commodity, consider the example of a self-employed plumber. A plumber who owns their tools and operates independently does not sell their labor power to a capitalist. Instead, they provide a service directly to customers and charge a fee for their work. In this scenario, the plumber is both the owner of the means of production (their tools and skills) and the provider of the service. They control the price of their labor and the conditions under which they work.

According to Marxist theory, however, this self-employed plumber would somehow be selling their labor power below its value, even though they set their own rates and work conditions. This makes little sense. The plumber, acting as their own “capitalist,” would naturally aim to charge a price that covers their costs and provides a profit margin. There is no inherent reason why their labor power should be sold below its value, and the concept of surplus value becomes irrelevant in this context. The self-employed plumber is not a “stupid businessman” but a rational economic actor who sets prices based on the value of their work.

The Socialist Experience: Selling Labor Below Cost

Marxists argue that the exploitation of labor is inherent to capitalism and that socialism would rectify this by abolishing private ownership of the means of production. However, the experience of socialist regimes, such as the Soviet Union, China under Mao, and Cuba, tell a different story.

Even in these ostensibly Marxist societies, workers continued to sell their labor power in exchange for wages. The state, rather than private capitalists, controlled the means of production and determined the distribution of surplus value. However, this did not eliminate the fundamental Marxist critique that labor was being sold below its value. In fact, Marxists would argue that this exploitation continued, with the state acting as the new capitalist, appropriating surplus value from the workers.

If workers under socialism continued to sell their labor below its value, then Marxism fails not only as a critique of capitalism but also as a guide for building a classless society. The persistence of this dynamic under socialism suggests that Marxism is deeply flawed, both in theory and in practice.

Marxism as Sophism

The entire Marxist framework rests on the premise that labor is a commodity. If labor is not a commodity, the logical consistency of Marxism collapses because its key concepts—surplus value, exploitation, contradictions in capitalism, and the inevitability of socialist revolution—lose their foundation.

If labor is not a commodity, then:

• Surplus value cannot be calculated in the way Marx described, undermining the concept of capitalist exploitation.

• Exploitation of workers, as Marx defined it, cannot occur if there is no surplus value being extracted from labor.

• The contradiction between productive forces and production relations may not exist in the form Marx theorized, removing the driving force behind the predicted collapse of capitalism.

• The justification for a socialist revolution is weakened, as the proletariat may not experience the chronic exploitation that Marx believed would lead to revolutionary change.

Marxism’s reliance on the flawed premise of labor as a commodity renders it fundamentally unsound. Given the theoretical and practical flaws in Marxism, it is reasonable to conclude that Marxism functions as a form of sophism in socio-economic theory. Sophism refers to an argument that appears plausible on the surface but is fundamentally misleading and ultimately unworkable. Marxism fits this definition well.