Metamorphoses: The Concept of Labour in the History of Political Economy

The emergence of an understanding of labour as the basis of value is traced from ancient Greek authors to classical political economy and Karl Marx, and the subsequent eclipse of the theory in neoclassical economics is then charted. While the ancient Greeks did not have a concept of labour as a measure of value, in Scholastic authors the notion was fixed that labour and cost of production determine value. Labour assumed a central role in Adam Smith, but it was with David Ricardo that a fully blown labour theory of value was achieved. Marx gave the concept its philosophical dimension, tying it to a critique of classical political economy. The labour theory of value came under attack in neoclassical formulations which in the end effected the analytical disappearance of labour in several ways. Labour became just another factor of production, with marginal productivity regulating its price. Then factors of production and final goods became analytically equivalent as sources of subjective utility, especially in the context of general equilibrium theory. In disutility models of labour supply, labour was substituted by its absence, 'leisure'. Finally, attempts were made to explain the employment relationship as an application of agency theory moving away from the pure commodity model of labour. Nevertheless, all these theories failed to account for what became the Achilles' heel of neoclassicism namely the indeterminacy of the labour contract.