According to the Labor Theory of Value, all commodities have a common quantitative element.  This element is the quantity of labor or number of hours, involved in producing commodities, and it is the essence of commodity value. The use values of a commodity are not comparable with each other, and therefore, the use value cannot be the exchange value.  Only the quantity of labor, which is the common quantitative element within all commodities, can become the exchange value.  The monetary expression of the exchange value, or the quantity of labor, is the price of the commodity.  The quantity of labor is measured by the socially necessary average labor hours.  All commodities are regarded as products of labor, and "as values, all commodities are nothing but definite masses of congealed labor quantity."

First, if the price is really the monetary expression of the quantity of labor, the price must not fluctuate during circulation in the market.  But in reality the price not only fluctuates continually but is always prone to rise. Marx explained such a separation between value and price of a commodity as the agreement between total value and total price in the whole society (Capital, Vol. 3).  But this explanation is an example of abuse of the concept of average, and is not an adequate explanation for the difference between price and value.

Secondly, according to Marx, complex labor is converted into simple labor in the market.  But this assertion is inconsistent with his Labor Theory of Value, which states that the price (= value) is determined by the quantity of labor congealed in the commodity during the process of production.  In other words, according to his Labor Theory of Value, the quantity of labor, and therefore the quantity of complex labor, must be the basic expression of value, which must not be determined from any other activities than the process of production.  Nevertheless, he said that the quantity of complex labor is determined by the functions of the market. Thus the theory of labor conversion is a typical example of circular reasoning.

Thirdly, in order that the Labor Theory of Value can be proven true, all commodities must be the products of labor. But the natural products such as land, power of water, coal, petroleum, are evidently not the products of labor, and yet they are circulated as commodities.  The Labor Theory of Value is broken down by these facts and arguments.

A counterproposal to the Labor Theory of Value.

The quantity of labor cannot be the value of a commodity.  A commodity has no other value than use value, because the value of a commodity is the internal character (Sung Sang) of the commodity.

The commodity appears to consumers as efficacy, and appears to producers as profitability.  It is because the commodity, as well as natural creation, serves man as an object of joy.  But the objective quality of the commodity which gives consumers efficacy and producers profitability, is the commodity's use value.

All the effect amounts of efficacy and profit, that is, all the effect amounts of use value, are the amount of mutual satisfaction.  Therefore, effect amounts can be compared with each other in terms of the monetary expression of the effect.  When both monetary representations expressed as price are in agreement, exchange occurs. In other words, the effect amount expressed as price is the essence of exchange value.

Thus, exchange value is the same as effect value.  Thus the "Effect Theory of Value" is established upon this basis instead of the Labor Theory of Value.

Here it is needless to say that effect value is essentially equal to use value, because effect value is the effect amount of use value.

The stagnation of the economy in socialist society.

The economy in a socialist society always encounters such phenomena as inability to attain goals, poor quality and accumulation of commodities.  This is because they set up the economic plan based on the Labor Theory of Value.

This stagnancy can be overcome only when profitability for producers and efficacy for consumers are raised.  To raise profitability and efficacy, freedom of enterprise activities and a free market system must be assured.

In the USSR, according to the suggestion of Professor Lieberman ("Plan. Profit. Compensation," September 1962), those plans which would give the profit motive to enterprises were set up, and applied to many factories.  But they could not obtain the expected results.  The solution of the stagnancy problem can be obtained only when their economic system changes into a free economic system, which can assure the effect of profit and the effect of efficacy most effectively.