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I shall refute here the proposition that "the economic value of all goods and services is derived from the cost of their production and ultimately from the labor expended on their creationbe it measured in terms of the time, effort, or disutility required to produce the goods or services in questionand the labor expended on the creation of goods necessarily endows them with economic value." This proposition is the essence of the labor theory of value, a false view nonetheless embraced by such notable thinkers as Thomas Aquinas and Adam Smith and used by Karl Marx to justify socialism. I shall then argue that the utility theory, which views economic value as identical to the benefits gained by individuals from goods and services, is a superior explanation of economic value.

Refutations of the Erroneous Theory

Refutation 1: Argument from Naturally Occurring Valuable Goods: There are economically valuable goods which do not require nearly any labor to produce. These goods are given to man by nature yet are still scarce and not available to every man equally. Wild berries and fruit are an example; let us presume that Person X is walking in a forest and picks up an apple that had fallen from a tree. Picking up the apple involved almost no labor on X's part. There are no further apples to be picked up in the vicinity. Person Y approaches X and wishes to purchase his apple. X can legitimately charge a price for the apple greatly in excess of the minuscule amount of labor required to obtain it. Thus, the economic value of X's apple greatly exceeds the labor expended in procuring it.

Refutation 2: Argument from Useless Labor: There can be activities on which immense labor is expended yet which yield little or no economic value to anyone. For instance, digging a large hole and filling it in both require extensive manual laboryet the net result of the procedure benefits nobody and improves nothing.

Refutation 3: Argument from Excessive Exertion: A laborer who works hard to create goods for sale can often expend in their creation labor far exceeding their actual economic value. For instance, an individual who spends years writing by hand a single copy of a book might be able to sell the book for the prevailing market price of books, but he will have expended far more effort on the book than the returns to him justify. The demand for his single handwritten book simply does not suffice to compensate him for his labor. Thus, the economic value of goods can be less than the labor

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