According to Karl Marx, commodities are exchangeable for each other in proportion to the amount of abstract human labor embodied in them. The value of the commodity, says Marx, is in proportion to the labor which it contains. Since this statement is evidently inaccurate, Marx proceeds to qualify it. The value is not in proportion to the actual labor of the specific workman who made the commodity but it is in proportion to the socially necessary labor, says Marx; that is, to the labor required under average conditions of skill and industry.

It will be a sufficient answer to this contention to restate the theory of value as given in an earlier chapter. Value is due to utility and scarcity. No matter how useful an article may be it has no value if it can be had in unlimited quantity, as for example, the water of a river or of an ocean. On the other hand, no matter how little of the article there is to be had, it has not value unless it has utility, that is, the ability to gratify wants. If an article can be produced by human efforts, the labor involved in producing it will be a factor regulating its scarcity but it will not necessarily be the only factor. Moreover, in the production of some commodities the labor element is very important while in the production of other commodities this element is of very little importance or of no importance at all. Just to give one illustration, a hundred dollars' worth of iron dug from the bowels of the earth will probably represent a very different expenditure of labor from a hundred dollars' worth of meteoric iron which has fallen from the heavens. Marx did not disregard this fact and in order to square it with his theory he attempted to make room for the influence of utility in determining value by saying, "If the thing is useless, so is the labor contained in it; the labor does not count as labor and therefore creates no value." This reduces the Marxian explanation of value to an absurdity. The value of a commodity is in proportion to the labor embodied in it, he says in effect, or at least if it is not so, it is in proportion to so much of the labor embodied in it as we shall count. The secret of value, then, it would appear, is not the labor in the commodity but rather the Marxian system of determining how much of that labor is to be counted. But this system is too subjective for scientific purposes.