Dialectic Theory of Value.
The Labour Theory of Value originated with Adam Smith, not Karl Marx. Marx critiqued and analysed it though. The LTV is based on the premise that all value originates directly from the actions of labour. This is the notion that marxists subscribe to.
Most capitalists and marxists wrongly assume that surplus value is Marx describing the capitalists cut of production, the wealth that the capitalist notionally sets aside as profit. The part the capitalist ‘steals’. This is not the case; surplus value is not an aspect of LTV at all, it’s part of a separate later theory that originated with Marx called DTV.
To fathom the rest of this it’s first necessary to appreciate that marxism is a leftists political cult based on the early works of Karl Marx, and is an entirely separate thing from marxian economics.
Dialectic Theory of Value isn’t marxism, it’s part of marxian economics, and surplus value is one of the concepts defined be DTV. Surplus value is where DTV proves that the value of a product or service may be greater than the sum of it’s parts. In other words, that extra value is produced, which is not directly attributable to labour. Furthermore this can be verified mathematically. DTV is actually the only theory that properly explains where value comes from. It provides irrefutable evidence that the capitalist is not profiting at the expense of the workforce. Capitalists could notionally use DTV to justify profit, and to show that it isn’t theft per se. That’s not to say that profit is necessarily fair, but on the balance DTV is more useful to capitalists than it is to marxists.
The problem for capitalists, particularly Austrian economists, is that they are ideologically tethered to the Subjective Theory of Value, therefore they cannot exactly hold up the DTV has evidence against LTV, when it provides equally compelling evidence against STV. What’s more, since DTV originated with Marx it’s automatically perceived as poison by laissez-faire capitalists. For Austrians it would be tantamount to winning the battle only to lose the war.
The thing with STV is that it’s ectoplasm, it cannot be mathematically verified, and doesn’t stand up to any degree of scrutiny when taken to it’s logical conclusions. Furthermore STV can only be applied to a very narrow definition of value, whereas most other economic ideas, such as marginal utility (and DTV) can be applied to the broader definition of value.
The ironic thing is that DTV acknowledges that exchange value is indeed subjective, it simply provides a proper detailed, mathematically sound explanation of how value arises. Austrians are left cutting off their noses to spite their faces. The fact that DTV has been around for so long, and predates both Austrian and neoclassical economics is even more amusing. Best of all DTV solves the Cambridge Capital Controversy.
There’s a postscript to this story though, Marx himself failed to fully grasp the ramifications of his own theory, and it’s only quite recently that DTV has begun to get the love it deserves.