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## John Locke, Experts, please explain.

This topic has 2 expert replies and 34 member replies
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gmat_perfect Legendary Member
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#### John Locke, Experts, please explain.

Fri Jun 18, 2010 2:51 am
Seventeenth-century
philosopher John Locke
stated that as much as
Line 99 percent of the value of
(5) any useful product can be
attributed to “the effects of
labor.” For Locke’s intellec-
tual heirs it was only a short
step to the “labor theory of
(10) value,” whose formulators
held that 100 percent of the
value of any product is gen-
erated by labor (the human
work needed to produce
(15) goods) and that therefore the
employer who appropriates
any part of the product’s
value as profit is practicing
theft.
(20) Although human effort is
required to produce goods
for the consumer market,
effort is also invested in
making capital goods (tools,
(25) machines, etc.), which are
used to facilitate the produc-
tion of consumer goods. In
one-third of the total output of
(30) consumer goods is attribut-
able to the use of capital
goods. Approximately two-
thirds of the income derived
from this total output is paid
(35) out to workers as wages and
salaries, the remaining third
serving as compensation
to the owners of the capital
goods. Moreover, part
(40) of this remaining third is
are shareholders, pension
beneficiaries, and the like.
The labor theory of value
(45) systematically disregards
the productive contribution of
capital goods-a failing for
which Locke must bear part
of the blame.
--------------------------------------------------------------------------------
Q7:
According to the author of the passage, which of the following is true of the distribution of the income derived from the total output of consumer goods in a modern economy?

A. Workers receive a share of this income that is significantly smaller than the value of their labor as a contribution to total output.
B. Owners of capital goods receive a share of this income that is significantly greater than the contribution to total output attributable to the use of capital goods.
C. Owners of capital goods receive a share of this income that is no greater than the proportion of total output attributable to the use of capital goods.
D. Owners of capital goods are not fully compensated for their investment because they pay out most of their share of this income to workers as wages and benefits.
E. Workers receive a share of this income that is greater than the value of their labor because the labor theory of value overestimates their contribution to total output.

What I am thinking:
I can eliminate the options A and B. I am in confusion about the option D and E.
Would any expert explain the options C, D, and E?

Thanks.

### GMAT/MBA Expert

tpr-becky GMAT Instructor
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Mon Jun 21, 2010 11:45 am
one-third of the total output of
(30) consumer goods is attribut-
able to the use of capital
goods. Approximately two-
thirds of the income derived
from this total output is paid
(35) out to workers as wages and
salaries, the remaining third
serving as compensation
to the owners of the capital
goods. Moreover, part
(40) of this remaining third is
are shareholders, pension
beneficiaries, and the like.

This is hte passage the answer comes from and it basically says that Capital is responsible for 1/3 of the output and in return they gain 1/3 of the profit but have to pay some of that to workers who are shareholders etc..

C. This is true becuase they recieve a chaser and that share is 1/3 minus the part they pay out so it is no greater than the 1/3 you can attribute the output to.

d. We aren't sure about htis becuase it says fully compensated for their investment and we don't have enough info to knwo what that would be and it says they pay out MOST of their share to workers but the passage only says a part.

e. This may be true becuase they get their 2/3 plus extra if they are shareholders but the reason given for it goes beyond the passage.

Therefore, I believe C is the answer.

_________________
Becky
Master GMAT Instructor
The Princeton Review
Irvine, CA

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viju9162 Master | Next Rank: 500 Posts
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Mon Jun 28, 2010 5:44 pm
Dear Becky,

I didn't understand how the answer is C ? I thought it must be E.

In the last passage, the author states capital goods are not complimented with proper share, and labor is considered with more value. And the author also states, 1/3 of output is served as compensation for owners of the capital goods and 2/3 of total output is paid to workers.

Thanks,
Viju

_________________
"Native of" is used for a individual while "Native to" is used for a large group

### GMAT/MBA Expert

tpr-becky GMAT Instructor
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Mon Jun 28, 2010 8:40 pm
you are correct about 1/3 of output being compensation for the owners but then the passage says "Moreover, part
(40) of this remaining third is received by workers who are shareholde" thus the owners are recieving less than 1/3 becuase they give part of that to the workers - that is why their 1/3 minus the part the pay the owners is no more than the 1/3 attributable to capital goods - the key here is NO MORE,

Again the problem with E is not about how much workers recieve but instead the problem is in the reason given. we do not know why the workers get more but the pasage never says it is because of the labor theory of value - therefore the answer must be wrong.

_________________
Becky
Master GMAT Instructor
The Princeton Review
Irvine, CA

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viju9162 Master | Next Rank: 500 Posts
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Mon Jun 28, 2010 9:38 pm
Dear Becky,

Thank you very much for the explanation .

Regards,
Viju

_________________
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anirudhbhalotia Master | Next Rank: 500 Posts
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Sun Dec 05, 2010 1:17 am
D is incorrect because -

D - Owners of capital goods are not fully compensated for their investment because they pay out most of their share of this income to workers as wages and benefits.

Here they have used the term "most" whereas the passage uses the term "part".

Not able to decide as why its C or E.

C - Owners of capital goods receive a share of this income that is no greater than the proportion of total output attributable to the use of capital goods.

This is true since 1/3 is attributed to Capital goods, but again the owners further give a part of it to wages and workers.

E. Workers receive a share of this income that is greater than the value of their labor because the labor theory of value overestimates their contribution to total output.

Even this can be true as is evident from the statement in the passage -

The labor theory of value
(45) systematically disregards
the productive contribution of
capital goods

Can some one further explain as to whats the answer and why!

gauravgundal Master | Next Rank: 500 Posts
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Fri Dec 17, 2010 2:52 am
Hi aniruddh,

You got the stem of the answer.
Quote:
Workers receive a share of this income that is greater than the value of their labor because the labor theory of value overestimates their contribution to total output.

Even this can be true as is evident from the statement in the passage -

The labor theory of value
(45) systematically disregards
the productive contribution of
capital goods
Nowhere in the passage author wants to say that Workers get more income than the value of their labor.
The passage tells about the labor theory of value which according to author disregards contribution of capital goods.
Moreover, author blames Locke for the segregation

so, for above reason we can cancel out answer choice E.

ov25 Master | Next Rank: 500 Posts
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Fri Dec 17, 2010 7:45 am
Quote:
of this remaining third is
are shareholders, pension
beneficiaries
, and the like.
Becky,
The only other issue here is 'pension
beneficiaries'. If E were to be correct, pension benefits would always have to do with Workers.

From your explanation, should it be understood that pension beneficiaries are considered similar to share holders in such a way that there may be a company with no pension beneficiaries among workers?

aardvax Newbie | Next Rank: 10 Posts
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Fri Dec 17, 2010 10:03 pm
A. Workers receive a share of this income that is significantly smaller than the value of their labor as a contribution to total output. (Eliminate - they receive approx 2/3)
B. Owners of capital goods receive a share of this income that is significantly greater than the contribution to total output attributable to the use of capital goods. (Eliminate - opposite)
C. Owners of capital goods receive a share of this income that is no greater than the proportion of total output attributable to the use of capital goods. (Can be Inferred from psg)
D. Owners of capital goods are not fully compensated for their investment because they pay out most of their share of this income to workers as wages and benefits. (Eliminate - Not mentioned)
E. Workers receive a share of this income that is greater than the value of their labor because the labor theory of value overestimates their contribution to total output. (Eliminate - Not Mentioned )

gmat3last Newbie | Next Rank: 10 Posts
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Thu Mar 17, 2011 8:22 am
Options A,B, and C already discussed. I agree with C. However my reasons for elimination D and E were slightly different and in my opinion were slightly simpler approach. Please feel free to correct me if I am wrong or missed something.
D. Owners of capital goods are not fully compensated for their investment because they pay out most of their share of this income to workers as wages and benefits. - my reason for eliminating this was the word "wages". The passage mentions the remaining 1/3 going into benefits and NOT wages. Wages account for the 2/3.
E. Workers receive a share of this income that is greater than the value of their labor because the labor theory of value overestimates their contribution to total output.- my reason for elimination is that workers receive a greater share NOT BECAUSE of the labor theory of value but rather BECAUSE of the compensation structure i.e. 2/3 as wages and additional share from 1/3 as benefits.

Hope this helps

HSPA Legendary Member
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Thu Mar 17, 2011 9:18 am
topic: locke's effect of labour

1st para:

Labour thoery of value : value = = = labour effort
profit = labour effort and if profit = profit its theft( POV)

2nd para:
pov-- : capital is alos needed for end cust goods

1/3 capital 2/3 workers(evidence to 2nd para main statement)
(more evidence) of the 1/3 more is going to pension schems

Locke's effect of labour theory is a failure due to non-capital talk.

1) A:FALSE workers are getting more
b:FALSE they are getting lesser share
C:TRUE
D:FALSE they are getting not a bad share.. they are not giving everythign to workers
E:FALSE labour theory under estimates capital related not over estimate labour effort

astvansh Junior | Next Rank: 30 Posts
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Thu Jul 28, 2011 5:43 am
I chose 'e' but later read a post that explained that the reason cited in 'e' is wrong. The right answer is, indeed, 'c'.

olegpoi Senior | Next Rank: 100 Posts
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Wed Aug 10, 2011 12:31 pm
According to the theory, workers receive 4/9 of the income to be distributed, while use of capital goods receive 1/3 of income. Therefore, the value of labor is overestimated. E, actually, states that. IMO

olegpoi Senior | Next Rank: 100 Posts
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Wed Aug 10, 2011 12:54 pm
Oops. I am wrong.
Why C?

Deependra1 Senior | Next Rank: 100 Posts
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Wed Aug 31, 2011 11:25 am

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