Conceptual Model
A simple model illustrating the concepts and workings of LTV could go as follows:
In a village in Somewhereia, everyone shares a set of skills and their produce is derived from local natural resources. Through custom or inclination each person pursues a particular trade, but is capable of pursuing any other in the village. These people exchange their products on a regular basis. Each would know how long it took their fellow to produce their good, and how long it would take them to make it themselves. They would also know how much of their own product they would produce in the same amount of time and how much they would be able to exchange for that product. If anyone tried to overcharge for a good, people would stop buying and make it themselves (or a competitor could enter the market and undercut them). Each person would thus be able to calculate whether it would be better for them to buy a good or make it themselves. In this scenario prices and values would be equal.
Read more about this topic: Labor Theory Of Value
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