Seventeenth-century philosopher John Locke stated that as much as 99 percent of the value of any useful product can be...
GMAT Reading Comprehension : (RC) Questions
Seventeenth-century philosopher John Locke stated that as much as 99 percent of the value of any useful product can be attributed to "the effects of labor." For Locke's intellectual heirs it was only a short step to the "labor theory of value," whose formulators held that 100 percent of the value of any product is generated by labor (the human work needed to produce goods) and that therefore the employer who appropriates any part of the product's value as profit is practicing theft.
Although human effort is required to produce goods for the consumer market, effort is also invested in making capital goods (tools, machines, etc.), which are used to facilitate the production of consumer goods. In modern economies about one-third of the total output of consumer goods is attributable to the use of capital goods. Approximately two-thirds of the income derived from this total output is paid out to workers as wages and salaries, the remaining third serving as compensation to the owners of the capital goods. Moreover, part of this remaining third is received by workers who are shareholders, pension beneficiaries, and the like. The labor theory of value systematically disregards the productive contribution of capital goods—a failing for which Locke must bear part of the blame.
The author of the passage is primarily concerned with
1. Passage Analysis:
Progressive Passage Analysis
| Text from Passage | Analysis |
|---|---|
| Seventeenth-century philosopher John Locke stated that as much as 99 percent of the value of any useful product can be attributed to "the effects of labor." | What it says: A famous philosopher believed that almost all (99%) of a product's value comes from human work. What it does: Introduces a historical perspective on how products get their value. Source/Type: Historical claim by a philosopher (Locke) Connection to Previous Sentences: This is our opening sentence - establishes the foundation for discussing theories about value creation. Visualization: If a chair is worth $100, Locke would say $99 of that value comes from the carpenter's work, only $1 from materials/other factors. What We Know So Far: Locke believed labor creates almost all value What We Don't Know Yet: What happened to this idea? Do people still believe this? Reading Strategy Insight: This sets up a discussion about labor vs. other factors in creating value. |
| For Locke's intellectual heirs it was only a short step to the "labor theory of value," whose formulators held that 100 percent of the value of any product is generated by labor (the human work needed to produce goods) and that therefore the employer who appropriates any part of the product's value as profit is practicing theft. | What it says: Later thinkers took Locke's 99% idea and made it 100% - they believed ALL value comes from human work, so any profit taken by bosses is stealing. What it does: Shows how Locke's idea evolved into a more extreme theory with radical implications. Source/Type: Description of a formal economic theory Connection to Previous Sentences: This builds directly on sentence 1 - takes Locke's 99% and pushes it to 100%. The progression is clear: Locke → his followers → more extreme version. Visualization: Same $100 chair: Labor theory says the worker created $100 of value, so if the boss keeps $30 as profit, that's $30 stolen from the worker. What We Know So Far: Locke (99%) → Labor Theory (100%) → Profit = Theft What We Don't Know Yet: Is this theory correct? What's the author's view? Reading Strategy Insight: The author is setting up a theory to potentially critique it. The word "appropriates" and "theft" suggest controversy. |
| Although human effort is required to produce goods for the consumer market, effort is also invested in making capital goods (tools, machines, etc.), which are used to facilitate the production of consumer goods. | What it says: Yes, humans work to make products, BUT humans also work to make the tools and machines that help make those products. What it does: Introduces a counterargument to the labor theory by distinguishing between two types of goods. Source/Type: Author's logical argument/reasoning Connection to Previous Sentences: This contrasts with the labor theory by showing it's incomplete. The "Although" signals the author is about to complicate the simple labor theory from sentence 2. Visualization: To make chairs (consumer goods), you need hammers and saws (capital goods). Someone had to work to make those hammers and saws too. What We Know So Far: Labor theory says workers create all value, but author points out there are two types of goods: final products AND the tools to make them What We Don't Know Yet: How does this distinction affect the labor theory? Reading Strategy Insight: The "Although" is a classic signal that the author is about to challenge the previously stated theory. |
| In modern economies about one-third of the total output of consumer goods is attributable to the use of capital goods. | What it says: In today's economy, about 1/3 of what we produce comes from using tools and machines. What it does: Provides concrete evidence for the importance of capital goods mentioned in the previous sentence. Source/Type: Factual claim about modern economies Connection to Previous Sentences: This quantifies and supports sentence 3 - it's not just that capital goods matter, they account for a huge chunk (1/3) of production. Visualization: If the economy produces $300 billion worth of consumer goods, $100 billion of that value comes from machines and tools working, $200 billion from human labor directly. What We Know So Far: Capital goods contribute significantly (1/3) to production, which challenges the "labor creates all value" theory What We Don't Know Yet: How is this value distributed? Who gets paid what? Reading Strategy Insight: The author is building a case with evidence. This statistic directly undermines the 100% labor theory. |
| Approximately two-thirds of the income derived from this total output is paid out to workers as wages and salaries, the remaining third serving as compensation to the owners of the capital goods. | What it says: Of all the money made from production, about 2/3 goes to workers, 1/3 goes to people who own the tools and machines. What it does: Shows how income is actually distributed in the economy, providing a reality check against the labor theory. Source/Type: Economic data about income distribution Connection to Previous Sentences: This perfectly connects to sentence 4 - if capital goods create 1/3 of output value, then capital owners getting 1/3 of income makes sense, not theft. Visualization: From our $300 billion economy: Workers get $200 billion (2/3), Capital owners get $100 billion (1/3). This matches the 1/3 contribution of capital goods from sentence 4. What We Know So Far: The income split (2/3 to workers, 1/3 to capital owners) matches the production contribution split What We Don't Know Yet: Does this completely refute the labor theory? Reading Strategy Insight: Feel relieved here - the numbers align perfectly with the previous sentence. The author is showing logical consistency, not adding complexity. |
| Moreover, part of this remaining third is received by workers who are shareholders, pension beneficiaries, and the like. | What it says: Also, some of that 1/3 that goes to capital owners actually goes to workers anyway (through their retirement funds, stock ownership, etc.). What it does: Further undermines the "capitalists steal from workers" narrative by showing workers often ARE the capitalists. Source/Type: Additional factual observation Connection to Previous Sentences: This builds on sentence 5 by showing that even the 1/3 "taken" by capital owners isn't purely taken from workers - workers get some of it back. Visualization: Of that $100 billion going to capital owners, maybe $30 billion goes to worker pension funds and worker-owned stock. So workers effectively get $230 billion total, capital owners get $70 billion. What We Know So Far: The supposed "theft" is even smaller than it appears since workers participate in capital ownership What We Don't Know Yet: What's the author's final judgment on the labor theory? Reading Strategy Insight: The "Moreover" signals the author is piling on more evidence against the labor theory. Each point makes the theory look less credible. |
| The labor theory of value systematically disregards the productive contribution of capital goods—a failing for which Locke must bear part of the blame. | What it says: The labor theory ignores how much tools and machines contribute to production, and this is partly Locke's fault for starting this line of thinking. What it does: Delivers the author's final verdict and traces the problem back to its historical source. Source/Type: Author's conclusive judgment/criticism Connection to Previous Sentences: This restates and summarizes the entire argument - sentences 3-6 all showed evidence that capital goods matter significantly, now the author explicitly says the labor theory "disregards" this evidence. Returns us full circle to Locke from sentence 1. Visualization: The labor theory looks at our $300 billion economy and says "workers created it all," but ignores that $100 billion came from capital goods contribution. What We Know So Far: Complete argument: Locke started it (99%) → followers made it extreme (100%) → but evidence shows capital contributes 1/3 → income distribution reflects this reality → theory is flawed Reading Strategy Insight: This is pure summary and conclusion - no new complexity! The author has systematically built a case and now states the simple takeaway. We should feel confident we understand the complete argument. |
2. Passage Summary:
Author's Purpose:
To show why the labor theory of value is flawed by demonstrating that it ignores the important contribution of capital goods to economic production.
Summary of Passage Structure:
The author builds their argument in clear steps:
- First, the author introduces Locke's historical idea that 99% of a product's value comes from human labor
- Next, the author explains how Locke's followers created the more extreme "labor theory of value" claiming 100% of value comes from labor and that business profits are therefore theft
- Then, the author presents evidence against this theory by showing that capital goods (tools and machines) contribute significantly to production - about one-third of all output
- Finally, the author concludes that the labor theory is fundamentally flawed because it completely ignores how much capital goods contribute to creating value, and traces this error back to Locke's original thinking
Main Point:
The labor theory of value is wrong because it fails to recognize that tools and machines contribute significantly to economic production, not just human labor alone.
3. Question Analysis:
This question asks us to identify the author's primary concern - essentially, what is the main purpose or goal of this passage? We need to determine what the author is fundamentally trying to accomplish through their entire argument.
Connecting to Our Passage Analysis:
Our passage analysis reveals a clear argumentative structure where the author:
- Introduces Locke's historical view (99% of value from labor)
- Shows how this evolved into the labor theory of value (100% from labor, profits = theft)
- Systematically presents evidence against this theory (capital goods contribute 1/3 of output)
- Concludes that the labor theory is fundamentally flawed
The analysis shows the author building a case with evidence, using transition words like "Although" and "Moreover" to challenge the labor theory, and ending with an explicit criticism: "The labor theory of value systematically disregards the productive contribution of capital goods."
Prethinking:
Based on our passage analysis, the author's primary concern is clearly to demonstrate why the labor theory of value is incorrect. The entire passage structure - from historical introduction to evidence presentation to final judgment - serves this purpose. The author isn't just criticizing Locke personally, nor arguing about profit distribution, but specifically showing that the labor theory fails because it ignores capital goods' contributions.
Why It's Wrong:
• The author mentions Locke only as background and assigns him partial blame, but doesn't focus on criticizing his theories overall
• Locke's 99% view is presented as more reasonable than the 100% labor theory that followed
• The main target is the labor theory of value, not Locke's economic theories broadly
Common Student Mistakes:
1. Did the author blame Locke in the conclusion?
→ Yes, but only for contributing to a flawed theory, not for criticizing his theories in general
1. Isn't criticizing the labor theory the same as criticizing Locke?
→ No, the labor theory was created by "Locke's intellectual heirs," not Locke himself
Why It's Wrong:
• The author never argues that labor isn't important - acknowledges "human effort is required to produce goods"
• Shows that workers receive two-thirds of income, confirming labor's significant contribution
• The argument is about adding capital goods' contribution, not reducing labor's importance
Common Student Mistakes:
1. Doesn't showing capital goods matter mean labor matters less?
→ No, the author is expanding the picture to include both labor AND capital, not diminishing labor
1. If workers only get 2/3 of income, isn't their contribution being discounted?
→ No, 2/3 is actually consistent with labor contributing about 2/3 of production value
Why It's Right:
• The entire passage structure builds toward demonstrating flaws in the labor theory of value
• Author systematically presents evidence that contradicts the theory's core claim
• Concludes explicitly that the theory "systematically disregards the productive contribution of capital goods"
Key Evidence: "The labor theory of value systematically disregards the productive contribution of capital goods—a failing for which Locke must bear part of the blame."
Why It's Wrong:
• The author presents current income distribution as reasonable and justified by production contributions
• Shows the 2/3 to 1/3 split matches actual production contributions
• Never suggests profits should be distributed differently, just that current distribution isn't theft
Common Student Mistakes:
1. Doesn't questioning the "theft" claim mean arguing for different distribution?
→ No, the author defends current distribution as fair, not advocating for change
1. Isn't showing worker ownership of capital arguing for more equitable distribution?
→ No, that's evidence that distribution is already more equitable than the theory suggests
Why It's Wrong:
• The author argues that capital owners are appropriately compensated based on their contribution
• Shows capital goods contribute 1/3 of output, so 1/3 compensation is justified
• Never suggests employers receive too much compensation
Common Student Mistakes:
1. Doesn't questioning the labor theory mean questioning high profits?
→ No, the author defends profits as legitimate compensation for capital contribution
1. If the theory calls profits "theft," isn't the author saying they're too high?
→ No, the author argues profits aren't theft at all, but fair compensation