Value in economics refers to the worth or importance of a material object, or of a service or a financial claim. There are various theories as to what determines the value of a commodity. An early prominent theory was the labour theory of value, which was formulated by the classical economists (including Adam Smith). This theory, as used by the classicals, took the value of the commodity to be the same thing as its price, and stated that the price is determined by the amount of labour necessary to make the commodity.
Marxian theory distinguishes three kinds of value, called `value', `exchange value', and `use value'.
- Value is a social relationship between producers exchanging their products. It depends on labour time and is determined by the Marxian labour theory of value which is a somewhat refined version of the labour theory of value used by the classical economists.
- Exchange value is the proportion in which a commodity exchanges with other commodities (X amount of iron can be exchanged for Y amount of cotton, etc.). Exchange value is closely related to price.
- Use value is the actual usefulness of the commodity for fulfilling people's wants and needs. It is the same thing that modern procapitalist (neoclassical, Keynsian, etc.) economists call `utility'. It causes people's wellbeing or `welfare'.
It is important to note that in Marxian theory value is not identical with price – although price is influenced or partly determined by value.
The above terms exchange value and use value are covered in separate articles at Communpedia; value is discussed in the `Marxian theory' section, below. See `Exchange value', and `Use value'. The following two passages from Marxian economists describe the nature of value:
‘ ... [value] is only a representation in objects, an objective expression, of a relation between men [sic.], a social relation, the relation of men [sic.] to their reciprocal economic activity.’ — Karl Marx, Theories of Surplus Value, vol. III, p 147 (Moscow, 1971).
‘Value is ultimately a set of power relations (class) in which the power can easily disappear into what appears to be purely quantitative relations between things.’ – Robert Albritton, Economics Transformed, p 95.
The labour theory of value became a source of hot ideological conflict after Marx, because he and other socialists used it to promote the claims of labour to a greater share of the social product – their basic argument being that if labour creates the full value of a product, why shouldn't it receive the full value of the product? Why is the price fetched by the product actually split, only part of it going to the labourers (as wages), and another part going to the capitalist (as profit). The labour theory of value can be taken as a statement that capitalists are purely parasitic: they take, but do not create, value.
Partly because socialists were making these arguments, procapitalist economists came up, in the late nineteenth century, with a new theory of value. They reasserted that value is nothing other than price, and theorised that price is determined by the interaction of `supply' and `demand'. In its sophisticated forms, this theory looks at marginal cost – the cost to the producer of making one more unit of product – and marginal utility – the usefulness to an individual consumer of acquiring one more unit of a commodity.
In Marxian economics, value, at bottom, expresses a social relation. `Value is not something intrinsic to a single commodity, considered apart from its exchange for another, but rather reflects a division of labour of independent commodity producers, the social nature of whose labour is only revealed in the act of exchange.'
Value is a social relationship between people which expresses itself as a material relationship between things.
In marxian economics, value, in its quantitative aspect, is determined by the labour theory of value, which states that `the value of a commodity is determined by the quantity of socially necessary abstract labour time needed for its production and reproduction.'
Price is the monetary expression of value. It should be noted though that in Marx's conception of the labour theory of value, prices do not correspond rigidly to values, but can deviate from them because of various contingencies. Value is considered the more fundamental category for social and economic analysis.
The Japanese marxian economist Kozo Uno and his followers have, among their activities, tried to make Marx's economic ideas more clear and rigorous. Concerning value, they stress the distinction between the form of value and the substance of value:
- `Marx's theoretical concern is in revealing the historically specific character of capitalism, where the social labour process is actually emcompassed and driven on by the forms of the market economy. The distinction and relation between prices in a market and the underlying quantities of labour become essential. Marx dualised the notion of value into the forms and the substance of value in this regard. Whereas the substance of value is defined as the embodied labour in commodities, the forms of value refer to the nature of social relations specific to a commodity economy, shaping the economic relations between commodities, money, and capital in a market.' – Makoto Itoh, The Basic Theory of Capitalism, p 70.
They diverge from Marx by regarding exchangeability, not production-by-labour, as being the `common substance' of commodities:
- `the common character of commodities is not limited to the property of being product of labour.... What is more essential for commodities is that they have to be exchanged with other commodities. The property of requesting exchange is basically common to commodities and it must also call for a common quantitative comparability and some standard exchange ratios. This property of commodities can be initially conceived of as value separated from its substance in a purified theory of the forms of a commodity economy." – ibid., p 81.
- `the concept of value is basically the property of commodities requiring them to exchange'. – ibid., p 82.
The controversy with bourgeois economics
Procapitalist economists usually say, in contradiction to the labour theory of value, that the value of a commodity depends on more than just the labour embodied in it. For example, they usually say that various activities of the capitalist also contribute to a commodity's value. Such arguments tend to justify capitalist profit-making. This section contains rebuttals to some of the procapitalist arguments.
Marginal product of capital?
Capitalist profit-making is often defended on the ground that capital is a 'factor of production', i.e., it is one of the things needed in order for production to ocurr, and that it should receive payment in proportion to its contribution to production. John Bates Clark (1899) was a noteable exponent of the idea that capital income is ethically justified in this way. But David Shweickart (Capitalism or Worker Control?, 1980) engages with Clark's work to provide a convincing rebuttal of this argument:
John Bates Clark was an early exponent of the claim that capital distribution accords with the ethical standard of productive contribution, that capitalism is just because it returns to each individual the value he produces. ... Clark claims that a person can create wealth in one of three ways: by working, by providing capital, and by coordinating labor and capital. If we regard "coordinating labor and capital" as a managerial activity directly related to the productive process, then both working and coordinating labor and capital are productive activities in a perfectly straightforward sense: should laborers and managers cease their mental and physical work, the production of wealth would likewise cease. The economy would grind to a halt.
"Providing capital", however, is something quite different. In Clark's perfectly competitive world, technology is fixed and risks are nonexistent. "Providing capital" means nothing more than "allowing it to be used." But the act of granting permission can scarcely be considered a productive activity. If laborers ceased to labor, production would cease in any society. But if owners ceased to grant permission, production would cease only if their ownership claims were enforced. If they ceased to grant permission because their authority over the means of production was no longer recognized, then production need not be affected at all. (If the government nationalized the means of production and charged workers a use-tax, we wouldn't say, would we, that the government was being rewarded for productive activity?) But if providing capital is not a productive activity (at least not within a static neoclassical model), then income derived from this function can hardly be justified as being proportional to one's productive contribution to the group. [pp. 5-11.]
Schweickart concludes that, 'The abstraction from individual activity that allows one to define the contribution of a factor in a precise mathematical manner [eg., by marginal productivity] also removes from consideration any reason to one might give for claiming that the "contribution" of the factor is, an any ethically relevant sense, the contribution of the owner." (p 13.)
Entrepreneurial activity of capital?
Capitalist profit is also sometimes justified on the ground that it is a reward for entrepreneurial activity (such as innovation, invention, or reorganisation of processes). This confuses two different activities: the contributing of capital (which is simply a granting of permission to use materials that are already in existence somewhere) and entrepreneurial activity such as innovation, invention, or reorganisation of processes. That the two are theoretically distinct is proved by the fact that they are often actually distinct: entrepreneurship (innovation, etc.) is often performed by the salaried staff of research and development departments, planning departments, etc., while capital is often provided by stock holders who do not participate in management or the activity of innovation. (Schweickart, 1980, pp 14-20.)
- David Schweickart 1980. Capitalism or Worker Control? New York City, USA.
- International Working Group on Value Theory. valuetheory.org
- John Bates Clark, 1899. The Distribution of Wealth. New York City, USA, 1956.
- Makoto Itoh, 1988. The Basic Theory of Capitalism.
- Simon Mohun, 1983. ?? data missing ??
- The following passage from the Grundrisse makes it clear that in Marxist theory, value is not the same thing as price. The main message in this excerpt is that commodities do not generally exchange at value: `The difference between price and value, between the commodity measured by labour time whose produce it is, and the product of the labour time against which it is exchanged – this difference calls for a third commodity to act as a measure in which the real exchange values of the commodities is expressed. Because price is not equal to value, therefore the value-determining element – labour time – cannot be the element in which the prices are expressed, because labour time would then have to express itself simultaneously as the determining and the non-determining element, as the equivalent and non-equivalent of itself.' — Karl Marx, Grundrisse, pp 139-40, as quoted in Ernest Mandel, Late Capitalism (1975). I should perhaps mention that the third commodity referred to above, in which exchange value is expressed, is money.
- London, England; 2007; Pluto Press.
- Mohun, p 509.