Value

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 important early 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.

Marxist theory distinguishes three kinds of value, called `value', `exchange value', and `use value':

1. 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 refined version of the labour theory of value used by the classical economists.
2. 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.
3. 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'.

The first of the above definitions is the most theoretically important, and is the one considered in the Marxist theory section below. Exchange value and use value are the subject of separate articles (yet to be completed).

... [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

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

Marxist theory

A formal definition of value is:

Value is a social characteristic of things which manifests itself in the relations between producers when they equate one commodity with others in the process of exchange.

Value in this sense exists only in a commodity economy (that is, a market or capitalist economy). It is a characteristic of all commodities, but not a physical characteristic such as height, weight, or colour; it is a social characteristic: a characteristic that expresses the object's role or position in society. Value expresses the relative strength of the object in the exchange relations of society. In Marx's view, the fact that commodities exchange in ratios that are not simply random or accidental -- that is, that their values are predictable -- meant that they must have some common characteristic that enables them to be compared; and he believed that this common characteristic is that they are all products of human labour. Thus he embraced the position that had also been held by the classical economists, which is that the value of a commodity depends on the amount of human labour required to produce it. In other words he held that people will tend to exchange their products in proportion to how much of their labour time they put into making the product and how much of the labour time of previous producers they had to pay for to obtain the materials and tools needed. This is a labour theory of value. Unlike the classical economists, however, who had treated value and exchange value as being the same thing, Marx distinguished between the two, treating value as being a fundamental and relatively constant quantity which underlies exchange value, which is more variable. Exchange value depends on value but is subject to other influences as well, which cause it to deviate from value.

The Marxist version of the labour theory of value (LTV) is as follows:

The value of a commodity is determined by the quantity of socially necessary abstract labour time needed for its production and reproduction.

(For convenience, socially necessary abstract labour time is abbreviated by some authors as SNALT.)

An equivalent statement of the Marxist LTV is this:

The value of a CD is determined by the number of hours of labor, of average skill and intensity, that are required to produce the CD under normal conditions of production.

(CD stands for commodity.)

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.)

Further reading

• 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 ??