The value of social production is the product of the total amount of labor exploited in the economic system. Although it is impossible to calculate the value of an individual commodity without taking into account the capital market and the existence of an effective demand for it, its value will tend toward the amount of labor socially necessary for its production.

Use value and exchange value

Since Antiquity, the properties of commodities in a generalized exchange system were divided into two types of value:

  • Use value, the features or physical properties that make a commodity useful.
  • Exchange value, the quantity -measured in money- at which a specific commodity is exchanged.

In the vast majority of economic treatises and in what follows in this dictionary entry, we refer to exchange value when we speak of value.

Value and economic theory (ideology)

For centuries, the problem of the value of commodities - and especially its mirror image, the problem of the value of currency - was one of the great concerns of European states, whose currencies suffered continuous devaluations and whose commodity prices were extremely volatile. The first economic theory was developed within this context during the modern era, following the imperative of stabilizing both the value of currency and the general circulation of commodities. From then on, value and its theory would become the backbone of the new science of social organization of absolutism and soon of the bourgeoisie's own society.

But what do all these theories of commercial exchange, whose aim was always, openly, to improve the administration of the personal household of the ruling class, imply in the real world? In the world of theoretical abstraction, value is an intrinsic property of the individual commodity completely contained in itself. The economic world is thus reduced to a circuit of mercantile transactions among objects.

However, the real world underwent a complete transformation between the sixteenth and nineteenth centuries, when the state treasuries that had previously been on the brink of bankruptcy shifted to a society in the throes of an economic boom. On the surface, economic activity was still measured in value, currency was still currency, and commodities were still exchanged according to their value. Yet, millions of peasants had been expelled from the countryside, the entire productive system - the same one that produced the goods now flooding foreign markets - had changed from handicrafts to big industry, and a social class which lived by producing for a wage had expanded.

The labor theory of value

Was the old refrain of the theory of value a true reflection of what was really going on in the economy and society? One of the first great economists to question it was David Ricardo, who recognized that the great mass of wage labor in society was one of the main determinants, indeed the main determinant, of what was known as value.

With the labor theory of value, social reality began to creep into economic analysis. However, this theory still asserted that value was not a social property, but a property of the individual commodity, in which a mysterious qualitative transfer of labor from the wage earner to the commodity supposedly occurred. The value of a commodity was the quantity of labor that it contained.

The critique (=demolition) of the labor theory of value by Marx

Marx would be the one who carefully studied the work of Ricardo and the other economists in order to dismantle the whole apparatus of economic theory. The value of commodities does not respond to any peculiar characteristic of themselves taken individually one by one, but the value of the whole ensemble of commodities produced responds to the coordinated activity of an entire exploited class.

The value of the aggregate of commodities corresponds to the amount of wage labor socially necessary to produce them, but this labor is social, it is that of the whole of the working class at a given moment and under given conditions.

This value is not contained in any individual commodity, it is an emergent consequence of large-scale industrial production and the generalized exchange of commodities.

That is to say, it is a consequence of the existence of the proletariat and its large-scale exploitation by another class and not a consequence of the genius of certain individual capitalists.

Value of total production vs. value of a particular commodity

We can know, therefore, what is the value of social production under capitalist forms, for it is nothing else than the mass of product resulting from employing the total of exploited labor. But what about the value of a specific commodity?

In his critique (=demolition) of economic theory, and with it of what economists call value, Marx had to examine step by step the whole set of capitalist relations from their foundation. But he has the dialectic at the basis of his critique, so he does this not by aggregating parts, but by starting from a global aggregate representation. For ease of analysis he reduces all capital to a single capitalist with a single application for that capital - a firm - and a single group of workers.

And there it becomes clear what is that which economists cloak under the term value: the product of exploited labor-time.

Obviously, Marx realizes that this outline is... merely an outline, useful to unveil the true meaning of value whose efficient maximization would be the greatest virtue of capitalism according to the economists of yesterday and today. He is well aware that this is not a total description of capitalism as a system.

In fact he is very explicit about the idea that this outline leaves two fundamental parts out: the extra-capitalist markets -without which the system would go into decline from its very first minute because by definition the purchasing power of wages will always be less than the value of the total produced- and the capital markets, without which the essential dynamic of the system cannot be understood: capital accumulation.

He will begin to address the first question in the materials that after his death will be recovered and edited as the third book of Das Kapital and will not be fully developed as part of Marxist critique until the publication of The Accumulation of Capital by Rosa Luxemburg. For the latter, Marx would produce a long and voluminous book of notes-published posthumously as Theories of Surplus Value-which he intended to incorporate into future books of Das Kapital which he never got around to writing because of his early death.

In studying what the capital market does, Marx discovers that its function in the system is to equalize - or tend to equalize - the rates of profit of the possible placements of capital (the enterprises). Equalizing them necessarily destroys the equivalence between the extracted surplus value and the profit obtained. In fact, as a general rule, as stressed by Marx, surplus value will be different from profit.

What does this mean for the value of an individual commodity? That the inequality between profit and surplus value makes it impossible to calculate its individual value as something other than its price. We do know, however, that on average it will tend towards the amount of necessary social labor to produce it. Understanding necessary social labor as the average number of hours of work necessary to produce its use value under the normal conditions of production prevailing in a society and with the average social degree of skill and intensity of labor.

It is clear that it is precisely the abstraction of their use values that characterizes the exchange relationship between commodities. (...) As use values, commodities are, above all, different in terms of quality; as exchange values they can only differ by their quantity, and therefore they do not contain a single atom of use value.

Now, if we separate the use value, from the body of the goods, only one property will be subtracted from them: that of being products of work. However, the product of work has also been transformed in our hands. If we abstract its use value, we also abstract the components and corporeal forms that make it a use value. That product is no longer a table or house or thread or anything else useful. All its tangible properties are gone. Nor is it any longer the product of the work of the cabinetmaker or the bricklayer or the spinner or any other particular productive work. With the usefulness of the products of work, the usefulness of the work represented in them vanishes and, therefore, so do the various concrete forms of such work; they cease to be distinguished, being reduced in their entirety to undifferentiated human work, to abstract human work.

These things only make us aware that in their production human labor power was used, human labor was accumulated. As crystallizations of that social substance common to them, they are values.

In the very relationship of exchange between commodities, their exchange value was revealed to us as something entirely independent of their use values. If then the use value of the products of work is effectively abstracted, their value is obtained, as it has just been determined. That common thing that is manifested in the exchange relationship or in the exchange value of the goods is, therefore, their value. The development of this research will once again lead us to the exchange value as a mode of expression or form of necessary manifestation of value, which must however be considered independently of that form.

A use value or a good, therefore, only has value because it is objectified or materialized by abstract human work. How, then, can we measure the magnitude of its value? By the amount of "value-generating substance" - by the amount of work - contained in that use value. The amount of work itself is measured by its duration, and the labor time, in turn, recognizes its measurement pattern in certain time fractions, such as hour, day, etc.

It might seem that if the value of a commodity is determined by the amount of labor spent in its production, the more lazy or clumsy a man is, the more valuable his commodity is, because he needs so much more time to make it. However, the work that generates the substance of value is undifferentiated human labor, the expenditure of the same human labor power. The whole of society's labor power, represented in the values of the world of commodities, is here made up of one and the same human labor power, even though it is composed of innumerable individual labor powers. Each of these individual labor powers is the same human labor power as the others, insofar as it possesses the character of an average social labor power and operates as such an average social labor power, that is, insofar as, in the production of a commodity, it uses only the average necessary labor time, or socially necessary labor time. Socially necessary labor time is that required to produce any use value, under the normal production conditions in power in a society and with the average social degree of skill and labor intensity. After the adoption of the steam loom in England, for example, it took about half the labor required to convert a certain amount of yarn into fabric. In order to make this conversion, the English hand weaver needed to spend exactly the same amount of time as before, but the product of his individual hour of work represented only half an hour of social work, and its value therefore decreased to half of what it had before.

It is only the amount of socially necessary work, then, or the time of work socially necessary for the production of a use value, which determines its magnitude of value.

Karl Marx. Das Kapital, 1857