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 dialectics 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 enter decadence 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 he died first.
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 socially necessary labor required to produce it. Socially necessary labor being understood 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 plain that it is precisely the abstraction from their use values that characterizes the exchange relation between commodities. (…) As use values, commodities are, above all, of different qualities; as exchange values they can only differ in quantity, and therefore do not contain a single atom of use value.
Now, if we set aside the use value of the bodies of commodities, only one property remains to them: that of being products of labor. But even the product of labor has been transformed in our hands. If we abstract from its use value, we also abstract from the material components and forms that make it a use value. It is no longer a table, or a house, or yarn, or any other useful thing. All its sensuous properties have vanished. Nor is it any longer the product of the labor of the cabinetmaker, the bricklayer, the spinner or any other determinate productive labor.
With the useful character of the products of labor, the useful character of the kinds of labor represented in them also disappears, and with it the different concrete forms of those kinds of labor; they cease to be distinguished from one another and are all reduced to undifferentiated human labor, to abstract human labor.
All these things now tell us is that human labor power was expended in their production, that human labor was accumulated in them. As crystals of this social substance common to them, they are values.
In the exchange relation of commodities itself, their exchange value appeared to us as something entirely independent of their use values. If we then actually abstract from the use value of the products of labor, we obtain their value as it has just been determined. That common element which manifests itself in the exchange relation or in the exchange value of commodities is therefore their value. The progress of the investigation will lead us back to exchange value as the necessary mode of expression, or form of appearance, of value, which for the time being, however, must be considered independently of that form.
A use value, or a good, therefore has value only because abstract human labor is objectified or materialized in it. How, then, is the magnitude of its value to be measured? By the quantity of the "value-forming substance" - the quantity of labor - contained in that use value. The quantity of labor itself is measured by its duration, and labor time, in turn, finds its standard of measurement in definite fractions of time, such as the hour, the day, etc.
It might seem that, if the value of a commodity is determined by the quantity of labor expended in its production, the lazier or clumsier a man was, the more valuable his commodity would be, because he would need that much more time to make it. However, the labor that forms the substance of value is undifferentiated human labor, the expenditure of one and the same human labor power.
The total labor power of society, which is represented in the values of the world of commodities, counts here as one and the same human labor power, even though it is made up of innumerable individual labor powers. Each of these individual labor powers is the same human labor power as the others, insofar as it has the character of an average social labor power and functions as such, that is, insofar as in the production of a commodity it uses only the labor time necessary on average, or socially necessary labor time.
Socially necessary labor time is the labor time required to produce any use value under the normal conditions of production prevailing in a society and with the average social degree of skill and intensity of labor. After the introduction of the steam loom in England, for example, roughly half as much labor as before sufficed to convert a given quantity of yarn into cloth. To make this conversion, the English hand-loom weaver now needed exactly the same labor time as before, but the product of his individual hour of labor now represented only half an hour of social labor, and its value consequently fell to half what it had been before.
It is therefore only the quantity of socially necessary labor, or the labor time socially necessary for the production of a use value, that determines its magnitude of value.
Karl Marx. Das Kapital, 1867