6. How the value of a commodity is determined

Woman-pays-for-fresh-produce-at-local-farmers-market(This educational material has been prepared as part of the course “The Political Economy of Capitalism”)

6. How the value of a commodity is determined.

We have established that the exchange value of a commodity is its ability to be exchanged for other commodities in a certain quantitative proportion. Let us suppose that a known quantity of a commodity, 20 kg of grain, is exchanged for a certain quantity of another commodity, 10 m of canvas. Naturally, the question arises: why exactly for 10, and not for 15 or for 5 m? What are the proportions of exchange based on?

Some bourgeois economists argue that the exchange of goods takes place on the basis of supply and demand. For example, the English economist G. D. MacLeod argued that “the relation between supply and demand is the only regulator of value”. How do they explain this? They say: if more grain is offered for exchange in the market than there is demand for it, the exchange value of the grain will decrease. To exchange 20 kilograms of grain would require less canvas, for example, not 10, but 7, or even less meters. And on the contrary, when there is a great demand for grain, but there is much less offered, the exchange value of grain increases, and then 20 kilograms of grain can be exchanged not for 10, but for 13-15 or even more meters of canvas.

No one disputes that supply and demand have some influence on exchange ratios. They have an influence, but they do not determine it; they do not create the exchange value of goods.

Let us imagine a situation where supply and demand for goods are equal, i.e. grain is offered in exactly the same amount in which it is demanded. In this case, the influence of supply and demand are mutually excluded. But one commodity is exchanged for another anyway in some definite proportion! On the basis of what is it established? Why is 20 kg. of grain exchanged for 10 m. of canvas, and not for another quantity? The theory of supply and demand cannot answer this.

There is another point of view, according to which the exchange operations are determined by the degree of usefulness of the thing, by the use value of the commodity. Thus, the Austrian economist E. Böhm-Bawerk wrote that “the value of a thing is measured by the value of the marginal utility of this thing”. At first glance, this interpretation may also seem correct and quite convincing: the more useful an object is, the more customers need it, the higher its price.

In reality, however, the utility of a thing cannot serve as the basis for proportions in the exchange of goods. If this were so, then the most necessary products for human life: bread, milk, etc. – would be the most expensive; they would require the most goods in exchange. However, this is not the case: there are many commodities that are less useful and less necessary for people than water and bread, but they are very expensive nonetheless.

A word of caution: this should not be understood in the sense that the most useful things are the cheapest. Clover hay as fodder is more useful than straw, but it is much more expensive than straw. There are many such examples. They all prove that there is not, and cannot be, an unambiguous direct causal relationship between the usefulness of a thing and its exchange value: some things are more useful and more expensive, while others are more useful, though cheaper.

What is the basis of the proportions in the exchange of goods? Why is 20 kg of grain equal to 10 m of canvas? With what and how are they equalized? There is no exchange without equality. The weaver takes 20 kilograms of grain, because they are equal to 10 meters of woven canvas.

The basis of equality cannot be the use value: after all grain and canvas are not homogeneous in their purpose; they satisfy different human needs. They are also incommensurable in quantity: the measure of grain is weight, and the measure of canvas is area (so many meters of length, so many meters of width). For two commodities to be exchanged, they must have something in common before they are exchanged.

Do they have something in common? Yes, they do. And that common thing is the labor expended in producing the commodity. Grain, canvas, a box of matches, a tractor, a needle, an airplane-all are products of human labor. The equality of two commodities, their exchange is possible only because these commodities embody, express the same amount of labour expended in their production.

The labor embodied in the commodity forms its value. We are talking, of course, of all the labor expended at all stages of production. For example, the value of grain grown by a farmer embodies the labor of mechanical engineers (tractors, combines, etc.), chemists (fertilizers), miners (fuel) and many other workers.

It is necessary to consider this special characteristic of value. Consumption value embodies the manifold natural properties of commodities, while value is an expression of the social, socio-economic properties of commodities.

The source of commodity value, as we have already established, is labor. The amount of value directly depends on the amount of labor input. In the past, for example, the production of aluminum took an enormous amount of labor and was worth more than gold. Later, when they learned how to produce aluminum with less labor, it became incomparably cheaper than gold. The same is true of iron. In ancient times, when iron was extremely difficult to work, arming a warrior cost more than 100 oxen. Later, when they mastered the production and processing of iron, each piece of armor began to require less and less labor, and iron became much cheaper. Thus, the less labor is invested, the less the cost of goods is, and vice versa.

In a subsistence economy, products are also created by labor, but they are consumed by the producers themselves. Therefore there is no need to measure products because they do not need to be exchanged: the products of a subsistence economy do not become commodities and have no value, although labor is expended on them.

In a commodity economy, based on private ownership of the means of production, the commodity producers work separately, but the labor of each of them is connected by thousands of threads with the labor of the others.

The shoemaker, for example, buys leather from the tanner, knives, awls, hammers and other tools necessary for sewing boots from the tool maker, thread and cloth from a third commodity producer, etc. In addition to these direct connections, there are many indirect ones.

As can be seen from our example, the labor of any commodity producer is both individual labor and part of social labor. The shoemaker’s labor, though isolated, is nevertheless needed by society, and from this point of view it is a part of social labor. But the connection of this kind of labor with the labor of other commodity producers is discovered only already at the marketplace. Before the shoemaker brings his goods to the market, he sews them at his own risk, not knowing whether anyone needs them.

The connection between producers, which already exists in the process of producing goods, does not manifest itself immediately, not directly, but in a roundabout way, through exchange. In the market, in the process of buying and selling, boots are equated with other commodities and thus the social nature of the shoemaker’s labor is revealed.

What conclusions can be drawn from the above?

First, value is not simply the cost of labor, but the cost of social labour of the commodity producer embodied in the commodity.

Second, the relations between people in the process of production, exchange and consumption of goods, the productive relations of commodity producers, are expressed in the value of goods.

Therefore, we can say that value is not a relation between things, commodities, but a social relation between commodity producers. In short, value is a social, public relation.

Value reflects certain relations of people in the process of production. They are characterized by the fact that the producers of products are isolated from one another and the connection between them is established not directly but in a roundabout way, through the market, through buying and selling. In other words, value is an expression of the social relations of commodity producers.

Value is not a natural, but a social property of the product. Boots made in a subsistence economy do not differ in their natural qualities from boots made in a commodity economy, but in the first case they have no value, and in the second case, being a commodity, they perform, as we have found out, a different social role. Value is a historical phenomenon connected with the emergence and development of commodity production. When social production simply produces products, commodity production will disappear and the products of labor will have no value.

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