The law of the value of commodities (German: Wertgesetz der Waren), known simply as the law of value, is a central concept in Karl Marx's critique of political economy first expounded in his polemic The Poverty of Philosophy (1847) against Pierre-Joseph Proudhon with reference to David Ricardo's economics.Takahisi Oishi, The unknown Marx: reconstructing a unified perspective. Foreword by Terrell Carver. London: Pluto Press, 2001See Marx, The Poverty of Philosophy, chapter 1 part 2 where Marx refers to Proudhon's own "law of value" and chapter 3, titled "Application of the Law of the Proportionality of Value". Most generally, it refers to a regulative principle of the economic exchange of the products of human work, namely that the relative exchange-values of those products in trade, usually expressed by money-prices, are proportional to the average amounts of human labor-time which are currently socially necessary to produce them within the capitalist mode of production.John Eaton, Political Economy: A Marxist Textbook. Rev ed. 1963 reprinted 1970. p. 29.Karl Marx, Capital, Volume I, Penguin, pp. 676–77; Marx, Capital, Volume III, Penguin ed., p. 522.
Thus, the fluctuating exchange value of commodities (exchangeable products) is regulated by their value, where the magnitude of their value is determined by the average quantity of human labour which is currently socially necessary to produce them (see labor theory of value and value-form). Theorizing this concept and its implications preoccupied Marx for more than two decades.
When Marx talked about "value relationships" or "value proportions" (German: Wertverhältnisse), he did not mean "the money" or "the price". Instead, he meant the ratio of value (or 'worth') that exist between products of human labour. These relationships can be expressed by the relative replacement costs of products as labour hours worked. The more labour it costs to make a product, the more it is worth and inversely the less labour it costs to make a product, the less it is worth. Money-prices are at best only an expression or reflection of Marx's value relationships—accurately or very inaccurately. Products can be traded above or below their value in market trade and some prices have nothing to do with product-values at all (in Marx's sense) because they refer to tradeable objects which are not regularly produced and reproduced by human labour, or because they refer only to claims on financial assets.
Theorizing the value of labour-products The "law of value" is often equated with the "labour theory of value", but this is strictly speaking an error, for five reasons.Peter C. Dooley, The Labour Theory of Value. New York: Routledge, 2005. The law of value only states a general regulative principle about the necessary and inevitable relationship between the trading values of commodities, and the socially average labour-time required to supply them. It is simply a law governing commodity exchange. The labour of value in economics aims to explain that determination actually work, what kinds of causal relationships are involved, how the law of value interacts with other economic laws, etc.Emmanuel D. Farjoun, Moshé Machover and David Zachariah, How Labor Powers the Global Economy: A Labor Theory of Capitalism. Cham, Switzerland: Springer, 2022. For Marx himself, the "labour theory of value" referred only to the theory of value upheld by some of the classical political economists from William Petty to David Ricardo, who regarded human labour as the real substance of product value. Marx's own value theory is not a theory of value, but only of the value-system involved in commodity production and commodity trade. Marx never referred to his own theory as a "labour theory of value";Mike Beggs, "Zombie Marx and Modern Economics, or How I Learned to Stop Worrying and Forget the Transformation Problem. Journal of Australian Political Economy, issue 70, Summer 2012/13, p. 16. Gary Mongiovi, "Vulgar economy in Marxian garb: a critique of Temporal Single System Marxism." In: Review of Radical Political Economics, Vol. 34, Issue 4, December 2002, pp. 393-416, at p. 398. his own critique of the political economists was, that they all failed to explain satisfactorily the determination of product-value by labour-time actually worked—they assumed it, but they did not explain it consistently (see below). Thus, Marx often regarded himself as perfecting a theory which had already existed for a long time, but which had never been consistently presented before.See for example Letter of Marx to Engels, 9 August 1862. in: Marx/Engels Selected Correspondence. Moscow: Progress, 1975, p. 125.
Nevertheless, in the Marxist tradition, Marx's theory of product-value is conventionally labeled "the labour theory of value"—while controversy persists about how much Marx's theory actually differs from that of the classical political economist.Isaak Illich Rubin, A History of Economic Thought. London: Ink Links, 1979.
Gold referent In Das Kapital Marx normally thinks of the quantity of labour that determines product-value as the ratio between the average total amount of labour-time required to produce a reproducible good, and the corresponding average amount of labour required to produce a unit of gold (see also gold standard).Ian Steedman, "Marx and Ricardo", in: Ian Bradley and Michael Howard, Classical and Marxian Political Economy: Essays in honour of Ronald L. Meek. London: Macmillan, 1982, p. 120. Already in 1844, long before he wrote Das Kapital, Marx was very aware of credit money. Whereas "commodity money" (coinage or bullion) played an important role in the earlier stages of capitalist development, the growth of integrated capital markets meant increased use of credit money. Marx felt that the initial assumption of gold-money as a standard of value was justified, in analysing the capitalist relations of production and distribution. Thus, as follows:
For Marx, the value of a commodity is determined by socially necessary labor time, or the amount of time "required to produce an article under the normal conditions of production, and with the average degree of skill and intensity". Marx rejects contra-classical political economy, any notions of the "value of labor" or "price of labor". Instead, it is labor itself (more specifically, abstract labor or general human labor) which is constitutive of value, the substance of value. Consequently, it is not labor, but labor-power (the general human capacity for labor) which has value —a value determined, as in the case of every other commodity, by the labour time necessary for the production, and consequently also the reproduction, of this special article." The importance of labour is its ability to preserve capital value, increase already existing value, and create wholly new value. How any individual happens to regard a particular product normally cannot change that social valuation at all; it's simply a "social fact" in the same way as "the state of the market" is a social fact, even though particular products can at any time trade at prices above or below their socially established value.
Marx realized very well, that the assumption of gold-money was a simplification—there might not be such a stable relationship between price-levels, average commodity values, and gold quantities — but he regarded the assumption as helpful, in explaining the basic laws of motion [Bewegungsgesetze] of the capitalist mode of production "in its ideal average".
Formalization While Marx used the concept of the law of value in his works Grundrisse, A Contribution to the Critique of Political Economy, Theories of Surplus Value and Das Kapital, he did not explicitly formalise its full meaning in a mathematical sense, and therefore how it should be exactly defined remains to some extent a controversial topic in Marxian economics. Different economists dispute how the proportionality between exchange-value and labour-time should be mathematically understood or modeled, and about the measures which are relevant.See e.g. Ian Steedman et al., The Value Controversy. London: Verso, 1981; John Weeks, Capital and exploitation. Edward Arnold, 1981; Ernest Mandel, and Alan Freeman (eds.), Ricardo, Marx, Sraffa, The Langston Memorial Volume, London: Verso, 1984 ; Makoto Itoh, The Basic Theory of Capitalism; Ulrich Krause, Money and Abstract Labour: On the Analytical Foundations of Political Economy. Translated by Peter Burgess. Edited by Jon Rothschild. London: Verso 1982; Alan Freeman, Andrew Kliman, Julian Wells (eds.), The new value controversy and the foundations of economics. Cheltenham: Edward Elgar, 2004; Simon Mohun (ed.), Debates in Value Theory. Macmillan: London, 1994; Richard Westra & Alan Zuege (eds.), Value and the world economy today – Production, Finance and Globalization. Houndmills: Palgrave Macmillan, 2003. Alfredo Saad-Filho, The value of Marx: political economy for contemporary capitalism. London: Routledge, 2002; Ajit Sinha, Theories of Value from Adam Smith to Piero Sraffa. London: Routledge, 2010; Gerard Dumenil & Dominique Levy online archive
Underlying this debate are difficult conceptual questions about how the causal relationships in the economy between price relativities and time worked should be understood. Marx's analysis of value was dialectical, in the sense that he thought value phenomena could only be understood dynamically, holistically and relationally, but he did not spell out all the conceptual, quantitative and logical implications of his position with great exactitude. The scholarly debate about those implications continues even today.See e.g. Alan Freeman & Guglielmo Carchedi, Marx and non-equilibrium economics. Cheltenham: Edward Elgar, 1996; Andrew Kliman, Reclaiming Marx's 'Capital': a refutation of the myth of inconsistency. Lanham: Lexington Books, 2007; Anwar Shaikh papers ; Gerard Duménil & Dominique Lévy papers ; Paul Cockshott, Ian Wright et al. Information, Money and Value ; Samir Amin, The Law of Value and Historical Materialism. New York: Monthly Review Press, 1978; Ian Wright, "The Emergence of the law of value in a dynamic simple commodity economy". Review of Political Economy, Vol. 20, No. 3, pages 367–91. ; Patrick Julian Wells, The rate of profit as a random variable. Phd dissertation, School of management, Open University, London 2007; Alfredo Saad Filho interview on value theory, Marx's idea of value. ; Andrew J. Kliman, "The law of value and laws of statistics: sectoral values and prices in the US economy, 1977–97". Cambridge Journal of Economics, 2002, vol. 26, issue 3, pp. 299-; Thomas T. Sekine, The Necessity of the Law of Value, its Demonstration and Significance; Enrique Dussel, Towards an unknown Marx: a commentary on the manuscripts of 1861–63. London: Routledge, 2001. In recent years, the Italian Marxist scholar Riccardo Bellofiore and other members of the International Symposium on Marxian Theory (ISMT) have edited a number of volumes of scholarly commentaries on Marx's Capital, which benefit from the definitive MEGA II edition of Marx's works. Alan Freeman has provided IWGVT papers online. The Outline of Political Economy (OPE-L) archives are available online on two sites: . Professor Ben Fine and a group of academic colleagues coordinate the conferences of the International Initiative for Promoting Political Economy (IIPPE)
Basic definition of the concept Supply and demand