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In
political economy Political economy is the study of production Production may be: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act of making products ( ...
and especially
Marxian economics Marxian economics, or the Marxian school of economics, is a heterodox In religion, heterodoxy (from Ancient Greek Ancient Greek includes the forms of the Greek language used in ancient Greece and the classical antiquity, ancient world f ...
, exchange value (German: ''Tauschwert'') refers to one of four major attributes of a
commodity In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of plan ...
, i.e., an item or service produced for, and sold on the
market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared by Finland and Sweden Art, entertainment, and media Films *Market (1965 film), ''Market'' (1965 ...
. The other three aspects are
use value Use value (german: Gebrauchswert) or value in use is a concept in classical political economy and Marxian economics. It refers to the tangible features of a commodity (a tradeable object) which can satisfy some human requirement, want or need, or w ...
,
economic value In economics Economics () is a social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the beh ...
, and
price A price is the (usually not negative) quantity Quantity is a property that can exist as a multitude or magnitude, which illustrate discontinuity and continuity. Quantities can be compared in terms of "more", "less", or "equal", or b ...

price
. Thus, a commodity has: * a
value Value or values may refer to: * Value (ethics) In ethics Ethics or moral philosophy is a branch of philosophy Philosophy (from , ) is the study of general and fundamental questions, such as those about Metaphysics, existence, reason, E ...
, represented by the
socially necessary labour time Socially necessary labour time in Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher A philosopher is someone who practices philosophy. The term ''philosopher'' comes from the grc, φιλόσοφος, , tra ...
to produce it. (note the first link is to a non-Marxian definition of value); * a
use value Use value (german: Gebrauchswert) or value in use is a concept in classical political economy and Marxian economics. It refers to the tangible features of a commodity (a tradeable object) which can satisfy some human requirement, want or need, or w ...
(or
utility As a topic of economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within thos ...

utility
); * an exchange value, which is the proportion at which a commodity can be exchanged for other commodities; * a price (it could be an actual selling price or an imputed ideal price). These four concepts have a very long history in human thought, from
Aristotle Aristotle (; grc-gre, Ἀριστοτέλης ''Aristotélēs'', ; 384–322 BC) was a Greek philosopher A philosopher is someone who practices philosophy Philosophy (from , ) is the study of general and fundamental questio ...

Aristotle
to
David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist, one of the most influential of the classical economists along with Thomas Malthus Thomas Robert Malthus (; 13/14 February 1766 – 23 December 1834) w ...

David Ricardo
, becoming ever more clearly distinguished as the development of commercial trade progressed but have largely disappeared as four distinct concepts in modern economics. This entry focuses on Marx's summation of the results of economic thought about exchange-value.


Exchange value and price according to Marx

Marx regards exchange-value as the proportion in which one commodity is exchanged for other commodities. Exchange-value, for Marx, is not identical to the money price of a commodity. Actual money prices (or even equilibrium prices) will only ever roughly correspond to exchange-values; the relationship between exchange-value and price is analogous to the exact measured temperature of a room and everyday awareness of that temperature from feeling alone, respectively. Thus Marx did not regard divergence between the two as a refutation of his theory. The value of a good is determined by the
socially necessary labour time Socially necessary labour time in Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher A philosopher is someone who practices philosophy. The term ''philosopher'' comes from the grc, φιλόσοφος, , tra ...
required to produce the commodity. Marx believed that an understanding of exchange-value was necessary to explain fluctuations in price. Exchange-value does not need to be expressed in money-prices ''necessarily'' (for example, in
countertrade Countertrade means exchanging goods or services which are paid for, in whole or part, with other goods or services, rather than with money. A monetary valuation can however be used in countertrade for accounting purposes. In dealings between soverei ...
where x amount of goods p are worth y amounts of goods q). Marx makes this abundantly clear in his dialectical derivation of the forms of value in the first chapters of
Das Kapital ''Das Kapital'', also known as ''Capital: A Critique of Political Economy'' or sometimes simply ''Capital'' (german: Das Kapital. Kritik der politischen Ökonomie, ; 1867–1883), is a foundational theoretical text in materialist philosophy, c ...

Das Kapital
(see
value-form The value-form or form of value (german: Wertform) is a concept in Karl Marx's critique of political economy. Marx's account of the value-form is differently adopted in later forms Marxism, in the Frankfurt School and in post-Marxism. When social l ...
). Actually, the word "price" came into use in Western Europe only in the 13th century AD, the Latin root meaning being "''pretium''" meaning "reward, prize, value, worth", referring back to the notion of "recompense", or what was given in return, the expense, wager or cost incurred when a good changed hands. The verb meaning "to set the price of" was used only from the 14th century onwards. The evolving
linguistic meaning Semantics (from grc, σημαντικός ''sēmantikós'', "significant") is the study of meaning, reference, or truth. The term can be used to refer to subfields of several distinct disciplines, including linguistics Linguistics is th ...
s reflect the early history of the growing cash economy, and the evolution of commercial trade. Nowadays what "price" means is obvious and self-evident, and it is assumed that prices are all one of a kind. That is because money has become used for nearly all transactions. But in fact there are many different kinds of prices, some of which are actually charged, and some of which are only ' notional prices'. Although a particular price may not refer to any real transaction, it can nevertheless influence economic behavior, because people have become so used to valuing and calculating exchange-value in terms of prices, using money (see
real prices and ideal pricesThe distinction between real prices and ideal prices is a distinction between ''actual prices paid'' for products, services, assets and labour (the net amount of money that actually changes hands), and ''computed'' prices which are not actually charg ...
).


Commodification

In the first chapters of ''
Das Kapital ''Das Kapital'', also known as ''Capital: A Critique of Political Economy'' or sometimes simply ''Capital'' (german: Das Kapital. Kritik der politischen Ökonomie, ; 1867–1883), is a foundational theoretical text in materialist philosophy, c ...

Das Kapital
'', Marx traces out a brief logical summary of the development of the forms of trade, beginning with barter and simple exchange, and ending with a capitalistically produced commodity. This sketch of the process of "marketisation" shows that the commodity form is not fixed once and for all, but in fact undergoes a ''development'' as trade becomes more sophisticated, with the end result being that a commodity's exchange-value can be expressed simply in a (notional) quantity of money (a money price). However, the transformation of a labor-product into a commodity (its "marketing") is in reality not a simple process, but has many technical and social preconditions. These often include: * the existence of a reliable ''supply'' of a product, or at least a surplus or
surplus product Surplus product (german: Mehrprodukt, links=no) is an economic concept explicitly theorised by Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher A philosopher is someone who practices philosophy ...
; * the existence of a social need for it (a market demand) that must be met through trade, or at any event cannot be met otherwise; * the legally sanctioned assertion of private ownership rights to the commodity and the right to trade it; * the enforcement of these rights, so that ownership is secure; * the transferability of these private rights from one owner to another; * the (physical) transferability of the commodity itself, i.e. the ability to store, package, preserve and transport it from one owner to another; * the imposition of exclusivity of access to the commodity; * the possibility of the owner to use or consume the commodity privately; * guarantees about the quality and safety of the commodity, and possibly a guarantee of replacement or service, should it fail to function as intended; * the ability to produce the commodity at a cost and sale-price sufficient to yield an adequate and predictable income or profit; * the ability to produce and trade a commodity without too much risk of a type that would undermine the business. Thus, the
commodification Within a capitalist Capitalism is an economic system An economic system, or economic order, is a system of Production (economics), production, allocation of resources, resource allocation and Distribution (economics), distribution of go ...
of a good or service often involves a considerable ''practical'' accomplishment in trade. It is a process that may be influenced not just by economic or technical factors, but also political and cultural factors, insofar as it involves property rights, claims to access to resources, and guarantees about quality or safety of use. "To trade or not to trade", that may be the question. The modern debate in this regard focuses often on
intellectual property rights Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of ...
because ideas are increasingly becoming objects of trade, and the technology now exists to transform ideas into commodities much more easily. In absolute terms, exchange values can also be measured as quantities of average labour-hours. By contrast, prices are normally measured in money-units. For practical purposes, prices are however usually preferable to labour-hours, as units of account, although in capitalist work processes the two are related to each other (see
labor power Labour or labor may refer to: * Childbirth Childbirth, also known as labour or delivery, is the ending of pregnancy where one or more babies leaves the uterus by passing through the vagina or by Caesarean section. In 2015, there were about 13 ...
).


Marx's quote on commodities and their exchange

Marx's view of commodities in ''
Capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...

Capital
'' is illustrated by the following quote:
We have seen that when commodities are in the relation of exchange, their exchange-value manifests itself as something totally independent of their use-value. But if we abstract from their use-value, there remains their value, as has just been defined. The common factor in the exchange relation, or in the exchange-value of the commodity, is therefore its value. (Vintage/Penguin edition, p. 128, chapter 1, §1, para. 12)
This first part says that the value of commodities as they are exchanged for each other—or when stated in terms of money units, their prices—are very different from their value in use to human beings, their ''use-value''. Next, Marx describes how he had abstracted from the differences in use-value and thus from the concrete differences amongst commodities, looking for their shared characteristics. He famously claimed to find that what's left is that all commodities have ''value'' (or "labor-value"), the abstract labor time needed to produce it. That is, all commodities are social products of labor, created and exchanged by a community, with each commodity producer contributing his or her time to the societal
division of labor Division or divider may refer to: Mathematics *Division (mathematics) Division is one of the four basic operations of arithmetic, the ways that numbers are combined to make new numbers. The other operations are addition, subtraction, and mult ...
. Each commodity is a social product by nature. Third, value is not the same thing as exchange-value (or price). Rather, the value is the shared characteristic of the exchange-values of all the commodities. He calls this the "common factor", whereas someone else might call it the "essence". In contrast, the exchange-value represents the appearance or "form" of expression of value in trade. Just as with used cars, the shiny appearance may differ radically from the lemony essence. In fact, one of his major themes (the theory of "
commodity fetishism In Karl Marx's critique of political economy, commodity fetishism is the perception of certain relationships (especially production and exchange) not as relationships among people, but as social relationships among things (the money and commodit ...
") is that the system of commodity exchange that dominates capitalism obscures the
class Class or The Class may refer to: Common uses not otherwise categorized * Class (biology), a taxonomic rank * Class (knowledge representation), a collection of individuals or objects * Class (philosophy), an analytical concept used differently f ...
nature of that institution. To Marx, the "exchange value" of a commodity also represents its owner's purchasing ''power'', the ability to ''command'' labor, i.e., the amount of labor time that is claimed in acquiring it. This aspect appears not only in the modern services economy, but in the market for tangible goods: by purchasing a good, one is gaining the results of the labor done to produce it, while one is also commanding (directing) labor to produce more of it.


Transformation of values into prices

In volumes I and II of ''
Capital Capital most commonly refers to: * Capital letter Letter case (or just case) is the distinction between the letters that are in larger uppercase or capitals (or more formally ''majuscule'') and smaller lowercase (or more formally ''minusc ...

Capital
'', Marx usually assumed that exchange values were equal to values, and that prices were proportional to values. He was talking about overall movements and broad averages, and his interest was in the social
relations of production Relations of production (german: Produktionsverhältnisse, links=no) is a concept frequently used by Karl Marx and Friedrich Engels in their theory of historical materialism and in '' Das Kapital''. It is first explicitly used in Marx's publi ...
existing behind economic exchange. However, he was quite conscious of the distinction between the empirical and microeconomic concept of prices (or exchange values) and the social concept of value. In fact he completed the draft of volume 3 of ''Das Kapital'' before he published volume 1. Despite this, the fruitless search for a quantitative relationship allowing the logical derivation of prices from values (a labor theory of price) with the aid of mathematical functions has occupied many economists, producing the famous
transformation problem In 20th-century discussions of Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist and socialist revolutionary. Born in Trier, German Con ...
literature. If, however, prices can fluctuate above or below value for all sorts of reasons, Marx's
law of value 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) agains ...
is best seen as a "law of grand averages", an overall ''generalisation'' about economic exchange, and the quantitative relationships between labour hours worked and real prices charged for an output are best expressed in ''probabilistic'' terms. One might ask, how can "value" be transformed into "price" if a commodity by definition already has a value and a price? To understand this, one needs to recognise the ''process'' whereby products move into markets and are withdrawn from markets. Outside the market, not being offered for sale or being sold, commodities have at best a potential or hypothetical price. But for Marx prices are formed according to pre-existing product-values which are socially established prior to their exchange. Marx sought to theorise the transformation of commodity values into
prices of production Prices of production (or "production prices"; in German ''Produktionspreise'') is a concept in Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, jour ...
within capitalism dialectically, as a "moving contradiction": namely, in capitalism, the ''value'' of a commodity output produced encompassed ''both'' the equivalent of the cost of the used inputs which were initially bought to produce it, as well as a gross profit component (
surplus value In Marxian economics Marxian economics, or the Marxian school of economics, is a Heterodox economics, heterodox school of political economic thought. Its foundations can be traced back to Karl Marx, Karl Marx's Critique of political economy#M ...
) which became definite and manifest only ''after'' the commodity has been sold and paid for, and after costs were deducted from sales. Value was, as it were, suspended between the past and the future. An output with a certain value was produced, but exactly how much of that value would be subsequently realised upon sale in markets was usually not known in advance. Yet, that ''potential'' value also strongly affected the sales income that producers could get from it, and moreover that value was determined not by individual enterprises, but by all enterprises producing the same type of output for a given market demand ("the state of the market"). The business results of each enterprise were influenced by the overall effects created by all enterprises through their productive activity, as an ongoing process. This simple "market reality" has stumped many of Marx's interpreters though; they fail to see that value is ''conserved, transferred and added to'' by living labor, between the initial purchase of inputs with money on the one side, and the subsequent sale of outputs for more money, on the other. They see only input prices and output prices, or cost-prices and sale-prices, and not the creation of a product which already has a value ''prior to being exchanged'' at a certain price - a value which is moreover ''socially'' determined by a group of enterprises together, and which sets limits for price fluctuations. For that reason, the whole process of the ''formation of value'' which Marx so carefully lays out, with its complex determinants, seems like an unnecessary detour from commercial wisdom. If, however, we wish to understand the "deep structure" of market behavior, then we rapidly confront all the issues that Marx was concerned with.


Relation to mainstream economics

In modern
neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are driven by the supply and demand In microeconomics, supply and demand is an economic model In econo ...
, exchange value itself is no longer explicitly theorised. The reason is that the concept of money-price is deemed sufficient in order to understand trading processes and markets. Exchange value thus becomes simply the price for which a good will trade in a given market which is identical to what Marx refers to as price. These trading processes are no longer understood in economics as
social Social organisms, including humans, live collectively in interacting populations. This interaction is considered social whether they are aware of it or not, and whether the exchange is voluntary/involuntary. Etymology The word "Social" derives fr ...

social
processes involving human giving and taking, getting and receiving, but as technical processes in which rational, self-interested economic actors negotiate prices based on subjective perceptions of
utility As a topic of economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within thos ...

utility
. Market realities are therefore understood in terms of supply and demand curves which sets price at a level where supply equals demand. Professor John Eatwell criticizes this approach as follows:


See also

*
Labor theory of value The labor theory of value (LTV) is a theory of value that argues that the economic value In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), produc ...
*
Law of value 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) agains ...
* Natural economy *
Prices of production Prices of production (or "production prices"; in German ''Produktionspreise'') is a concept in Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, jour ...
*
Real prices and ideal pricesThe distinction between real prices and ideal prices is a distinction between ''actual prices paid'' for products, services, assets and labour (the net amount of money that actually changes hands), and ''computed'' prices which are not actually charg ...
*
Unequal exchange Unequal exchange is used primarily in Marxist economics, but also in ecological economics (more specifically also as ecologically unequal exchange), to denote forms of exploitation Exploitation may refer to: *Exploitation of natural resources ...
*
Use value Use value (german: Gebrauchswert) or value in use is a concept in classical political economy and Marxian economics. It refers to the tangible features of a commodity (a tradeable object) which can satisfy some human requirement, want or need, or w ...
* Value in economics *
Value-form The value-form or form of value (german: Wertform) is a concept in Karl Marx's critique of political economy. Marx's account of the value-form is differently adopted in later forms Marxism, in the Frankfurt School and in post-Marxism. When social l ...


Notes


References

* Karl Marx, ''
Das Kapital ''Das Kapital'', also known as ''Capital: A Critique of Political Economy'' or sometimes simply ''Capital'' (german: Das Kapital. Kritik der politischen Ökonomie, ; 1867–1883), is a foundational theoretical text in materialist philosophy, c ...

Das Kapital
''
Part 1, Ch. 1
* Makoto Itoh, ''The Basic Theory of Capitalism''. * Alexander Gersch, ''On the Theory of Exchange Value''. * David Ricardo, ''The Principles of Political Economy and Taxation''. * James Heartfield, ''The Economy of time'

{{Marxist and communist phraseology Classical economics Marxian economics