NationMaster - Encyclopedia: Exchange value

In political economy and especially Marxian economics, exchange value refers to one of four major attributes of a commodity, i.e., an item or service produced for, and sold on, the market. The other three aspects are use value, value and price. Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. ... Marxian economics refers to a body of economic thought stemming from the work of Karl Marx. ... The word commodity is a term with distinct meanings in business and in Marxian political economy. ... Street markets such as this one in Rue Mouffetard, Paris are still common in France. ... In Marxian political economy, any commodity, i. ... Value is a term that expresses the concept of worth in general, and it is thought to be connected to reasons for certain practices, policies, or actions. ... In economics and business, the price is the assigned numerical monetary value of a good, service or asset. ...

These four concepts have a very long history in human thought, from Aristotle to David Ricardo, becoming ever more clearly distinguished as the development of commercial trade progressed. This text focuses on Marx's summation of the results of economic thought about exchange-value. In Marxist political economy, any labor-product has a value and a use value, and if it is traded as a commodity in markets, it additionally has an exchange value, most often expressed as a money-price. ... In economics and business, the price is the assigned numerical monetary value of a good, service or asset. ... Aristotle (sculpture) ARISTOTOLE (Greek: Î‘ÏÎ¹ÏƒÏ„Î¿Ï„ÎÎ»Î·Ï‚ AristotelÄ“s; 384 BC â€“ March 7, 322 BC) was an ancient Greek philosopher. ... David Ricardo (April 18, 1772 â€” September 11, 1823), a British political economist, is often credited with systematizing economics, and was one of the most influential of the classical economists. ...

Exchange value and price according to Marx

Strictly speaking, the exchange value of a commodity is for Marx not identical to its price, but represents rather what (quantity of) other commodities it will exchange for, if traded.

Money-prices are only the (more or less accurate) monetary expression of exchange-value. The advantage of money is that it provides a universal equivalent which can relate the exchange-value of all commodities, expressing them in a common unit. In that sense, money is the "universal commodity". Money Money is any marketable good or token used by a society as a store of value, a medium of exchange, and a unit of account. ...

Obviously though, exchange-value does not need to be expressed in money-prices necessarily (for example, in countertrade where x amount of goods p are worth y amounts of goods q). Karl Marx makes this abundantly clear in his dialectical derivation of the forms of value in the first chapters of Das Kapital. Karl Marx Karl Heinrich Marx (May 5, 1818 Trier, Germany â€“ March 14, 1883 London, UK) was an influential German philosopher, political economist, and revolutionary organizer of the International Workingmens Association. ... Das Kapital (Capital) is a very large treatise of political economy written by Karl Marx in German. ...

Historically speaking, money is initially merely incidental to commodity trade; it may co-exist alongside the bartering of wares. Only in a more developed capitalism is exchange-value expressed almost exclusively in money-units. Even so, a substantial amount of barter and countertrade continues to occur.

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 (nowadays called "opportunity cost"). The verb meaning "to set the price of" was used only from the 14th century onwards. Economists will argue that since exchange has occurred forever and a day, prices must also have existed eternally, but historians would dispute that.

The evolving linguistic meanings 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 universally used. But in fact there are many different kinds of prices, some of which are actually charged, and some of which are only notional prices. Even although a particular price may not refer to any real transaction, it can nevertheless influence economic behaviour, because people have become so used to valuing and calculating exchange-value in terms of prices, using money.

Exchange value and commodification

In the first chapters of 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). Das Kapital (Capital) is a very large treatise of political economy written by Karl Marx in German. ...

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:

Thus, the "commodification" 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. Surplus can refer to: budget surplus, the opposite of a budget deficit economic surplus anything thats no longer considered of use, such as army surplus This is a disambiguation page â€” a navigational aid which lists pages that might otherwise share the same title. ... Surplus product (German: Mehrprodukt) is a concept created by Karl Marx in his critique of political economy. ...

"To trade or not to trade", that may be the question. The modern debate in this regard focuses often on intellectual property rights because ideas are increasingly becoming objects of trade, and the technology now exists to transform ideas into commodities much more easily. In law, particularly in common law jurisdictions, intellectual property is a form of legal entitlement which allows its holder to control the use of certain intangible ideas and expressions. ...

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 labour power). According to Karl Marx, there is a clear distinction between labor and labor-power in economics. ...

Marx's quote on commodities and their exchange

Marx's view of commodities in Capital is illustrated by the following quote: Das Kapital (Capital) is a very large treatise of political economy written by Karl Marx in German. ...

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. Each commodity is a social product by nature. Division of labour is the breakdown of labour into specific, circumscribed tasks for maximum efficiency of output in the context of manufacturing. ...

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”) is that the system of commodity exchange that dominates capitalism obscures the class nature of that institution. In Marxist theory, commodity fetishism is an inauthentic state of social relations, said to arise in complex capitalist market systems, where social relationships are confused with their medium, the commodity. ... This article discusses the economic concept of exploitation. ...

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 gains prominence in the modern services economy.

Exchange value and the transformation of values into prices

In volumes I and II of 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 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. Das Kapital (Capital) is a very large treatise of political economy written by Karl Marx in German. ... Relations of production (German: Produktionsverhaltnisse) is a concept frequently used by Karl Marx in his theory of historical materialism and in Das Kapital. ... Das Kapital (Capital) is a very large treatise of political economy written by Karl Marx in German. ...

Despite this, the fruitless search for a quantative 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 literature. The labor theory of value (LTV) is a theory in economics and political economy concerning a market-oriented or commodity-producing society: the theory equates the value of an exchangeable good or service (i. ...

If, however, prices can fluctuate above or below value for all sorts of reasons, Marx's law of value 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. The law of value is a concept in Karl Marxs critique of political economy. ...

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 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) 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. Prices of production refers to a concept in Karl Marxs critique of political economy. ... Surplus value, according to Marxism, is unpaid labour that is extracted from the worker by the capitalist, and serves as the basis for capitalist accumulation. ...

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 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 behaviour, then we rapidly confront all the issues that Marx was concerned with.

Criticism of Marx's interpretation of commodity exchange

Some scholars, such as the Japanese Marxian scholar Kozo Uno, have criticised Marx's presentation of the labour theory of value on the ground that Marx adduces arguments in the wrong order. The labor theory of value (LTV) is a theory in economics and political economy concerning a market-oriented society: the theory equates the value of an exchangeable good or service (i. ...

Marx tries to prove logically that human labor-time is the "common substance" of commodities, as the basis of economic exchange. But, critics point out, it could just as well be argued that what commodities have in common is e.g. that they have a price (real or notional), and that these prices are, precisely, what makes commodities comparable. Which is a strong argument.

On those kinds of grounds, Kozo Uno argues that the concept of the labor-substance of commodities (abstract labor) should not be introduced in the theory of the circulation of commodities, but in the theory of the production of commodities by means of commodities (including the commodity labour power). According to Karl Marx, there is a clear distinction between labor and labor-power in economics. ...

Others argue that Marx ought to have theorised the concept of price (the price "form") much more clearly in his presentation, distinguishing between different kinds of prices (for example, actual prices charged, versus notional or ideal prices and administered prices).

Marx often writes rather sloppily about values and prices, implying that a value aggregate would be identical to a price aggregate. He felt this was legitimate because he was, after all, concerned only with broad trends and grand averages in the capitalist system, not with all sorts of minute market fluctuations. But this created ambiguities that have been the source of endless debates.

It turns out after fierce controversy that there exists no irrefutable logical argument about economic exchange, which can prove that the substance of commodity-value is human labour-time only. That remains just a theory, which, however, may appear quite reasonable to many.

What we can say is that, as a matter of fact, commodities take definite amounts of labour-time to produce, strongly affecting the trading ratios in which they will exchange, in open markets, and consequently shaping their prices; something which can be empirically investigated by relating aggregate quantities of labour performed to aggregate prices charged.

Thus, there exists no logical proof that the labour theory of value is true, only empirical proofs, which like any empirical proof, can never be absolute (though we may accept compelling empirical evidence as proving the limits of the theory's application, "for all intents and purposes"). The labor theory of value (LTV) is a theory in economics and political economy concerning a market-oriented society: the theory equates the value of an exchangeable good or service (i. ...

If Marx's theory has a strength, it must reside in its explanatory power, i.e. its capacity to make sense of the complexities of economic exchange. In that regard, the chief merit of Marx's theory is its essential simplicity, i.e. its reduction of economic value to labour-time only, which enables the social and technical aspects of economic exchange to be related'in a unified theory. But it must also be acknowledged that there are many price phenomena which the theory does not explain, principally because they fall outside its scope of application (e.g. prices attached to goods which are not labour-products, objects of art, or world market prices for agricultural products).

Other theories of exchange value

In modern neo-classical economics, 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. These trading processes are no longer understood in economics as social processes involving human giving and taking, getting and receiving, but as technical processes in which rational economic actors negotiate prices based on subjective perceptions of economic value. But armed only with prices and subjective preferences, it becomes difficult to understand market realities. Professor John Eatwell has summarised the overall result of this approach as follows: Neoclassicism (sometimes rendered as Neo-Classicism or Neo-classicism) is the name given to quite distinct movements in the visual arts, literature, theatre, music, and architecture. ... // Latin root meaning The term social is derived from the Latin word socius, which as a noun means an associate, ally, companion, business partner or comrade and in the adjectival form socialis refers to a bond between people (such as marriage) or to their collective or connected existence. ...

"Since the markets are driven by average opinion about what average opinion will be, an enormous premium is placed on any information or signals that might provide a guide to the swings in average opinion and as to how average opinion will react to changing events. These signals have to be simple and clear-cut. Sophisticated interpretations of the economic data would not provide a clear lead. So the money markets and foreign exchange markets become dominated by simple slogans--larger fiscal deficits lead to higher interest rates, an increased money supply results in higher inflation, public expenditure bad, private expenditure good--even when those slogans are persistently refuted by events. To these simplistic rules of the game there is added a demand for governments to publish their own financial targets, to show that their policy is couched within a firm financial framework. The main purpose of insisting on this government commitment to financial targeting is to aid average opinion in guessing how average opinion will expect the government to respond to changing economic circumstances and how average opinion will react when the government fails to meet its goals. So "the markets" are basically a collection of overexcited young men and women, desperate to make money by guessing what everyone else in the market will do. Many have no more claim to economic rationality than tipsters at the local racetrack and probably rather less specialist knowledge." (Source: http://www.prospect.org/print/V4/12/eatwell-j.html)

Among the very few attempts in the modern era to genuinely theorise economic exchange is the autodidactic businessman Alexander Gersch. Gersch writes in the preface to his book:

"In economics of all topics value is most disputed. This is because the theory of exchange which lies at the threshold of our science forms a connecting link between problems of a purely economic nature and the social. Moreover it acts as a point of departure for theoretical inferences affecting the entire domain of human economy. Its abstract nature renders an objective approach quite difficult and for all who have ventured to overcome these impediments it turned to be a stumbling block. Thus by its nature the theory of exchange value is a most ungrateful topic to be dealt with. Yet, being of essential importance to economics and a problem which was not solved, it invites adventurous minds to attempt its solution." (On the Theory of Exchange Value, p. v).

However, in paragraph 101 on p. 631 he arrives at a concept of exchange value not very different from Marx's, voicing the splendid non sequitur that "Economics must take into account both the objective and the subjective background of exchange value because these interact." This article is about the logical fallacy. ...

References

Das Kapital (Capital) is a very large treatise of political economy written by Karl Marx in German. ...

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