Exchange value

These four concepts have a very long history in human thought, from Aristotle to David Ricardo,^[2] and became 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 Karl Marx's summation of the results of economic thought about exchange value.

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).


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.


"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 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).

Transformation of values into prices[edit]

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.


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 literature.


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.


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.


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.