Value is a social relationship between people which expresses itself as a material relationship between things. According to the labour theory of value, which was developed by the classical economists and then adopted by Marx, the value of a commodity depends on the amount of labour required to produce it; or, more formally: `the value of a commodity is determined by the quantity of socially necessary abstract labour time needed for its production and reproduction.'
Price is the monetary expression of value. It should be noted though that in Marx's conception of the labour theory of value, prices do not correspond rigidly to values, but can deviate from them because of various contingencies. Value is considered the more fundamental category for social and economic analysis.
‘ ... [value] is only a representation in objects, an objective expression, of a relation between men [sic.], a social relation, the relation of men [sic.] to their reciprocal economic activity.’ — Karl Marx, Theories of Surplus Value, vol. III, p 147 (Moscow, 1971).
Sources of value
Marginal product of capital?
Capitalist profit-making is often defended on the ground that capital is a 'factor of production', i.e., it is one of the things needed in order for production to ocurr, and that it should receive payment in proportion to its contribution to production. John Bates Clark (1899) was a noteable exponent of the idea that capital income is ethically justified in this way. But David Shweickart (Capitalism or Worker Control?, 1980) engages with Clark's work to provide a convincing rebuttal of this argument:
John Bates Clark was an early exponent of the claim that capital distribution accords with the ethical standard of productive contribution, that capitalism is just because it returns to each individual the value he produces. ... Clark claims that a person can create wealth in one of three ways: by working, by providing capital, and by coordinating labor and capital. If we regard "coordinating labor and capital" as a managerial activity directly related to the productive process, then both working and coordinating labor and capital are productive activities in a perfectly straightforward sense: should laborers and managers cease their mental and physical work, the production of wealth would likewise cease. The economy would grind to a halt.
"Providing capital", however, is something quite different. In Clark's perfectly competitive world, technology is fixed and risks are nonexistent. "Providing capital" means nothing more than "allowing it to be used." But the act of granting permission can scarcely be considered a productive activity. If laborers ceased to labor, production would cease in any society. But if owners ceased to grant permission, production would cease only if their ownership claims were enforced. If they ceased to grant permission because their authority over the means of production was no longer recognized, then production need not be affected at all. (If the government nationalized the means of production and charged workers a use-tax, we wouldn't say, would we, that the government was being rewarded for productive activity?) But if providing capital is not a productive activity (at least not within a static neoclassical model), then income derived from this function can hardly be justified as being proportional to one's productive contribution to the group. [pp. 5-11.]
Schweickart concludes that, 'The abstraction from individual activity that allows one to define the contribution of a factor in a precise mathematical manner [eg., by marginal productivity] also removes from consideration any reason to one might give for claiming that the "contribution" of the factor is, an any ethically relevant sense, the contribution of the owner." (p 13.)
Entrepreneurial activity of capital
Capitalist profit is also sometimes justified on the ground that it is a reward for entrepreneurial activity (such as innovation, invention, or reorganisation of processes). This confuses two different activities: the contributing of capital (which is simply a granting of permission to use materials that are already in existence somewhere) and entrepreneurial activity such as innovation, invention, or reorganisation of processes. That the two are theoretically distinct is proved by the fact that they are often actually distinct: entrepreneurship (innovation, etc.) is often performed by the salaried staff of research and development departments, planning departments, etc., while capital is often provided by stock holders who do not participate in management or the activity of innovation. (Schweickart, 1980, pp 14-20.)
- Classical economics was the predominant school in the late 18th and early 19th centuries. Its prominent exponents included Adam Smith and David Ricardo.
- Clark, John Bates, 1899. The Distribution of Wealth. New York City, USA, 1956.
- Schweickart, David, 1980. Capitalism or Worker Control? New York City, USA.es:Valor