The classical theory of value is devoted to one of the most important elements of economic relations. Without it, it is difficult to imagine modern commodity and monetary ties of various manufacturers and buyers.
Classical theory
The best-known theory of value is also called the labor theory of value. Its founder is the famous Scottish explorer Adam Smith. He created the English school of classical economics. The main thesis of the scientist was the idea that the welfare of the people can grow only by increasing the productivity of their labor. Therefore, Smith publicly advocated improving the working conditions of the entire English population. His theory of value says that socially divided labor in all areas of production serves as a source of value.
This thesis was developed by another outstanding economist of the beginning of the XIX century, David Ricardo. The Englishman argued that the price of any product is determined by the labor necessary for its production. For Ricardo, Smith's theory of value was the foundation of the entire economy of capitalism.
Marxist Theory
The labor theory of value was adopted by another well-known economist. It was Karl Marx. The German philosopher and ideologist studied the exchange of goods on the market and came to the conclusion that all products (even the most heterogeneous) have the same content of an internal nature. It was a cost. Therefore, all products are equated with each other in accordance with a certain proportion. Marx called this ability exchange value. This property is necessarily inherent in any product. The basis of this phenomenon is social labor.
Marx in his key developed the ideas of Smith. For example, he became the founder of the notion that labor has a dual nature - abstract and concrete. For many years, a German scientist systematized his knowledge in the field of political economy. This huge array of ideas and facts became the foundation for a new Marxist idea. This was the so-called theory of surplus value. It became one of the main arguments in the then criticism of the capitalist system.
Surplus value
Marx's new theory of value said that the worker, by selling his own labor, became exploited by the bourgeoisie. There was a conflict between the proletarians and capitalists, the cause of which was the cost of the system of the European economy. Owners' money was multiplied only through the use of labor, and it was this order that Karl Marx criticized the most.
The value of the goods that the capitalist establishes always exceeds the cost of labor of the hired proletariat. Thus, the bourgeois made a profit due to the fact that they raised prices for their own income. With all this, the workers always received low wages, because of which they could not get out of their own exploited environment. They were dependent on the employer.
Absolute surplus value
The Marxist theory of labor value also includes the term absolute surplus value. What does it follow from? This is the surplus value that capitalists receive by lengthening the working day of their subordinates.
There are certain time frames necessary for the production of goods. When the owners force the proletarians to work outside these limits, the exploitation of labor begins.
Marginal cost
The theory of marginal utility, or in other words, the theory of marginal value, arose as a result of the research of several famous nineteenth-century economists: William Jevons, Karl Menger, Friedrich von Wieser, etc. She was the first to explain the relationship between the price of goods and psychological attitudes the buyer. According to its main points, consumers acquire what can become a source of satisfaction or pleasure for them.
Marginal utility theory has done several important things. Firstly, thanks to her, a new approach to the study of the problem of production efficiency was formulated. Secondly, the rule of limit was first used. Later it will be adopted by many other economic theories. The theory of marginal cost made scientists shift their main research attention from the costs to the final result of production. And finally, for the first time, customer behavior was at the center of the study.
Marginalism
The classical theory of value, whose adherents were Smith, Ricardo, and Marx, believed that commodity value is an objective quantity, since it is determined by the amount of labor expended on production. The theory of marginal utility offered a completely opposite approach to the problem. She was also called marginalism. The new theory said that the value of the goods is determined not by production labor costs, but by the effect it can produce on the buyer.
The essence of marginalism can be formulated as follows. The consumer lives in a world full of various benefits. Due to their diversity, prices become subjective. They depend only on the mass behavior of buyers. If there is a demand for goods, then prices will begin to rise. In this case, it does not matter how much the manufacturer spent money on it before. The only thing that matters is whether the buyer wants to purchase the goods. This relationship can also be represented as a chain of consumers, needs, usefulness of the good, its value and final price.
Law of value
The classical theory of value considers the law of value as one of the most important aspects of economic relations since ancient times. The exchange of goods took place in Egypt and Mesopotamia about five thousand years ago. This was indicated by the German scientist and closest associate of Karl Marx, Friedrich Engels. Then the law of value arose. However, he found the greatest application precisely in the heyday of capitalism. This is due to the fact that in a market economy, the production of goods becomes massive.
What is the essence of the law of value? What is his main message? This law states that the exchange of goods and their production are carried out in accordance with the cost and necessary labor costs. This relationship is valid in any society where exchange exists. It is also important working time spent on the creation and preparation of goods for sale. The larger it is, the higher the purchase price.
The law of value, like the basic theory of value, boils down to the fact that individual working time must correspond to what is socially necessary. Such costs become a certain standard in which manufacturers must fit. If they do not cope with this, they will incur losses.
The functions of the law of value
In the 19th century, economic theories of value ascribed the law of value a large role in the formation of economic relations. The modern market at the international and national levels only confirms this thesis. The law provides the factors that stimulate the economy and the development of production. Its effectiveness directly depends on interconnections with other economic phenomena - competition, monopoly and monetary circulation.
An important function of the law of value is to ensure the distribution of labor between different production areas. It regulates the use of resources needed to create goods and their appearance on the market. An important aspect for this function is price dynamics. Together with the fluctuation of this market indicator, there is a distribution of labor and capital between different economic sectors.
Stimulating production costs
The law of value stimulates production costs. How does this pattern work? If a producer of goods makes his individual labor costs higher than social, then he will certainly suffer losses. This is an irresistible economic pattern. In order not to go broke, the manufacturer will have to reduce his own labor costs. The law of value, acting on any market, compels him to this, regardless of belonging to a particular industry.
If the producer has a low individual cost of the goods, then he will receive certain economic advantages in comparison with his competitors. So the owner not only reimburses labor costs, but also receives a significant income. This pattern makes successful market players of those manufacturers who invest their own funds in improving production based on scientific and technological progress.
Modern value theory
Along with the development of a market economy, the concept of it is changing. Nevertheless, the modern theory of value is entirely based on the laws that Adam Smith formulated. One of its main statements is the thesis that social labor is divided into two parts - the scientific and technical sphere and the sphere of reproduction.
What are their differences? The scientific and technical sphere of social labor includes the production of new goods based on discoveries in science and technology. This is how consumer value is formed (in the new economic theory it is also called absolute value).
In the field of reproduction are other factors of production. Here the relative or exchange value is formed. It is determined by the energy costs of the reproduction of services and goods. The modern theory of value has made it possible to determine the laws governing the determination of individual wages. First of all, it depends on the attitude of society to the effectiveness and usefulness of a particular specialty.