Law of Value- 4. Use-value, Exchange-value and Value (draft)

This is a draft of a script from my upcoming video series “Law of Value”.

The Commodity: Use-Value, Exchange Value, Value

We begin with commodities. Why? Because the exchange of commodities in the market is the way in which capitalist society is organized. We work all day to produce a commodity, not for us to use but for someone else to use. We exchange these commodities in the market at certain ratios. In this process of commodity exchange the private labor and private consumption of millions of people are coordinated. Some people think this is the best possible way to coordinate human productive activity. Marx saw that there were fundamental social antagonisms at heart in this means of coordination… that, if left to itself, production for market exchange led to all sorts of unexpected consequences including gross inequality, exploitation, and crisis. If we are to learn how this coordination works we need to start by analyzing this thing called the commodity.

A commodity has a use-value and an exchange value. Marx held that these two things implied a third thing, value, and that there was a fundamental antagonism inside this relation between use-value and exchange value. This contradiction pops up again and again in his writing on capitalism. Let’s see what he was talking about.

A commodity has a use. This is its use-value. What does use-value tell us? It tells us how a commodity satisfies a social need. If we want to feed everybody we need a certain quantity of food. If we want to build everyone a house we need a certain quantity of wood and nails.

Some use-values require no effort to attain: air, sun, gravity, etc. Others require effort to attain. There is a finite limit to the amount of labor that can be devoted to the production of use-values. Society must apportion this labor between the production of different use-values in some way. As technology changes the amount of labor required to produce some use-values decreases thus signaling a change in the apportioning of labor. As technology evolves to reshape what human labor is capable of producing so do our needs and desires evolve.

In different societies this labor is apportioned by different methods. In a market society it is the buying and selling of the products of labor in the marketplace that serves the purpose of allocating labor between the production of this use-value or that use-value. This creates a second type of value, unique to market societies: exchange-value.

Exchange value is the ratio in which one good exchanges for another. Perhaps one baseball exchanges for a loaf of bread. Or a new car exchanges for a thousand bottles of whiskey. These ratios are all exchange values. In a developed market society one commodity eventually emerges as the primary commodity in which all other commodities express their exchange value. This is what money is. For most of the history of capitalism this commodity has been gold. By comparing the ratio of tomatoes or cars or baseballs to gold all commodities measured their exchange value in ratios to gold.

These two sides of the commodity, its use-value and exchange value, form two opposing, contradictory poles. They may not seem very contradictory right now, but over the course of Das Kapital Marx will show us just how much of the social antagonisms of capitalism are rooted in this tension between use-value and exchange value. For now let’s content ourselves with some very basic observations:

Use-value only exists for a person using a commodity. If I am selling a tomato or a baseball this commodity has no use-value at all for me. Its use-value only exists as a social use-value for a society that has demanded its production. But I, the seller, have no use for it at all. I am only interested in the exchange-value, how much money I can get for it. Once the commodity has been consumed it looses exchange value. (How does Cleaver phrase this? It’s clearer…)

This contradiction between use-value and exchange-value becomes more and more significant, becomes more and more antagonistic the more we examine all of the ways that it plays out in a capitalist society. We can’t really talk about them here until we work out the concepts of capital, profit, etc. But a simple example might suffice for now:

[(picture of a house)This is one of many abandoned houses in my neighborhood. The owner, a slumlord from a different city, let the property deteriorate until it became unlivable and doesn’t want to pay the money to make it livable again. There are thousands of abandoned houses in this city, and thousands of homeless people. Despite the urgent social need for the use-value of a house these properties are not used to satisfy this social need. Why not? Because the owners of these commodities are not interested in their use. They are interested in their exchange-value, the rent they receive from the property. For decades they collected rent while the use-value of the house deteriorated. And now, to the landlords, these houses that blight the neighborhood are just assets waiting for the right investment opportunity. (maybe start with this paragraph?) or probably don’t use it at all]

Austrian subjective value theory talks about a “double-inequality of exchange.” It says that the only reason exchange happens is that two people value the other person’s product more than the product they are giving up. Marx actually goes even further than this. He says that to the seller the commodity has no use-value at all. This is because in a market society exchange is not just accidental or temporary. In a capitalist society people don’t produce for their own wants and then sell off the surplus they don’t want. They spend their lives working to produce things for other people to buy. The purpose of their work is to get exchange value, not specific uses. The commodities they produce have no use-value at all to them. They exist solely as the product of their labor for which they seek exchange value in the market. (Why do people produce for exchange and not for their own subsistence? This only happens in a society in which people are divorced from their own means of subsistence. People in a capitalist society cannot produce all of their needs for themselves because they don’t own enough of their own means of production. The means of production are privately owned by the capitalist class. This forces us to enter the market place to attain our needs.)

Uses are heterogenous and therefore not comparable. They do not reduce to a common substance. How do we compare the usefulness of a tissue to the usefulness of a pencil? You can’t. They are both useful. Maybe today society will spend a 2 thousand hours producing tissues and 1 thousand hours producing pencils. Does that mean that tissues are more useful? No. It just means that more people needed tissues.

(There have been attempts by neoclassical economists to reduce the usefulness of commodities to some common substance. Since there is no common substance that makes up usefulness they have to make up an imaginary substance called “utils”. These economists actually say things like, “A cup of coffee has 13 utils and a car has 3000 utils of utility”. But such attempts to invent imaginary substances with which to reduce utility to are generally thought to be pretty silly and misguided. In neo-classical economics this concept has been mostly replaced by the concept of ordinal utility: A consumer has a ranking of demand preferences but these can’t be reduced to some common scale. In this way the question of value, in the sense that a commodity has a definite amount of value as determined by subjective social demand, is abandoned. But then the problem arises that neo-classical economics is trying to explain real world objective phenomena like prices and profits measured in definite amounts of money by appealing to completely unquantifiable subjective psychology. Not only this but these subjective decisions can only make sense given a pre-existing objective world of prices for individuals to respond to.)

We can’t compare uses yet commodities are compared with each other all the time in the market in the form of exchange ratios. A funny thing happens when we look closer into this mystery. Let’s say a book equals a bag of apples. What if we take the apples away and compare the book to 2 beers? Now the book has two exchange values, two ratios which express its value. We could continue to make a chain of exchange ratios (one book=1 bag of apples= 2 beers= a pack of banjo strings=a DVD=etc.) until all of the commodities in the world are related to each other. If the exchange value of a book can be expressed through an infinite variety of exchange ratios this means that the book has an exchange value which can take various forms of appearance depending on what it is being related to. (repeat this) These forms of appearance of exchange value are called price. Price is just the particular ratio of a commodity to money at a specific time and place. As the value of money fluctuates and as the value of the commodity fluctuates so does the price fluctuate.

Hmm… I just made a logical leap here when I said “as the value of the commodity changes so does its price.” I was talking about a commodity having an underlying value which is expressed in its exchange value. But perhaps this leap made intuitive sense. After all, we often wonder if a commodity’s value is worth its price (We say things like, “What a deal!” and “What a rip off!”). Now we are moving on to a 3rd concept implied by the phenomenon of exchange-value. This is value. Let’s go back and try to make sense of this.

Let’s describe a book: it is hard, it smells like paper, it has writing on it, it holds up desk legs… it costs 20 bucks. This last property, its exchange value is unique. Exchange value is not a physical property. It’s also not a use-value. If I walk up to you on the street and say “20 bucks” you wouldn’t know if I was talking about a book or a DVD or a fancy necktie. All you would know is that I was referencing exchange-value in the abstract.

This “exchange value in the abstract” is unique to a capitalist society. “20 bucks” means nothing to Cavemen or Robinson Crusoe. Cavemen and Robinson Crusoe are very concerned about specific products of labor and their uses. They don’t give a hoot about “exchange value in the abstract”. But here in the capitalist world we are very interested in “20 bucks”. Sometimes we even prefer to have that “20 bucks” rather than a commodity. When we work all day at the factory or office or wherever we don’t come home at the end of the day holding the commodities we produced. We come home with money- exchange value in the abstract.

Marx says that all of these things are clues: the fact that we have exchange value in this abstract form called money, the fact that all commodities can be exchanged for one another despite their diverse uses, the fact that we labor to produce commodities specifically so that we can exchange them for other commodities, the fact that prices are the mechanism by which labor is apportioned between tasks… these are all clues that there is a 3rd thing implied by use-value and and exchange value, an invisible thing that links the two concepts together. This is what Marx calls “value”. The reason why we can exchange one commodity for another is that they both have value. Value is a common substance belonging to all commodities that allows them to be compared with each other in exchange.

What is this value? It’s not moral values or family values. It’s not some physical substance that we can find by cracking open a commodity and peering inside it. Often times we use the word value in a subjective way when we say ” I value my family,” or “I value the education I got in elementary school”. Marx is not talking about this sort of psychological subjective valuation when he uses the term value. Sometimes people make the mistake of criticizing Marx’s theory of value by saying “But value it subjective!” The problem with this line or argument is that it refers to a different use of the word “value.” [insert good example of two definitions for same word] Marx is perfectly aware that people make subjective decisions in the market place, but when he uses the word value he is talking something different.

Marx is talking about a social relation between people as they coordinate their labors through market exchange. This social substance which he calls value is made up of human labor. When we work to create commodities we are creating value. The amount of labor that enters into the production of a commodity is what determines the magnitude of its value. So, for instance, a car which takes a great deal of labor to make has more value than a pencil which takes relatively less labor.

Here are 3 fancy expressions that may sound a bit ponderous and German, but might help you understand value better.

1. The substance of value is labor: This simply means that value is created by human labor. This value is the way the division of labor is coordinated in a market society.
2. The magnitude of value is labor-time: This means that the amount of value created corresponds to the amount of time spent laboring. Since labor is apportioned through fluctuating market forces this is never an exact correspondence, but it is the general tendency. Commodities that take a many hours to make are more expensive than ones that take few hours. Later we’ll see that Marx adds other variables to this concept like the intensity of labor and the skill of the labor.
3. The form of value is exchange value: So value is created by labor time. Yet we don’t see this value until we exchange commodities in the market. When commodities are exchanged their value takes the form of a specific exchange value. 3 hours of bread baking takes the form of whatever that bread is exchanged for: shoes, books, three gold pieces, 10 dollars, whatever.

Value and exchange value are different

It’s important to understand that value and exchange value are different things. For Marx the underlying essence of a capitalist economy, the underlying process that is going on, is that the labors of zillions of individuals are being coordinated through commodity exchange. This labor is what value is- it is the basic social substance through which we interact. If we are to demand that so many hours of labor go into the production of books and so many other hours of labor go into the production of tuna sandwiches then there must be some relation between this labor time and the prices, or exchange values, of these commodities. If there wasn’t there would be no way of organizing the division of labor.

This relation between labor time and price is the relation between value and exchange-value. Exchange-value is the “form of appearance” which value takes. Value exists. It is real. A definite amount of labor time is required to produce a tuna sandwich. Yet we can’t see this value when we look at the sandwich. All we see is its price, its exchange-value. This exchange value is a form of appearance of value, a representation of value. What does it mean to say that exchange-value is a representation of value?

Think about a portrait. A portrait is a representation of a person. But it isn’t the person. It looks a lot like the person. But it doesn’t look exactly like them. We could make a lot of different portraits of a person, each would approximate the real person yet never quite capture them perfectly. This is very similar to the difference between exchange-value and value. A commodity’s exchange-value is an approximation of its value. Sometimes the approximation comes very close to the actual value. At other times it is very far from it.

This is an important point to understand because people often interpret Marx to be saying that price is always exactly equal to labor time. But this is not what Marx said at all. He was very clear that prices fluctuate all the time as supply and demand fluctuate. If supply and demand actually met at their equilibrium price then price would equal value. But supply and demand rarely ever meet. Instead they fluctuate. And thus prices fluctuate around their values. In this way price is a form of appearance of value.

As we will later see these fluctuations are essential to Marx’s theory. It is this fluctuation of supply and demand that makes up the basic mechanism by which labor is reapportioned between various tasks. It is this ability to explain fluctuation and dynamic movement that distinguishes Marx’s theory from the static equilibrium theories of his predecessors and the neo-classical tradition that followed him.

[I am using price and exchange-value interchangeably at times. Exchange value refers to the ratio which a commodity exchanges with another commodity. A book can express its exchange value in a myriad of exchange-ratios as it expresses its value by comparing itself to other commodities. Price is a specific exchange-value, the exchange-value between a commodity and money.]

Last thoughts

Since exchange value is just a form of appearance of value we can now say that the antagonism between use-value and exchange-value is better thought of as an antagonism between use-value and value. But what’s so antagonistic about this? What does this help us understand about all of the real social antagonisms of a capitalist society? Marx’s analysis is a constantly expanding picture of the way this basic contradiction between use-value and value develops into all of the various antagonistic social phenomena of our society: capital, wage-labor, productivity, crisis, inequality, etc. Space does not allow a full explanation here, but perhaps I can give you a sneak preview.

The fact that value exists in the abstract in the form of money means that money becomes the ultimate form of social power. It becomes possible to engage in production not just to produce things for your own needs but to produce merely for the purpose of getting more money. You can invest money in production merely to get more money. This is what capital is.

But how do you get more money for your money? You purchase a unique commodity: labor power, or the ability of people to work. When people sell their labor as a commodity this means that they have a use-value and an exchange-value just like any other commodity. The exchange-value of labor is its wage. The use-value of labor is that it creates value. (Repeat this.) But there is no reason that the amount of money paid in wages is equal to the amount of value a worker creates. A capitalist can take advantage of this difference. This is exploitation. This means that the antagonism between the use-value and value of labor is reflected in the social antagonism between capitalists and workers.

With his theories of capital and exploitation Marx is able to explain much of the dynamism of a capitalist society, including economic crisis. Here are some ways we can see this use-value/value antagonism in our current crisis. Insane speculative activity in the stock market is an example of financial capitalists in pursuit of value in the abstract. In their rush to turn money into more money they bypassed the production of real value altogether. But this is contradictory because, in the end, value must be created in production. This led to over-valued assets, fictitious capital, that all eventually had to implode. This requires a drastic devaluation of assets: writing down the values of companies and houses, the closing of companies and the devaluation of the labor force through unemployment and falling wages. All over our cities people are loosing their houses. Why? Because the banks and mortgage companies were only interested in their values, not their use-values. The antagonism between value and use-value is real!

[The implosion of the financial sphere revealed underlying problems in the productive sphere. We heard all over the news about overcapacity in the auto-industry. What is overcapacity? It’s when… this is too complex to explain here…]


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11 Responses to Law of Value- 4. Use-value, Exchange-value and Value (draft)

  1. Pingback: Law of Value- drafts for the upcoming video series « Kapitalism101

  2. ZeroNowhere says:

    Hm, you seem to go from having a use meaning to have a use-value to useful things being use-values a bit quickly. Perhaps Marx’s explanation could be worth reproducing here?

  3. Pingback: The Value of Real Estate | Consumption, Culture, & Identity

  4. riyaarora27 says:

    This explained the concept of value way better than my teacher ! Thank you so much !

  5. mreverpresent says:

    Capital is a process but also a “book” in many many volumes.

  6. Alvaro says:

    I liked very much your explanations. While I am a university prof trying to understand Marxian economics, I have a very basic question that may interest many others. If value is socially necessary labor time, what explains the discrepancies in value between labor time (or skill) and material wealth produced by nature? For example, caviar (let’s assume a commodity that is not especially difficult or labor-consuming to produce, just simply scarce in nature hence highly priced). Or the fact that companies that produce clothing for the upper classes using the labor obtained out of sweat shops are able to pay cents for a shirt (only one shirt doesn’t take too much time or skill to be produced) and then sell it for hundreds or thousands of dollars – what explains the discrepancy between the value and the exchange value in such (and other) examples in which labor is not necessarily time-consuming (for one unit), skilled or intense? Thank you very much in advance for your response.


  7. Herai (هری) says:

    Well explained. Thank you! I am taking an IPE class this right now. I got the book (Das Kapital), but it is a little heavy to understand. Though this presentation made it very clear for me now and probably I will understand the book easier. But I am wondering if you have recommendation regarding the version/publisher/translator of the book? I have the version from Regnery Gateway publisher. Is that a good one?

  8. Jo says:

    Excellent, thank you. Marx in modern day English.

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