The law of value is an objective law of the development of commodity production, according to which the production and exchange of goods are carried out in accordance with value, i.e. socially necessary labor costs. It requires the reduction of individual working time to socially necessary, individual value – to social, as well as to equivalence in economic relations between business entities. Socially necessary labor costs act as a kind of social norm, which is revealed in the market and in which commodity producers must fit. If individual costs are lower than socially necessary, then commodity producers benefit, and when they are higher, their economic situation worsens.
The law of value determines not only a certain ratio of individual and socially necessary labor costs, but also the correspondence of the volume and structure of production to social needs. This circumstance is very important for the regulation of social production by means of the law of value. The latter stimulates those producers who create products in accordance with social needs and achieve higher labor productivity. All of them are under economic pressure and are forced to carry out a constant search for reserves of labor savings, to take into account the needs of the market.
The law of value is the law of prices, it regulates pricing, constituting its initial basis. In real life, in the process of setting market prices, other conditions are taken into account: supply and demand, the ratio of prices for the goods of the same name. Therefore, in the process of using the law of value, free, limit, contractual, commercial and other types of prices can be combined.
The law of value performs the following three main functions.
First, it is a spontaneous regulator of the development of social production, since it regulates the distribution of the means of production and labor between various sectors of the economy. In any society, there is an objective need to distribute labor and the means of production between different branches of production in certain proportions. This is dictated by the societal needs of society. In commodity production, such distribution is carried out spontaneously in the process of constant fluctuation of the prices of goods around the value. This means that the price of a commodity, being a monetary expression of its value, is not a completely accurate measure of the value of this value.
The deviation of the prices of goods from their value does not violate the law of value, since in conditions of free competition these deviations cannot be very significant in their magnitude and long in time. In addition, these deviations balance each other and lead to the fact that the sum of the values of goods on a societal scale coincides with the sum of the prices of these goods.
On the basis of price fluctuations around value, labor power and means of production are distributed between different branches of production. At the same time, the equilibrium of supply and demand is disturbed and there is a discrepancy between the prices of goods and their real value. As a result of price fluctuations, a certain proportionality between the branches of the economy is achieved. That is why the law of value acts as a spontaneous, but objective regulator of commodity production. Thus, it affects both the scale of production and the pace of its development.
Secondly, the law of value stimulates a decrease in individual costs and spontaneously affects the growth of labor productivity. In the production of goods, the labor of commodity producers who use more advanced technology also has a higher productivity. Therefore, those commodity producers whose individual labor costs are the lowest receive the greatest income, and those whose individual labor costs are the highest are at a disadvantage. This leads to the desire to reduce individual labor costs, which is an incentive to improve technical means and improve the organization of production.
Thus, with the equality of supply and demand and the correspondence of the prices of goods to their social value, the greatest gain from the sale of their goods is received by those producers who have the minimum production costs. The deviation of individual labor costs from socially necessary ones is a specific mechanism that stimulates the reduction of individual costs.
Thirdly, the law of value leads to the differentiation (stratification) of producers, the enrichment of some and the ruin of others. The social value of any commodity, in contrast to its individual value, as is known, is determined not by individual, but by socially necessary labor. This distinction between individual and social value inevitably puts producers of the same good on an unequal footing. Commodity producers, whose individual labor costs turned out to be higher than socially necessary ones, not only cannot eliminate the existing lags, but are lagging behind more and more, which leads to their ruin.
Thus, on the basis of the law of value, acting through market competition, there is a social stratification of small commodity producers. Those producers whose costs exceed socially necessary ones are ruined. Under certain conditions, they turn into hired workers, and enriched producers become capitalists.
In addition to these basic functions of the law of value, there are also: the accounting function – the implementation of accounting for social labor through the formation of socially necessary labor costs; and distributive – when with the help of prices the distribution and redistribution of the social product between regions and enterprises is carried out.
As the world market is formed, the law of value extends to world economic relations. Here, national values act as individual, from which international values are formed. A country with high labor productivity has low individual labor costs and receives additional profit when selling goods at an international value, and with a high individual value, it loses. However, this does not mean that foreign trade relations are unprofitable for a country with low labor productivity. They are appropriate if it receives goods cheaper than it could produce them itself. It is not so much the value of goods itself that is important here, but the ratio of national and international values of exported and imported goods.
In the context of the transition to a market economy in the Republic of Belarus, the effect of the law of value is expressed in the fact that incomes at all levels of management are strictly linked to the specific contribution of each link to the final results of activity and it is impossible to do without economic pressure on business entities. In this case, the differentiation of commodity producers and their incomes in certain, rather significant amounts is inevitable. In this regard, social protection of incomes of the population is important.