Studying the value of the goods is very difficult due to the following circumstances. Value cannot be detected directly on the surface of economic life, since it expresses internal economic relations invisible to the eye. In this regard, A. Smith divided the economic system into two types of relations: exogenous and endogenous (named so in modern terminology).
Exogenous (gr. echo – outside and genos – origin) – economic relations that change due to external causes. For example, the exchange value of goods (proportions from market exchange) may vary depending on the quantity of goods delivered to the market, on the season and other conditions observed by all.
Endogenous (from gr. endon – inside and genos – origin) – economic ties that develop under the influence of internal factors. These include cost.
Theoretical economists have created several concepts of value.
One of them, the labor theory of value, which determines the substance and value of a commodity by the labor spent on its production, was discussed above. The foundations of the theory of labor value were laid by the English economists W. Petty, A. Smith and D. Ricardo. Petty had the idea that value is determined by labor in general. According to Smith, the value of goods is created in any branch of material production, but he attributed value-forming properties to specific labor. D. Ricardo determines the value of goods by the labor spent on their production, regardless of its specific form. However, he does not distinguish between concrete and abstract work. Only in the works of K. Marx was the dual nature of the labor of commodity producers first discovered, the understanding of which allowed him to develop a truly scientific labor theory of value.
Thus, the classical school believed that the value of a commodity is determined by the amount of labor spent on its production and, therefore, is an objective value. The price in this case is nothing more than a monetary expression of value.
The labor theory of value revealed economic relations that can be schematically reflected in the formula “commodity producer – social labor – commodity – social value – market price”. It is noticeable that here is a view on commodity-market relations only from one side – from the position of the commodity producer and seller of the product.
In contrast to the labor theory of value, new theories appeared in the middle of the last century. These include: the theory of marginal utility, the theory of supply and demand, the theory of production costs, the theory of three factors of production.
Marginal Utility Theory. It appeared in the second half of the XIX century and was most developed in the works of representatives of the Austrian school – J. Menger, F. Wieser, O. Böhm-Bavek. This theory gave an explanation of the cost (value) and price of goods and services from the position of the economic psychology of the buyer, the consumer of useful things. The main provisions of their theory are as follows.
1. Utility cannot be equated with the objective properties of the good. The buyer himself gives his subjective assessment of the role of a certain good in satisfying his personal needs. The value of the good was reduced to a person’s understanding of the importance of the consumed thing for his life and well-being.
There is some truth to this statement. Even in the same family, people give one or the other a good different value to their lives and well-being. After all, it is not by chance that there are sayings: “They do not argue about tastes”, “There is no comrade in taste and color”.
2. Useful goods are divided into two types:
(a) Available in limitless quantities (water, air, etc.). These things people do not consider useful for themselves, because they are available in such an abundance that is not needed to satisfy human needs;
b) which are relatively rare and insufficient to fill the existing needs for them. It is to these goods that economic persons ascribe value.
In practice, it is perhaps important that the relative rarity of goods should be taken into account in setting prices. This is how this happens, for example, in the pricing of agricultural products, where there are relatively few good land plots of good quality. To an even greater extent, the uniqueness of some goods has an impact on prices when rarities are sold at auctions.
3. In the process of personal consumption, the law of diminishing utility applies. According to this law, the degree of satisfaction of the need for the same product, if we continue to use it continuously, gradually decreases, so that finally saturation comes. It is known that a hungry person with a great appetite eats the first piece of bread. Then, with each new piece, the usefulness of bread is lost until the desire to eat this product disappears. All the amount of bread eaten forms the amount of saturation.
4. The value of goods is determined by marginal utility, that is, the subjective utility of the “marginal instance” satisfying the least urgent need for a product of a given kind.
The marginal utility, and hence the value of the good, depends on the “stock” (available quantity) of a given product and the need for it. If the “stock” increases at a constant value of the need, then the marginal utility of the thing decreases. When the “stock” decreases, the marginal utility and value increase. All this affects the value of the market price of the product, which directly depends on its marginal utility. Market practice seems to confirm this dependence. Thus, in conditions of relative insufficiency of a product (a decrease in its “stock”), the price is set at a higher level, which, in fact, justifies the purchase of the “marginal product”.
As can be seen, the main provisions of the theory of marginal utility reflect economic relations that can be represented in the formula “consumer – need – utility of the good – its value – price”. So, apparently, it is possible to evaluate the product and market relations on the part of the buyer, the consumer. The point is that the main thing in the economy is not the amount of costs for the production of goods, but the final result, which the consumer evaluates, guided by his own subjective idea of the usefulness of the good.
However, marginal utility theory has a number of weaknesses.
First, this theory proceeds from the primacy of consumption over production, considers people not as producers of material goods, but only as consumers, abstracts from the analysis of labor, which is the real source of wealth of any society. Secondly, it is subjective and psychological in nature, since it derives the objective economic category of commodity production – exchange value from the psychological sensations of individuals and their subjective assessment of the usefulness of certain goods. Third, by defining the value of material goods by marginal utility, which in turn directly depends on their abundance or “rarity,” proponents of this theory confuse cause with effect. It is not the “rarity” of goods that determines the magnitude of their value, but, on the contrary, those goods whose reproduction requires large expenditures of human labor are rare.
A special approach to the problem of value was formulated by A. Marshall. His position of determining value is to clarify the interaction of market forces lying on the demand side in the form of marginal utility and supply in the form of production costs. From this, A. Marshall concludes: utility determines the quantity offered, the quantity offered determines the costs of production, the costs of production determine the values. He believed that the price that the buyer was willing to pay for the goods was determined by the utility of the goods, and he regarded utility as the maximum value that the buyer could pay for the goods.
When determining prices, A. Marshall identified two factors affecting prices: marginal utility and production costs. He believed that the price set by the seller of a good was determined by the costs of its production, and that market prices were set by buyers and sellers as a result of supply and demand.
As a result, we can conclude that Marx’s theory of labor value and the theory of marginal utility do not contradict, but complement each other. If in the first the most deeply developed scientific apparatus for justifying the cost in accordance with labor costs, then in the second – the most effective use of the main factors of production – labor, capital and land – is theoretically substantiated.
The theory of supply and demand (J. B. Say, G. D. McLeod) is reduced to the identification of value with exchange proportions, or prices, which are supposedly entirely determined by the ratio of supply and demand of a particular product at any given moment. This theory does not consider production to be the main sphere of economic relations. She attaches crucial importance to the relationship of exchange. This theory, however, is not able to answer the question: what determines the prices of goods when supply and demand are equal? In addition, it is known that supply and demand themselves depend on the price level. A decrease in market prices causes an increase in demand, while an increase in prices for a particular product stimulates the growth of its production, and consequently, the value of supply. Thus, a vicious circle is obtained: the movement of prices is explained by a change in the ratio of supply and demand, and the change in supply and demand by price fluctuations.
The theory of production costs (R. Torrance, J. McCulloch, J. S. Mill) states that at a given ratio of supply and demand, the prices of goods are determined by the costs of production. At the same time, various authors of this theory understood the costs of production in different ways. R. Torrens, John Stuart Mill and others interpreted them as the sum of the capitalist’s monetary expenditures on the purchase of the means of production and labor (labor power) spent in the production of goods. But such costs are nothing more than the sum of the prices of the factors of production purchased by the capitalist (machines, raw materials, materials, labor, etc.). The result is a vacuous tautology: prices are determined by prices, in addition, the price of goods, along with production costs, must also include profits. Otherwise, capitalist business itself would be meaningless.
Some economists of this school have sought other ways to explain the value of a commodity. Thus, James Mill argued that new value is created not only by living, but also by past labor, i.e. materialized labor. And J. McCulloch believed that in the creation of value, along with human labor, the “labor” of working livestock, machines, and the forces of nature participates. Here, the theory of production costs is closely related to the theory of three factors of production.
The founder of the theory of three factors of production was the French economist J.B. Say. According to this theory, three factors are involved in the creation of value: labor, capital (which is understood as the means of production) and land. Each factor creates a corresponding part of the value, and the owner of each of them is “charged” with his share of income: the worker – wages, the owner of capital – profit, and the landowner – land rent. In this theory, social relations between people are replaced by relations of factors of production, and the process of production of use values is mixed with the process of value creation.