Brief History of Value

In economics, value is what human beings desire in an object or service. Water has value because it supports life; a bicycle because it provides transportation; music because it gives us pleasure.

In a simple economy without exchange, this intuitive meaning is the only one that applies. In an exchange-based economy, especially a market economy like capitalism, it is necessary to distinguish between use-value and exchange-value.

Use-value is the direct usefulness of an object or service to human beings, as indicated by the above examples.

Exchange-value is indirect usefulness — the capacity of one commodity to be exchanged for another. Thus, if two units of commodity A are normally exchanged for one unit of commodity B, the exchange-value of B is two units of A.

The distinction between the two types of value is fundamental to the understanding of market economies, so we must always be clear which one is being used when performing functional analysis.1

Something can have use-value without having exchange-value. Rocks and sand can be useful, and air certainly is, but because these items are readily available they cannot be exchanged for anything else.

The converse is not true — something cannot have exchange-value without having use-value. Even if something has been produced with great expenditures of time, effort, and natural resources, it cannot be exchanged for another output unless someone besides the producer finds it useful.

Standard economics today uses the word "utility" to mean use-value. There is no real difference between the two, so use-value as a concept still exists in conventional thought.

Exchange-value is a different story entirely. As the result of a bitter ideological battle, this concept has largely disappeared from view. This is important to realize.

Adam Smith proposed early in Wealth of Nations (1776) that labor time should serve as the measure of exchange-value:

Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only.2

However, he felt that this was true only in the "rude" state of society, and that the principle does not apply to a modern economy. Despite Smith's ambivalence about the role of labor in exchange-value, his idea was picked up by two other economic thinkers—David Ricardo and Karl Marx.

In Marx's version, labor time expresses capitalism's estimate of the social resources required to produce a commodity, and as such it plays a central role in the system's functioning. Marx used his labor theory of value as the central tool in explaining capitalism's internal dynamics and systemic tendencies, especially in his major work, Capital.3

However, given Marx's revolutionary commitments, his interpretation of exchange-value was ideologically unacceptable to standard thinkers. They initially responded by rejecting his labor theory as a valid explanation of exchange-value, and then expunged the latter term from economics entirely. If you look in the index or glossary of an economics text today, “exchange-value" will almost certainly be absent, and even "value" by itself is becoming rare.4

Standard economists today have little interest in capitalism's systemic features, and have shifted their attention almost entirely to superficial market phenomena that can be analyzed with the less nettlesome concepts of utility and price.

Mainstream economic theories treat use-value as subjective — that is, as indicating the strength of individual desire for a commodity. This interpretation accurately reflects the realities of capitalism and is thus unavoidable for a functional framework that addresses this system.

Under capitalism, the use-value of a commodity is dependent on the consumer's personal desires, so long as these are backed up by the capacity to pay. Succinctly stated, use-value under capitalism means affordable desire. There is no ideological distortion here, which is why subjective use-value is among the few concepts that are common to Marxian and standard theories.5

In fact, Marx's characterization of a commodity's use-value could have been penned by any standard thinker:

A commodity is… a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference.6

Exchange-value and price are crucially important to a functional framework because they help explain the operations of a market-based economy. However, the concepts are not useful in setting broad economic objectives, and therefore play no role in a guiding framework.

For this reason, the only type of value defined in ENL is use-value. Despite the universal interpretation of use-value as subjective in functional frameworks, there is nothing illogical about treating it as objective for guiding purposes. This is the approach taken by ENL.


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