Commodities are objects that satisfy human needs and wants. Commodities are the fundamental units of capitalism, a form of economy based on the intense accumulation of such objects. The basic criterion for assessing a commodity’s value is its essential usefulness, what it does in the way of satisfying need and wants. This usefulness is its use-value, a property intrinsic to the commodity. Commodities also possess an exchange-value, the relative value of a commodity in relation to other commodities in an exchange situation. Unlike use-value, exchange-value is not intrinsic to a commodity. Exchange-value allows one to determine what one commodity is worth in relation to another commodity, for example how many units of corn one might exchange for a given unit of linen. In a complex market, all sorts of different commodities, although satisfying different needs and wants, must be measurable in the same units, namely money.
Exchange-value as monetary value is what one means when one says a commodity has “value” in a market. Marx poses the question of where this value comes from. How is it that commodities with different use-values can be measurable in the same units? His answer is that universal measure for value, expressed in terms of money, corresponds to the amount of labor time that goes into the making of each commodity. Labor time is the only thing that all commodities with different use-values have in common and is thus the only criterion by which they are comparable in a situation of exchange. This is Marx’s labor theory of value. This theory implies that commodities have a social dimension because their exchange value is not intrinsic to them as objects but instead depends on the society’s entire division of labor and system of economic interdependence, in which different people produce different products for sale on a common market. Exchange-value allows this market to function. As an expression the amount of “congealed labor” in a given commodity, the value of that commodity, measured in monetary terms, always refers to the system of social and economic interdependence in which it is produced.
Marx elaborates on the relationship between a commodity’s value and its social dimension in a section on the “Fetishism of Commodities.” Commodities are meaningful in two ways, first and most obvious as objects of exchange with a certain a monetary value. The second, which is not so obvious and is in fact obscured by the first, is that commodities reflect not only the labor that went into making them but the social relations of production in which the labor was performed. This social aspect of commodities cannot express itself because in capitalist society the quality of a commodity is thought to emanate solely from its price, not from that which money expresses, namely social labor. The fact that people are moved to mistakenly reduce the quality of a commodity to money alone leads Marx to argue that modern capitalist society has invested the money-form with mystical or magical significance. Those who comment on the nature of economy, in particular bourgeois economists, reduce economics and the production and exchange of commodities to the behavior of money and in so doing always avoid looking at what commodities represent in social terms. In so doing, the bourgeoisie is conveniently able to ignore the fact that commodities emerge through an inherently exploitative system of wage labor.
The Labor Theory of Value is not Marx’s invention, originating instead with classical economist David Ricardo, who developed a labor theory of price, which states that the prices of commodities represent the labor that went into making them. However, Marx’s labor theory of value differs from Ricardo’s and is given a drastically different significance within the larger context of his work. Marx’s focus on the nature of value is intended to show that the modern capitalist system of production and exchange is not what it seems. Although economic activity is apparently reducible to the behavior of money, to focus only on money is barely to scratch the surface. Production and exchange are social institutions, and their organization has social consequences. Capitalism, founded on a principle of private ownership, has the owners of the means of production (factories, raw materials) dependant on wage labor to create profits. Modern economists do not accept the Labor Theory of Value as an explanation of prices, but that is not really the sense in which Marx intended the theory to be used. Marx’s point is that the production of commodities is a social process, dependent on exploitation and giving rise to antagonistic relationships among classes, an idea that is not addressed at all in modern economics.
Marx differentiates ordinary money from capital. In the simplest form of circulation of commodities, a commodity is transformed into money, which is then transformed back into a commodity as someone sells a commodity for money and then uses that money to buy a commodity they need. In this very basic market arrangement, people produce commodities so that they can obtain money to buy the commodities that they need. This dynamic naturally emerges in societies with a simple division of labor, in which different people specialize in the production of different commodities. Capitalism operates in accordance with different principles. Capitalists do not see money as a means of exchanging the commodities they produce for the commodities they need but as something to be sought after for its own sake. The capitalist starts with money, transforms it into commodities, then transforms those commodities into more money. Capital is money used to obtain more money. These two different arrangements are summed up respectively in the diagrams C-M-C and M-C-M (C = commodity; M = money). Capitalists are primarily interested in the accumulation of capital and not in the commodities themselves.
To increase their capital, capitalists rely on workers who put their labor power at the disposal of capitalists. Workers treat their labor power as a commodity and sell it to factory owners. The capitalist buys the workers’ labor power and puts the worker to use making products. The capitalist appropriates the product, since it does not belong to the worker, and sells it on the market. Capital accumulates through the creation of surplus-value. Since a commodity’s value equals the labor time congealed in it, this extra value can only come from the workers. In fact, says Marx, the capitalist forces the worker to work longer hours to generate this surplus value. The capitalist, to generate profits, must keep the working day at a certain length. Part of the day is spent generating value that keeps the workers fed and clothed, while the remainder is spent generating surplus value, which goes to the capitalist himself. This is the essence of exploitation.