Use value, exchange value and money

In Marx’s analysis of commodity production, commodities resulting from productive activities are opposed to immediate producers. Commodities, or dead labor, dominate living labor, or the workers themselves. To analyze human history in a broader perspective than commodity production, a generalization of concepts is necessary. We generalize the concept of labor to the concept of activity (action), the concept of commodity to the result of an activity (result of an action), thus eliminating the opposition between labor and commodity and uniting them in the concept of meaning.

Marx also distinguished between the activity that creates use values, or concrete labor, and the activity that creates exchange values, or abstract labor, in which the characteristics of specific types of labor disappear:

“If then we leave out of consideration the use value of commodities, they have only one common property left, that of being products of labor. But even the product of labor itself has undergone a change in our hands. If we make abstraction from its use value, we make abstraction at the same time from the material elements and shapes that make the product a use value; we see in it no longer a table, a house, yarn, or any other useful thing. Its existence as a material thing is put out of sight. Neither can it any longer be regarded as the product of the labor of the joiner, the mason, the spinner, or of any other definite kind of productive labor. Along with the useful qualities of the products themselves, we put out of sight both the useful character of the various kinds of labor embodied in them, and the concrete forms of that labor; there is nothing left but what is common to them all; all are reduced to one and the same sort of labor, human labor in the abstract” (Marx and Engels 1975-2004, vol. 35, p. 48).

By abstracting from specific kinds of labor, we do not create a new kind of labor. Abstract labor and its products do not exist in themselves; they are found in concrete labor processes and their products. But if concrete labor creates use values and commodities, then abstract labor creates exchange values and money. As we have shown, use value is not an individual utility but a socially necessary set of existence values. Use value is, so to speak, a prologue to a commodity in demand on the market and its exchange value. For a commodity to have an exchange value it should have a use value, that is, satisfy socially necessary needs. Commodities are wealth because they accumulate both use and exchange values.

We will distinguish between the multiplicity and the mass of meanings. The multiplicity of meanings consists of a set of meanings. In terms of commodities, these could be: two rolls of cloth, three bulls, ten tons of steel, etc. The mass of meanings is the set of cultural bits contained in a given multiplicity of meanings. Concrete labor creates commodities, abstract labor defines their mass. As Marx said, the abstract labor that forms the substance of value is homogeneous labor. However, since at the time of Marx there was neither information theory nor the concept of the bit, he had to measure abstract labor in terms of labor time:

“A use value, or useful article, therefore, has value only because human labor in the abstract has been embodied or materialized in it. How, then, is the magnitude of this value to be measured? Plainly, by the quantity of the value-creating substance, the labor, contained in the article. The quantity of labor, however, is measured by its duration, and labor time in its turn finds its standard in weeks, days, and hours” (Marx and Engels 1975-2004, vol. 35, pp. 48-49).

Marx measured the exchange value of a product by the amount of labor that was socially necessary to produce it, and he measured the amount of labor by its duration: “The labor time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time” (Marx and Engels 1975-2004, vol. 35, p. 49). Since it is obvious that more complex labor creates more value than simpler labor of the same duration, he reduced complex labor to simple labor by applying a multiplier:

“Skilled labor counts only as simple labor intensified, or rather, as multiplied simple labor, a given quantity of skilled being considered equal to a greater quantity of simple labor. Experience shows that this reduction is constantly being made. A commodity may be the product of the most skilled labor, but its value, by equating it to the product of simple unskilled labor, represents a definite quantity of the latter labor alone” (Marx and Engels 1975-2004, vol. 35, p. 54).

Marx did not know, and could not have known, that there is no multiplier that can reduce a more complex meaning to a simpler one. Only later in the 20th century was it shown by information theorists that there is no such algorithm that could eliminate “redundant” figurae and compress the meaning s to the minimal action s* to find out the complexity of s:

“The difference between the length of a string L(s) and its algorithmic entropy K(s) can be thought of as a kind of “algorithmic redundancy.” It’s a measure of how many extra bits we use to write s rather than s*, its shortest description. When we go from s down to s*, we squeeze out all that redundancy, leaving none in s*. That’s what makes it algorithmically random. … A program that could do perfect data compression—that could convert any string s into its minimal description s*—would be a very useful thing. But as we will see, such a program is impossible. … The problem here is that there is no program k that can compute algorithmic entropy. K(s) is an uncomputable function” (Schumacher 2015, pp. 241-247).

Since there is no algorithm that would reduce complex labor to simple labor, time cannot be a measure of abstract labor. However, different activities and their results can be reduced to a common equivalent, if not through the concept of time, then through the concept of cultural bits. Exchange value is measured not by the duration of time but by the amount of cultural bits contained in a set of use values. Use values are socially necessary existence values; exchange values is the socially necessary amount of cultural bits embodied in these values. Hereinafter, by value we mean exchange value in the context of use values, unless otherwise specified. Meanings became value as episodic exchange has turned into regular one, as small communities cohered into larger societies, as social necessity evolved.

According to the principle of least action, changes in the socially necessary multiplicity of existence values are linked to changes in the socially necessary mass of these values. We call this relationship between the set and the mass of existence meanings ordered by preferences the allocation of meanings. It takes activity to reproduce meaning, it takes meaning to reproduce activity. Value is the allocation of the only truly limited resource people have—their actions and results, that is, meanings—between competing goals. As an allocation of meanings, value has two sides: the side of benefits (meanings gained) and the side of costs (meanings expended). The socially necessary set and mass of meanings are determined not by some average but by the best alternative allocation that is foregone:

“In economics, the cost of an event is the highest-valued opportunity necessarily forsaken. The usefulness of the concept of cost is a logical implication of choice among available options. Only if no alternatives were possible or if amounts of all resources were available beyond everyone’s desires, so that all goods were free, would the concepts of cost and of choice be irrelevant” (Alchian 1968, p. 404).

The allocation problem and the choice problem are the same. The allocation problem implies choosing between counterfacts (benefits and costs), and the value is the best allocation to forego.

Philip Mirowski wrote that the transition from classical political economy with its “labor theory of value” to neoclassical economics with its concept of “marginal utility” is associated with the transition of physics from the concept of “substance” to the concept of “field” and with the penetration of mathematical methods into economic theory (Mirowski 1989, pp. 176-177, 194-195). If classical political economy and neoclassical economics considered physics as a model, then the economics of the 21st century is guided for this purpose by the sciences of information, evolution, and complexity. The theory of marginal utility reduced value to the perception of utility by a person and did not take into account social necessity. This theory was unable to establish an objective measure of economic indicators, in particular, it could not measure utility and show how and why utility depends on social mores and ideals. The concept of value as a socially necessary multiplicity and mass of existence values is a generalization of two competing theories of value: the classical labor theory of value and the neoclassical theory of marginal utility.

Exchange value is an abstract phenomenon that cannot be observed directly. But value has a tangible representation, its history can be traced through the history of money, since money is the material expression of value and a social instrument for calculating the necessary set and mass of existence values.

Money and prices

Money is both a process and a result of the historical evolution of economic calculation. As a material expression of exchange value that links past and future activities, money evolves through the entire sequence of forms of circulation from gifts and tribute to commodity exchange. The first function of money is a means of calculation and circulation. In a subsistence economy, calculations are carried out directly, the quantity and allocation of activities are directly linked to the future consumption of their products. Money appears in tribal societies as an indirect way of accounting for gifts and tribute: one can recall the rai stones on the Yap Islands. In a tribal society, however, money does not link production and consumption, past and future activity. Truly methodical calculation began with the advent of the state with its accounting and planning. The Chessboard Chamber controlled the treasury of medieval England using simple means such as checkered cloth and wooden tokens.

Value is a measure of the socially necessary activity and its results, money is the material expression of value. In practical terms, money is both a means of calculating value on the basis of the individually necessary amounts of activity and a means of calculating the consumption share of individuals and groups. Value is a socio-cultural phenomenon, and money and prices are a technology that builds on the programming of this phenomenon and mediates the evolution from the simplest to more complex forms of exchange.

Individual needs can only coincide with socially necessary needs by chance, otherwise individuals would be only an external manifestation of society as a kind of “superorganism.” Thus, the totality of individually necessary meanings can only coincide with the totality of socially necessary meanings by chance. In the general case, the aggregate of individually demanded goods and their prices should not be equal to the set of use values and their exchange values. “Through the mediation of money, subjects maintain relationships with what is not themselves, with the social as an institution” (Aglietta and Orléan 2002, p. 19).