Why do shoes cost more than socks?

March 2, 2012

The law of supply and demand can explain fluctuations of prices--but not why, over time, prices fluctuate around an average.

KARL MARX was the first person to systematically analyze how capitalism works in his famous but rarely read Capital. Volume One of Capital--and there are three volumes in all--is more than 900 pages long. No wonder few people have read it.

The foundation of Marx's analysis is the "labor theory of value." Marx begins with the basic components of capitalism--commodities and their exchange. A commodity--that is, something produced for exchange in the market--has two values: use value and exchange value.

Use value means simply the qualities of something that make it useful to people. The use value of an apple, for example, is that it provides nourishment. All societies--from gathering and hunting societies to a modern capitalist society--must produce things that are of use to people.

On the other hand, exchange value, according to Marx, is something that only arose with the market. Exchange value represents how much a commodity is worth in relation to other commodities. Under the free-market system, a certain amount of iron can be exchanged for a certain amount of corn--that is its exchange value.

Ironically, use value and exchange value don't seem to have any relationship. The most necessary and useful commodities in the world, like water, have the lowest exchange values. Meanwhile, a diamond ring, which had no use other than to look nice, has a very high exchange value.

Given the gap between use value and exchange value, Marx posed the question: What is it that makes a certain quantity of one thing exchange for a certain quantity of another?

The answer that most economists would give is that the value of commodities is determined by their availability. If corn is hard to find, it will cost more. If it is easy to find, it will be cheap.

But it isn't really an explanation. It doesn't answer why, over time, an ounce of saffron will always be more valuable than an ounce of corn syrup--or why a pair of shoes always costs more than a pair of socks. Supply and demand can explain price fluctuations--but not why, over time, prices fluctuate around an average.

MARX HAS a different answer. He argued that every commodity could be reduced to the amount of labor time it took to produce it. Televisions are cheaper today than when they were first produced. That's because a TV can be produced in far less time today than it took 50 years ago.

Marx argued that the exchange value of commodities was regulated by the amount of necessary labor time it took to produce them--the amount of time it takes using the prevailing technology and methods of production.

The reason this isn't immediately obvious is because we're used to the value of commodities being measured in terms of a special commodity called money.

Economists often act as if money is a magical substance. But money is only a particular commodity that by general agreement has become the medium of exchange. What actual form money takes doesn't really matter. Among Native Americans and whites living on the East Coast of North America in the 17th century, wampum--or beads made from seashells--acted as money.

Later--as capitalism advanced and trade became a regular feature of economic life--gold and silver became a key means of exchange. After that came paper money.

Economic theorists before Marx tended to portray capitalism as a natural form of human economy that existed for all time. For them, gold was always a highly valued means of exchange. They forgot that, in societies that didn't depend upon trade--for example, the Incas of Peru--gold and silver were simply attractive metals that could be used to decorate buildings and create jewelry and ornaments.

Exchange value, unlike use value, isn't "natural." It's the product of a set of human social relations that didn't always exist in the past--therefore won't always exist in the future.

First published in the July 7, 2000, issue of Socialist Worker.

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