Transactions in which an individual, household, firm, government, or other economic entity (“the buyer”) purchases something (usually with money) from another economic entity (“the seller”) are widespread and familiar events in many societies.
Economic theory describes the exchanged “thing” or “item” variously as a “good”, an “asset”, or a “commodity”. The term “good” emphasizes the usefulness of the thing exchanged to the buyer or some ultimate purchaser of the item in a chain of transactions.
The term “asset” emphasizes the fact that the seller owns and controls the item, and has the legal right to transfer ownership to the buyer. The term “commodity” has a narrower sense of a good produced with the intention of selling it in a system of production organized through exchange.“Price” is the commonly used term for the amount of money exchanged in such a transaction for the item. By extension, the term “price” is often used to describe a standing offer to make such transactions, whether there is an actual transaction or not. In the rarer case of barter transactions, in which one non-money item is exchanged for another, the ratio in which the items are exchanged is often described as the “relative price”. Economic arguments that abstract from the mediation of money in exchange are often couched in terms of relative prices.
Price derives through Middle English and Old French from the Latin pretium, which translates as both price and value; value derives also through Middle English and Old French from the Latin valere, meaning “be strong, be worth”. The dictionary definition of value (omitting senses deriving from ethics, and applications to people) is a rich one with a number of meanings:
I. 1. That amount of some commodity, medium of exchange, etc., which is considered to be an equivalent for something else; a fair or adequate equivalent or return. 2. The material or monetary worth of a thing; the amount at which it may be estimated in terms of some medium of exchange or other standard of a like nature. 3. The equivalent (in material worth) of a specified sum or amount. The extent or amount of a specified standard or measure of length, quantity, etc.
II. The relative status of a thing, or the estimate in which it is held, according to its real or supposed worth, usefulness or importance. (Little et al. 1973: 2449)That of price is narrower:
I. Money, or the like, paid for something. The money (or other equivalent) for which anything is bought or sold; the rate at which this is done or proposed... Payment of money in purchase of something. II. Value, worth (obsolete, archaic). (Little et al. 1973: 1667)
In the light of these definitions and usages, it is not surprising that in political economy the relation between value and price is contested and prone to confusion. The term “value” in both ordinary and technical economic language is used in a bewildering array of senses, including as a synonym for “price”, as the “value” of a collection of items calculated by multiplying the quantity of each by a corresponding price, in particular as “value added”, as the value of a collection of produced items net of the costs of the non-labour inputs required to produce them, as the relation between the underlying quality or usefulness of the item and the price (“good” or “bad value for money”), as the general social usefulness of the item, and, by the classical political economists such as Adam Smith and David Ricardo and their critic Karl Marx, in the sense of the quantity of labour time necessary to produce a commodity. This last, more technical, sense of the term “value” will be the main focus of our discussion.
Broadly speaking, in classical economics value is a substance of something; it is expressed in money as a price, and being a substance, some “productive” activities produce it and other “unproductive” activities use it up. This chapter elaborates the development of this perspective.