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The Law of Value and Its Function

Basic Content of the Law of Value

The law of value is a fundamental law of commodity production and exchange. Its main content and objective requirements are that the value of commodities is determined by the socially necessary labor time required to produce them, and commodity exchange is based on the value, adhering to the principle of equivalent exchange. The law of value permeates the entire process of commodity economy, governing both production and circulation. Marx pointed out: "In the accidental and constantly fluctuating exchange ratios of products of private labor, the socially necessary labor time required to produce these products asserts itself as a regulating natural law, just as the law of gravity asserts itself when a house falls on a person." In a commodity economy, the law of value manifests as the spontaneous fluctuation of commodity prices around their value. Due to the influence of changing supply and demand, commodity prices inevitably fluctuate around the center of value, sometimes higher, sometimes lower. Over a longer period, the portions where prices exceed value and where prices fall below value balance out, and the average price of commodities aligns with their value. As Marx stated: "The possibility of a quantitative discrepancy between price and value, or of a divergence of price from value, is already contained within the price form itself. But this is not a defect of this form; on the contrary, it makes this form the appropriate one for a mode of production in which the law asserts itself only as an average regulating itself through irregularities."

The Function of the Law of Value in Resource Allocation in the Market

  1. Spontaneously Regulating the Distribution of Production Materials and Labor Among Different Production Sectors Regardless of the social system, for production and reproduction to occur, the distribution of production materials and labor among various production sectors must follow a certain proportion. Otherwise, some sectors may develop too rapidly, wasting social resources, while others may develop too slowly, failing to meet the needs of social production and consumption. Under conditions of commodity economy, the objective requirement for the proportional and rational allocation of social labor is realized through the spontaneous action of the law of value.

  2. Spontaneously Stimulating the Development of Social Productive Forces In a commodity economy, commodities are exchanged based on their social value, determined by socially necessary labor time. Producers with higher labor productivity, whose individual labor time is below socially necessary labor time, thereby producing commodities with individual values lower than social values, can earn higher incomes and hold an advantageous position in competition; conversely, those with lower incomes are at a disadvantage in competition. To gain more profit and succeed in competition, commodity producers inevitably strive to improve technology and increase labor productivity, thereby promoting the development of social productive forces.

  3. Spontaneously Regulating the Distribution of Social Income In actual production activities, different producers of the same commodity, due to varying production conditions and technical levels, incur different amounts of labor time. Those with better production conditions and higher technical levels incur less individual labor time and can still sell at the higher social value, thus earning more income. On the other hand, those with poor production conditions and lower technical levels incur more individual labor time for the same commodity but still have to sell at the social value, resulting in no profit or even losses and bankruptcy. Thus, the law of value regulates the distribution of social income among different commodity producers.

Negative Impacts of the Law of Value

  1. Causing Social Resource Waste When the law of value spontaneously regulates the allocation of social resources among various production sectors, it may lead to disproportionate allocation, causing waste of social resources.

  2. Hindering Technological Progress In market competition, commodity producers who are the first to adopt advanced production technologies and management practices to improve labor productivity often restrict the spread of these technologies and closely guard business secrets to maintain their competitive advantage. This, to some extent, hinders the promotion of new technologies and the general improvement of production and management, thus impeding the development of social productive forces.

  3. Leading to Income Polarization The spontaneous regulatory function of the law of value may cause some producers with favorable production conditions to accumulate significant wealth, while others with poor production conditions suffer losses or even go bankrupt. In a socialist market economy, it is essential to fully utilize the law of value, allowing the market to play a decisive role in resource allocation. At the same time, it is also important to recognize the limitations of the law of value and better leverage government functions to ensure that the market operates more steadily, better serves the enhancement of national strength and improvement of people's living standards, and resolutely prevents income polarization.