Bailey saw value and exchange-value, as identical, and as wholly subjective, and contingent, being determined only in each exchange, in which case, as with the first exchanges of products, prior to commodity production and exchange, there would be no objective basis for determining either the value of commodities or the rate of exchange between them. All theories of subjective value, see value and market price as identical, value being only a consequence of the interaction of supply and demand as the reflection of the subjective preferences of buyers and sellers. Of course, this requires us to believe that these preferences are themselves unrelated to any objectively determined material conditions and constraints, for example, the cost of production of the given commodities, which is a fundamental factor even for a simple commodity producer, let alone for a capitalist producer.
The subjective preference of the buyer, may inform us as to whether any given commodity is a use value for them or not, and so whether they will have a demand for it, or at what level that demand might be, and, as a result of fluctuations in demand, that may cause fluctuations in market prices, but the fact of a fluctuation means that it is a fluctuation around some pivot, which simply brings the question back as to what determines this pivot point, or equilibrium, as orthodox economics describes it. It is not simply a matter of subjective preference for the seller, assuming that there is demand for their commodity, but their cost of production. Either there is demand for the commodity at a price that at least equals its cost of production, or there isn't, and if there isn't, there is no reason whatsoever why producers will produce it, and sell it at a lower price. The Labour Theory of Value, reduces cost of production to value, and value is labour. So, ultimately, we have an exchange of commodities based upon each being a use-value for the buyer, and so the ratio of exchange can then be reduced to a quantitative relation of the value of each.
“But in order to be represented in this way, the commodities must already be identical as values. Otherwise it would be impossible to solve the problem of expressing the value of each commodity in gold, if commodity and gold or any two commodities as values were not representations of the same substance, capable of being expressed in one another. In other words, this presupposition is already implicit in the problem itself. Commodities are already presumed as values, as values distinct from their use-values, before the question of representing this value in a special commodity can arise. In order that two quantities of different use-values can be equated as equivalents, it is already presumed that they are equal to a third, that they are qualitatively equal and only constitute different quantitative expressions of this qualitative equality.”
(Theories of Surplus Value, Chapter 20)
It is this value that is produced by abstract labour, which acts also as its measure. Only when this value has been created can the quantity of value contained in, say, a metre of linen, be compared to that in a kilo of iron, and subsequently a relation between them be established. Assuming no change in social productivity, the measure of value by labour-time is independent, direct and absolute, whereas the measurement of exchange-value is contingent, indirect and relative.
“There is, in actual fact, a very significant difference (which Bailey does not notice) between “measure” (in the sense of money) and “cause of value”. The “cause” of value transforms use-values into value. The external measure of value already presupposes the existence of value. For example, gold can only measure the value of cotton if gold and cotton—as values—possess a common factor which is different from both. The “cause” of value is the substance of value and hence also its immanent measure.”
(ibid)
Assuming constant social productivity, if a metre of linen requires one hour of labour for its production, then this metric stands on its own. However, this constant value of linen will have many different exchange-values. It may equal one kilo of iron, but two kilos of butter, five litres of wine, and so on. In other words, its exchange-value, as opposed to its value, is contingent upon what other use-value it is being exchanged with, what other use-value acts as this indirect measure of its value. It is an indirect, and relative measure of its value, whereas labour is a direct and absolute measure of value.
The relative measure of value – exchange-value – depends upon the value of the use-value which is used as the measure. In the same way, if I measure the length of a table, I will get different results if I use a foot ruler rather than a metre ruler, even though the absolute length of the table, itself, has not changed. This absolute, direct measure of value, by labour-time, as a necessary first step, is vital in understanding the objective basis of exchange-value, as against the theories of subjective value of Bailey and the later neoclassical economists. It is also vital, thereby, in understanding the evolution of a money commodity, and its use as the means of measuring exchange-value as price.
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