Chapter Two – Money or Simple Circulation - Measure of Value - Part 1 of 14

Measure of Value

“The first phase of circulation is, as it were, a theoretical phase preparatory to real circulation. Commodities, which exist as use-values, must first of all assume a form in which they appear to one another nominally as exchange-values, as definite quantities of materialised universal labour-time. The first necessary move in this process is, as we have seen, that the commodities set apart a specific commodity, say, gold, which becomes the direct reification of universal labour-time or the universal equivalent.” (p 64-5)

In other words, before I can actually exchange linen for wine I must know what the proportion of value is of one to the other. The only way this can be done is to reduce the value of both to a quantity of universal labour-time, money. And, this money takes the form of a money commodity, here, gold. The labour that produces gold now becomes a proxy for universal labour, and, thereby, the measure of such labour in every other commodity.

How is this achieved in practice, given that each of these commodities, as use values, is produced by a variety of concrete labours? As Engels described in his Supplement to Capital III, by trial and error, and increasing approximation. Marx also notes that, in the exchanges between communities, the task if given to merchants, who represent their given community. Each merchant has an incentive to quickly identify the amount of labour-time that different communities expend on the production of different commodities, and so play a crucial role in establishing these exchange-values. As Engels notes, each producer is also limited and guided by the need to at least cover their costs.

A modern equivalent can be seen when a company undertakes an initial public offering on the stock exchange. A price for the stock is set in advance, but before the actual trading in the stock commences, the market makers on the stock exchange go through a process in which offers to buy or sell, at a range of prices are matched to each other. If there are a lot of offers to sell at a given price, and few to buy, then its clear the price is too high. Over a few hours, the offers to buy and sell are brought together around a given price, which then becomes the opening price at which actual orders to buy and sell are taken.

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