Law of value

The market system has an internal integrity that allows it to be preserved when interacting with the external environment and develop. This development is carried out according to its laws, which are the rules of public action of people. They are stable, constant, reflect the essence of production relations and are manifested in daily activities not only in the economic sphere, but also in the legal, political and ideological areas.

The mechanism of functioning of the market is regulated by two most important laws of the economy. This is the law of supply and demand and the law of value. The latter is the main law of commodity production (A. Smith, D. Riccardo, K. Marx).

One of the most significant and objective laws governing the relationship between producers of goods and the distribution of social labor in commodity production is the law of value. Its essence is reduced to the expression of the value of the commodity in socially necessary labor. It manifests itself as a law of prices, and its action resembles the movements of a pendulum: a rise in prices activates the activity of entrepreneurs, a reduction leads to a curtailment of production and a reduction in costs. In extreme cases, producers have to leave this area of capital investment. In this case, the inflow of goods to the market decreases, and due to this the price again goes up. Thus, the law of value acts in the system of economic laws through the behavior of people, ensuring the balance of the economic sphere.

In the economy there is never an absolute equilibrium, however, long disproportions in it are impossible. In this respect, this law regulates the distribution of resources between the spheres of production and determines the differentiation of commodity producers.

The functions of the law of value are as follows. The first is the consideration of social labor through socially necessary expenditures of this labor. The second is to ensure the distribution of labor between all spheres of production. Fluctuation of market prices around the cost ensures the transfer of production factors from one economy to another, regulating the output of goods. The third is the differentiation of commodity producers. All of them have different labor inputs. In a favorable position are those who have such costs lower, otherwise they will incur losses, possibly bankruptcy and ruin. The law of value stimulates producers who are able to achieve lower individual costs compared to the public ones. The fourth is the stimulation of production costs. If the costs of individual labor are higher than socially necessary, then, in order not to go bankrupt, the entrepreneur must reduce them. This will ensure the acceleration of the sale of goods, an increase in revenues and profits, which is an incentive for the development of production. The fifth is the distribution of the social product between individual enterprises and entire regions.

The law of value and its functions in the economy play an important role, but its action can not be absolutized, because its role is limited. He explains the motives of the behavior of the subjects of the economy (commodity producer, seller). But it is difficult to explain the behavior of other subjects - the consumer, the buyer. The commodity producer seeks to sell the product at a price that would fully reimburse all its costs and bring the maximum profit. That is, the logic of his aspirations is fully explained by the law of value. But the consumer is not interested in the costs of the producer, he seeks to find a price that satisfies him at a suitable quality of the product. The behavior of this subject of the market to the laws of value is completely not subject to. Here comes the second most important law of the economy - the law of the law of supply and demand.