In my last post on Labour Theory of Value ,we concluded that the social value of a commodity at the point of exchange is determined by the labour that went into making it.
Now that we have a measure of value, the next logical step is to quantify it. We can assign a numerical unit to the value form and that becomes the Money form. Before moving further let's formally define a commodity in this framework.
A commodity is an item that carries with itself an exchange value, determined by socially necessary labour time. That commodity can be exchanged in the market with other commodities that fit this criteria.
Since money represents and carries exchange value, it too fits the criteria of a commodity and can be exchanged for other commodities on the market. Thus money is also usefull as a medium of exchange.
Suppose we have a commodity C that we exchange in the market for equivalent money M. And then that money is used to buy another commodity C. We can write it as-
C-M-C
Here money strictly acts as a medium of exchange between two equivalent commodities.
But due to the specific nature of money, being a universal commodity and measure of value, it becomes something more than just a medium of exchange. Money itself becomes the goal of productive activity. And this is where real Capitalism kicks in.
In a Capitalist business, let's say a money M is invested to make/acquire a Commodity C, and that commodity is then sold off for money M'. We get this equation
M-C-M'
Here we can see that money is not just a medium but the very end goal of the operation. Further, we can see that the second M' is larger than the first M, as the whole point is to make extra money.
But this leads to a peculiar problem. If Money represents labour value then how can the M required to create the commodity be less than the actual social market exchange value M' ? No new labour was performed between the point of creating the commodity/bringing it to market shelf and the point of actual sale. So where does the Surplus come from?
Now that we have a measure of value, the next logical step is to quantify it. We can assign a numerical unit to the value form and that becomes the Money form. Before moving further let's formally define a commodity in this framework.
A commodity is an item that carries with itself an exchange value, determined by socially necessary labour time. That commodity can be exchanged in the market with other commodities that fit this criteria.
Since money represents and carries exchange value, it too fits the criteria of a commodity and can be exchanged for other commodities on the market. Thus money is also usefull as a medium of exchange.
Suppose we have a commodity C that we exchange in the market for equivalent money M. And then that money is used to buy another commodity C. We can write it as-
C-M-C
Here money strictly acts as a medium of exchange between two equivalent commodities.
But due to the specific nature of money, being a universal commodity and measure of value, it becomes something more than just a medium of exchange. Money itself becomes the goal of productive activity. And this is where real Capitalism kicks in.
In a Capitalist business, let's say a money M is invested to make/acquire a Commodity C, and that commodity is then sold off for money M'. We get this equation
M-C-M'
Here we can see that money is not just a medium but the very end goal of the operation. Further, we can see that the second M' is larger than the first M, as the whole point is to make extra money.
But this leads to a peculiar problem. If Money represents labour value then how can the M required to create the commodity be less than the actual social market exchange value M' ? No new labour was performed between the point of creating the commodity/bringing it to market shelf and the point of actual sale. So where does the Surplus come from?
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