The real law of value, then, according to Marx, is as follows: Under capitalism, in free competition, the value of all commodities, other than those unique things which cannot be reproduced by human labor, is determined by the amount of abstract labor embodied in them; or, better, by the amount of social human labor power necessary, on the average, for their production. We may conveniently illustrate this theory by a concrete example. Let us, therefore, return to our coat-makers. Now, always assuming their equal utility, no one will be willing to pay twice as much for the coat produced by the slow worker with poor tools as for the other. If the more economical methods of production employed by the man who makes his coats in half the time taken by the other man are the methods usually employed in the manufacture of coats, and the time he takes represents the average time taken to produce a coat, then the average value of coats will be determined thereby, and coats produced by the slower, less economical process will command only the same price in the market, the fact that they may embody twice the amount of actual labor counting for nothing. If we reverse the order of this proposition, and suppose the slower, less economical methods to be those generally prevailing in the manufacture of coats, and the quicker, more economical methods to be exceptional, then, all other things being equal, the exchange-value, of coats will be determined by the amount of labor commonly consumed, and the fortunate producer who adopts the exceptional, economical methods will, for a time, reap a golden harvest. Only for a time, however. As the new methods prevail, competition being the impelling force, they become less and less exceptional, and, finally, the regular, normal methods of production and the standard of value.
It is this very important qualification, fundamental to the Marxian theory, which is most often lost sight of by the critics. They persist in applying to individual commodities the test of comparing the amounts of labor-power actually consumed in their production, and so confound the Marxian theory with its crude progenitors. In refuting this crude theory, they are quite oblivious of the fact that Marx himself accomplished that by no means difficult feat. To state the Marxian theory accurately, we must qualify the bald statement that the exchange-value of commodities is determined by the amount of labor embodied in them, and state it in the following manner: The exchange-value of commodities is determined by the amount of average labor at the time socially necessary for their production. This is determined, not absolutely in individual cases, but approximately in general, by the bargaining and higgling of the market, to adopt Adam Smith's well-known phrase.
Now, this theory applies to those things, exclusive of the category of "unique values," which cannot be made by labor and are commonly supposed to owe their value to their rarity. For example, we may take diamonds. A man walking along the great wastes of the African karoo comes across a little stream. As he stoops to drink, he sees in the water a number of glittering diamonds. To pick them out is the work of a few minutes only, but the diamonds are worth many thousands of dollars. The law of value above outlined applies just as much to them as to any other commodity. The value of diamonds is determined by the amount of labor expenditure necessary on an average to procure them. If the normal method of obtaining diamonds were simply to go to the nearest stream and pick them out, their value would fall, possibly to zero:—
"When we have nothing else to wear
But cloth of gold and satins rare,
For cloth of gold we cease to care—
Up goes the price of shoddy."
IV
Most writers do not distinguish between price and value with sufficient clearness, using the terms as if they were synonymous and interchangeable. Where utilities are exchanged directly one for another, as in the barter of primitive society, there is no need of a price-form to express value. In highly developed societies, however, where the very magnitude of production and exchange makes direct barter impossible, and where the objects to be exchanged are not commonly the product of individual labor, a medium of exchange becomes necessary; a something which is generally recognized as a safe and stable commodity which can be used to express in terms of its own weight, size, shape, or color, the value of other commodities to be exchanged. This is the function of money. In various times and places wheat, shells, skins of animals, beads, powder, tobacco, and a multitude of other things, have served as money, but for various reasons, more or less obvious, the precious metals, gold and silver, have been most favored.
In all commercial countries to-day, one or other of these metals, or both of them, serves as the recognized medium of exchange. They are commodities also, and when we say that the value of a commodity is a certain amount of gold, we equally express the value of that amount of gold in terms of the commodity in question. As commodities, the precious metals are subject to the same laws as other commodities. If gold should be discovered in such abundance that it became as plentiful and easy to obtain as coal, its value would be no greater than that of coal. It might, conceivably, still be used as the medium of exchange, but it would—unless protected by legislation or otherwise from the operation of economic law, and so given a monopoly-price—have an exchange-value equal to that of coal, a ton of the one being equal to a ton of the other—provided, of course, that its utility remained. Since the scarcity of gold is an important element in its utility valuation, creating and fostering the desire for its possession, that utility-value might largely disappear if gold became as plentiful as coal, in which case it would not have the same value as coal, and might cease to be a commodity at all.