Law of Value

The law of exchange of equal values of commodities according to the magnitude of value determined by the socially necessary labor-time for their production. The law of value is the basic law of the commodity economy. Wherever there is commodity production and commodity exchange, the law of value exists and plays its role.

In practical life, not every exchange of commodities is carried out according to the principle of equal magnitude of value of commodities. This is because, once money serves as a general equivalent in a fixed way, the value of all commodities is expressed in price in money form, and the price does not completely coincide with the value during each commodity exchange. There are many factors that affect the changes in the price of commodities in the commodity exchange market, the most important of which is the relation of market demand and supply. When there is an oversupply of a commodity, producers compete to sell it, and the price of the commodity becomes lower than the value of the commodity; conversely, when there is an overdemand of a commodity, buyers compete to buy it, and sellers wait to sell it, and the price of the commodity becomes higher than the value of the commodity. Since it is impossible to maintain supply and demand in the market continuously in balance, the price of a commodity fluctuates around its value.

The divergencies between commodity price and value does not deny the law of value, because: first of all, the commodity price, no matter how it rises or falls, always fluctuates around the center of value; further, from the perspective of the longer term of commodity exchange, if the price of the same commodity is either above or below the value, the positive and negative parts above or below the value can offset each other, so that overall, the average price basically coincides with the value. It can thus be seen that price fluctuates up and down due to factors such as the relation of demand and supply, but is ultimately constrained by value. This phenomenon is the result of the law of value in effect, and is the form of appearance of the action of the law of value.