Value It Is Then
Value It is not possible to analyse the price system in terms of the exchange ratios of commodities alone. Moneyand its value have to be considered because it is not 'neutral'. Moneyis not simply a technical device for converting the exchange values of goods into prices. There is an important difference between a barter economy, where value is determined purely by the exchange ratios of goods, and a money economy, where relative prices are influenced by changes in the value of money itself. The change in the price of one good may reflect either changes in its value relative to other goods, or changes in its value relative to money. A change in the value of money generally may change the relative prices of goods. Thus changes in the value of money and changes in relative prices are closely linked.
The theory of value has always held a key position in economic theory. In the early nineteenth century economists' explanation of the exchange value of (reproducible) goods emphasized the influence of relative costs of production (i.e. supply) in determining prices. The influence of utility (demand) was viewed largely as a condition necessary for the emergence of exchange value. Later in the century the marginal utility theory of value emphasized utility as the source and cause of an exchange value, and related exchange value to the marginal significance of additional units of a commodity. The influence of cost of production was allowed for in this more general theory, which explained the cost of a commodity in terms of the value (as again determined by marginal utility) of the alternative products that could have been produced by the land, labour and other factors employed. Alfred Marshall's 'scissors' simile, in winch both demand and supply were likened to the cut of the two blades simultaneously determining price, was thought misleading since both 'blades' were derived from the single principle of utility. Nevertheless, the simile is useful because it emphasizes that, in the long run, the marginal utility principle will tend to equate exchange value to relative costs. Present-day economics regards price as determined by the interaction of supply and demand: given the conditions of supply and demand, equilibrium exists when the quantity freely demanded at a price is equal to the quantity freely supplied at that price.
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