Socially Necessary Labour Time - Operation of The Law of Value

Operation of The Law of Value

If producers produce commodities below the socially average labour-cost, they obtain extra profit upon sale at the ruling market prices, and conversely those producing at above this cost make a proportionate loss. A constant incentive therefore exists to reduce labour-costs by increasing the productivity of the labour force.

This can be done through higher exploitation, economising on costs, and better equipment. The long-run effect is that it takes less and less labour-time to produce a commodity. Enterprises cannot usually do very much about reducing their fixed input costs, because these are rarely under their control. But they can always try to reduce their labour costs.

"Socially necessary labour" therefore refers to at least three economic relationships:

• between the specific productivity of a producer and the average productivity in his branch;

• between the outputs of the branch of production and social needs manifested in monetarily effective demand; and

• between the output of a producer, and the output of the whole branch (that can be sold).

In other words, we have to distinguish between

• labour time necessary for the production of a given amount of a commodity - this quantity defines the aggregate value of the output, arising from the nature of a commodity as a bearer of exchange-value;

• the quantity of labour time socially necessary to produce the appropriate amount of the product, i.e. the amount of a product which at the production price meets the effective demand for it - this quantity defines the correspondence between the total quantity of the commodity produced as use-values and the effective demand for those use-values.

The former determines the unit value of commodities, hence their production price, and the latter determines the discrepancy between actual supply and effective demand, hence the discrepancy between market price and production price.