Value, Exchange, and Business Structures in Market Economies
Use Value vs. Exchange Value
Use value refers to the utility of a good. Goods essential for daily life tend to command higher value. For instance, a coat’s value lies in its ability to protect against cold, making it more useful in cold climates than hot ones. An apple’s use value is determined by its taste and nutritional content.
Exchange value, or price, is the amount of money required to obtain a good in the market. It often differs from use value. Generally, exchange value is based on production cost, adjusted by the good’s scarcity or abundance.
David Ricardo and Labor Theory of Value
David Ricardo formulated the labor theory of value, arguing that a good’s value stems from its scarcity and the labor required to produce it. He posited that only labor creates value, and capital represents accumulated labor, appropriated by capitalists from workers. Marx expanded on this, defining profit as the portion of a worker’s labor unfairly taken by the capitalist, forming the basis of capitalist accumulation.
Business Classifications
By Form of Ownership:
- Individual Companies: Owned by a single person.
- Partnerships/Societies: Ownership is shared among several or many people.
Companies can be further categorized based on partner relationships and liability:
- Limited Companies (e.g., LLCs): Capital is divided into shares. Owners (shareholders) are liable only up to their investment. Shares can be traded on the stock exchange.
- Collective Societies: Members play a more significant role and are jointly liable for the company’s debts.
- Cooperative Societies: Formed to benefit members through cooperative activities in a specific economic area (e.g., production, consumption, housing, credit).
According to Ownership:
- Private Companies: Owned by individuals or private entities.
- Public Companies: Owned by a public entity (e.g., State, Community, City Hall). Their objective is to benefit society.
Neoclassical Economists and Value
Neoclassical economists, such as Alfred Marshall, emphasized utility as the primary component of value. They believed prices reach equilibrium in the market through adjustments driven by supply and demand.
State Functions in a Market Economy
In a market economy, the public sector has key functions:
- Taxation: The state levies taxes and decides how to allocate the revenue.
- Regulation: Establishes rules of conduct through laws and regulations (e.g., minimum wage, pollution control).
- Redistribution: Addresses wealth inequality through taxes and social programs.
- Economic Control: Implements policies related to housing, unemployment, industrial development, and price controls.
Monopoly
A monopoly exists when a single company controls a market. Historically, Spain had state-controlled monopolies like Renfe (train service), Telefónica (telecommunications), and Tabacalera (tobacco). Some of these have since been liberalized.
Causes of monopolies include:
- Legal monopolies (regulated by public authorities).
- Control of essential raw materials.
- Patents on specific products or production techniques.
- Technological factors (e.g., high infrastructure costs).
A duopoly occurs when two companies control a market.
Oligopoly
An oligopoly involves a few producers offering either homogenous or differentiated products. Key characteristics are mutual interdependence and potential price wars. Companies in an oligopoly may choose to cooperate, forming a cartel to fix prices and production quotas.
Holding Company
A holding company is a financial group organized around a parent company that controls other companies through equity ownership.