Value, Wages, Capital & Income: Economic Theories Explained
V. Objective and Subjective Value Theory
Objective Theory of Value
A) Goods
Karl Marx developed the objective theory of value, also known as the Marxist theory. It seeks to explain the concept of value in economic terms. This theory has three main features:
- It is historic because it explains value within a given society.
- It is objective because it recognizes the existence of objective economic processes within a community.
- It is social, studying value from the standpoint of society’s total production.
Now, let’s define other important concepts:
Merchandise: A good produced for trade. It has two main features: meeting human needs (use value) and being intended for exchange (exchange value).
Use Value: The ability of a good to satisfy human needs.
Exchange Value: The ability of a good to be exchanged.
B) Work Value
All work is both concrete and abstract labor; this is the dual character of labor.
Concrete work is the specific work of producers. Abstract work is the general labor performed by all producers, representing expended energy, both physical and mental.
Work can also be classified based on its description:
Simple Labor: Work that requires no special preparation.
Human Labor: The use of simple labor that every person possesses, without the need for special education.
Complex Labor: Work that is more than simple powered labor; a small amount of complex work may equal a large amount of simple labor.
Socially necessary labor time is the time required to produce any use value under normal conditions of production and with the average skill and intensity of work prevalent in society.
C) Forms of Value
Value is expressed in goods because they are products of human labor. According to Marx, there are four ways to demonstrate value:
- Simple Form
- Total Form
- General Form
- Money Form
D) Components of Value
The value of goods is composed of three elements, each representing the addition of a new amount of work:
- Constant Capital (C)
- Variable Capital (V)
- Gain (P)
Subjective Theory of Value
Needs
Zamora states: “Need is primarily a feeling of lack or inadequacy. It is an emotion due to a psychophysiological imbalance.” When the need disappears, psychophysiological balance, or individual well-being, is achieved. A well-known hierarchy of human needs was proposed by H. Maslow.
The characteristics of needs are threefold:
- Quality: Specific traits of the need.
- Quantity: Quantitative expression of the imbalance generated.
- Intensity: How strongly the need is felt.
Goods
Goods are material objects that, by their nature, have the ability to satisfy human needs. There are four conditions for an object to become a good:
- There is a need for specific features.
- The thing has qualities that make it suitable to satisfy that need.
- These qualities are known.
- It is possible to possess the thing.
In addition to goods, services also satisfy human needs. A service is the result of work that is not manifested in the form of tangible material goods.
Goods are classified as follows:
- According to their nature:
- Natural Assets
- Human Assets
- Mixed Assets
- Consistent with their role:
- Real Presatisfacientes
- Real Fulfilling
B) Utility Theory of Value
Utility and Scarcity: This applies to any property that meets needs. If goods are scarce in relation to individual needs, they will have greater utility, meaning the individual assigns greater value to them.
In a capitalist economic system, individuals cannot meet all their needs because goods are scarce and must be used alternatively. This gives rise to the need to exchange goods or money; each individual will theoretically plan to streamline their business.
V. Distribution Theory: Wages, Income, Interest, and Rent
Concept and Classification of Salary
Salary is the remuneration for labor.
Salary is a historical category because it exists within a specific historical period: capitalism. Thus, salary is the payment for labor or the price for the use of someone else’s labor.
More clearly:
Several concepts are related to work: salary, payment, pay, remuneration, fees, etc. Wages can be paid fortnightly or weekly. Wages can be classified as follows:
- Individual Salary – Salary for a specific task
- Total Wage – Overall salary
- Nominal Wage – Stated wage
- Real Wage – Wage adjusted for inflation
- Base Salary – Contractual salary
- Minimum Wage – Legally mandated minimum wage
- Time-based Wage – Wage based on hours worked
Production, Productivity, and Wages
Remuneration for work takes the form of wages in the capitalist system. Because production and work are historical and social processes, the form of remuneration is also historical and social.
Productivity is the relationship between total production and the resources used in production, especially labor.
Productivity = Total Production / Number of Employees
Increased productivity means increased total productivity, leading to increased total production and work performance.
Objective and Subjective Theory of Wages
Objective Theory: The socially necessary labor of the entire economically active population creates a social product, which is then shared among different social classes.
Subjective Theory: Also called marginal theory, argues that wages are the remuneration for labor. It further claims that the remuneration of each factor of production is based on its marginal productivity.
Capital
Capital is everything that makes production possible. It is the set of means of production. All goods used in production are called capital goods or producer goods. From an accounting perspective, capital is defined as the difference between a company’s assets and liabilities:
Capital = Assets – Liabilities
If capital is a basic category of capitalism, the process of capital accumulation is the engine of capitalist development.
According to the components of value, according to the subjective theory, capital is classified
– Capital constant. Is represented by means of production
– Capital variable. Is invested in the purchase of workforce
The capital is also classified according to the sphere of production as it applies:
– Commercial Capital
– Fictitious Capital
– Working Capital Loan
– Industrial Capital
– Financial capital
– Commercial Capital
– Capital money
– Productive Capital
– Capital User
There are other classifications of capital but only mention the above.
Return on capital means the profit or the capitalist profit you make on your investment.
GAIN
Disposable income received by the capitalist for their capital investment. The purpose of the capitalists is to make a profit, once they recover their investment, the rest is profit
Different types of profit is divided according to production and according to their amount.
The income of a society can be divided into wages and surplus value.
Now let’s review the investment. This is done with part of the profits for this purpose and provide savings to savers and investors.
INTEREST
Is the price paid for the use of borrowed funds. These funds can be used for buying goods or capital in the production process.
The concern is over who gets the lender when the loan is paid and recover the loan. Classified as:
– Short-term interest. He who receives a credit not exceeding one year but may be less time
– Long-term interest. The credits received for passing of a year.
Based on the method of calculation can be:
– Simple interest. Is charged for the use of capital in a given period
– Compound interest. Is the one that exists when the interest is not charged at the end of each period, but must be accumulated and continue to leave on loan to generate more interest.
INCOME
Is the payment made by the land use. Is that part of the cream of the crop that pays the owner for the use of original and indestructible powers of the soil.
Leasing is one of the forms assumed income. The landlord is the owner, gave his property for a specified time and through an established payment in a contract, the tenant, who is the goods and pays rent for its use.
Income in the capitalist system exists because of the monopoly of land belonging to the landowners and the fact that land is a limited resource that has a different quality.
The rent is part of the economic surplus created by the productive workers, and may be spent on consumption or investment.