Answer 1 - SHORT ESSAY 2
THEORY OF VALUE AND SURPLUS VALUE
Labour theory of Value was given by Adam Smith who propounded the concept that labour is the wealth of the nations. As per Smith, the value in exchange of any commodity can be measured in terms of the number of man hours / days it took for the labour to produce that product. The theory however, faced some criticisms such as that it did not estimate the difference in efficiencies of different labourers (a less efficient labourer will spend more time on a good than an efficient labourer). Also, it ignores the demand side, does not take into account misdirected labour (that results in a product with no social utility) and does not explain the value of rare things such as art and antiques. Smith is the first person to express the value in exchange of a commodity in terms of the labour engaged in making it.
As is shown later, Karl Marx made use of this theory to show that there was a creation of Surplus Value which was not being passed on to the labourers by the Capitalists, thus leading to the labourer’s exploitation.
In a simple exchange economy, a person starts with a commodity, changes it to money and thus converts it to a commodity again to get satisfaction. It follows from here that the starting and ending commodity are different from each other, which is why it leads to satisfaction. This is depicted by the relation:
C – M – C
In a Capitalist economy, a Capitalist buys raw material from the market using money, he