A GOOD question, and one that Marx explored 150 years ago in the first volume of Capital (published in September 1867).

Value can be understood and measured in at least three different ways. A common use of the term is how much something might sell for or cost to buy.

Marx called this “exchange value” — the “worth” of something, measured by what it can be exchanged for — if the measure is money, its price.

A second kind of value is “use value” (sometimes referred to today as “instrumental value”) — the capacity of something to satisfy a (human) need or want. There are two sources of use value — nature and human work.

A third and for Marxists a central concept of value has to do with the human work, or “labour,” embodied in the production of commodities (ie use values for sale) whether in the form of goods (such as food, tools or manufactured items) or services (like dentistry, travel, childcare, media and IT).

Labour-value is fundamental to all human societies and, arguably, is peculiar to our species. Wild blackberries can be eaten straight from the bush, but human labour is needed to cultivate, pick, pack and transport them, ie creating use value and exchange value for others.

Labour-value has been recognised in practice since prehistoric times in barter — the exchange of goods requiring roughly equivalent effort to produce.

Use value varies between cultures and individuals and relates to exchange value in complex ways.

Food is a basic and universal human need but what people eat, and what they are prepared to pay for it, differs greatly from place to place.

Air and water have high use values — they are essential to life — but limited exchange value. However when water is scarce or (as in Britain) is privately controlled, it becomes a commodity — a source of profit for those who “own” it.

Globally even the atmosphere has become commodified through artificial state — created markets trading in carbon credits and other pollution licences and taxes.

And some of the “products” that prove so profitable under capitalism — insurance (think PPI mis-selling) and other financial services for example — would arguably be far less important in a socialist society.

All three approaches to value existed well before Marx. The creation of value through labour is central to the classical economist Adam Smith’s The Wealth of Nations — featured on your £20 note.

Marx and Engels’s great contribution was to examine the way that the production and distribution of value has changed dynamically over time and, in particular, to elaborate a labour theory of value in the context of the development and functioning of capitalism.

Central to this is the idea of “surplus value” — the focus of Marx’s Capital. One way of understanding the concept of surplus value is to consider the relationship between wages, price and profit — the title of a pamphlet by Marx in which he challenged what were (and still are) the prevailing liberal economic orthodoxies. In it he presented what was in effect a synopsis of Capital (which he was engaged in researching and writing at the time).

One of those orthodoxies is that the price of any commodity is determined entirely by supply and demand — that prices fall when supply goes up or when demand drops, and vice versa — and that this applies as much to the wages paid for labour as to anything else.

Another orthodoxy is that profit is solely the difference between expenditure and income — buying below something’s real value or selling above it.

Marx argued that, while supply and demand influenced the fluctuation of prices around a given mean, that point — the real value of something — is determined by the labour embodied in it. And, in a competitive market, profit couldn’t derive from capitalists continually selling things above their value.

It therefore followed that the value of an article on the market must already contain unrealised profit, which is created in the course of production.

But the wages received by the workers who have contributed that labour are less than the value they have created.

In the absence of trade union organisation, and in a competitive labour market, this will always tend to fall to the minimum necessary for the “production and reproduction of labour” — for workers to purchase the use values (food, clothing, housing, etc) to sustain themselves and their families.

The difference between what the workers receive, and the value they create — the “surplus” — is realised as profit in money terms at the point of sale, after payment of rent and interest — themselves effectively profits to physical and financial capital. We’ll examine the relation between wages, prices and profit in more detail in another answer.

Use value, labour value and exchange value are sometimes contrasted with a fourth concept of value, “intrinsic value” — the essential “worth” of a human life, of a species of animal or plant, or its habitat, of a sunset, or (conceivably) in a work of art.

Both Marx and Engels attributed intrinsic value to nature (in addition to its use value for humans).

However, whether that value is an inherent property of species and ecosystems independent of human perception or whether it is by definition a quality attributed to nature by people remains a matter of debate among philosophers and environmentalists.

Intrinsic value arguably cannot be “measured” in money terms, although within capitalism the attempt is always made to do so (effectively, to give everything a “market value”, a price).

Capitalism monetises everything from human lives (the insurance industry) to nature (the “market” in “ecosystem services,” manifest in biodiversity offsetting and carbon credits — something that we’ll examine in another answer).

Bizarrely, financial analysts use the term intrinsic (sometimes “underlying” or “fundamental”) value to indicate their perception of the possible future exchange value of a security in contrast to its current market price.

As with other apparently simple concepts, “value” turns out, upon examination, to be complex and a Marxist approach can illuminate a great deal about the world that “orthodox” economics attempts to obscure.