value, theory of

In economics, a theoretical framework for measuring value. Adam Smith distinguished between value in use or utility and value in exchange. Smith and other classical economists regarded the value in exchange as related to the labour required to produce the product (this would include labour required for extracting raw materials, manufacturing, and distributing the product). Karl Marx also developed the labour theory of value. In neoclassical economics, value is simply the price a product can command in the market. This is because it is assumed that producers aim to maximize profits and consumers aim to maximize utility and the interaction of supply and demand ensures that these values are reconciled through the adjustment of prices.