Production Costs

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The following article is from The Great Soviet Encyclopedia (1979). It might be outdated or ideologically biased.

Production Costs


total expenditures of labor (past and present) for manufacturing a product.

The simple aspects of the labor process—purposeful activity (that is, labor itself), the object of labor, and the means of labor —constitute the primary elements of production costs. When the process of labor is repeated (reproduction), its substantive elements (means of production) are replaced (subtracted) from social product. Labor itself is not replaced; it is expended again. However, a person’s ability to work must first be restored. The means of subsistence required to restore the ability to work are the necessary product. Production costs, reduced to their substantive elements, equal the aggregate expenditure of physical resources (the means of production and the means of subsistence for production workers). These are the general features of production costs that follow from the simple labor process.

The concrete historical essence and forms of production costs are determined by the level of development of the productive forces and the specific nature of the conditions for reproduction of aggregate product and work force that typify the given mode of production. Because of the rise in labor productivity at a certain stage of historical development, men were able to produce more than was required to replace the means of production consumed and to restore ability to work. There formed a “surplus of the products of labor over and above the costs of maintenance of the labor” (F. Engels; see K. Marx and F. Engels, Soch., 2nd ed., vol. 20, p. 199), that is, surplus product. In class societies, antagonistic social forms arose around this production process. The growing surplus product became the source of enrichment for the exploiting classes. Capitalism developed this source on an enormous scale by exploiting hired labor.

Under capitalism. Production costs in capitalist society are classified as expenditures of social labor and of capital: “The capitalist costs of a commodity are measured by the expenditure of capital; while the actual costs of the commodity are measured by the expenditure of labor” (K. Marx, ibid., vol. 25, part 1, p. 30). The two-fold character of production costs reveals the real contradiction and class antagonism between labor and capital, a contradiction fundamental in the capitalist mode of production. The starting point of capitalist production is the monetary expenditures of the entrepreneur (or firm) to purchase means of production and labor power. These two categories form, respectively, the constant c and the variable v parts of advanced capital and make up the specifically capitalist production costs: K = c + v.

Marx drew a distinction between specifically capitalist production costs and the actual production costs of a commodity or the full expenditures of labor for its production: W = c + v + m. “The production costs thus defined, the immanent production costs of the commodity, which are equal to its value, i.e., to the total amount of labor-time (both objectified and immediate) required for its production, remain a fundamental condition for its production and remain unchangeable so long as the productive power of labor remains unchanged” (K. Marx, Theories of Surplus Value, part III, Moscow, 1971). In capitalist society the value, as an embodiment of the actual production costs of a commodity, manifests itself in the modified form of the price of production, which compensates for the cost of capital expended (capital production costs) and brings in an average profit for this capital. In the monopoly stage of capitalism there is a modification of the production price itself into a monopoly price. But no matter how this capitalist price of production costs for particular commodities may deviate from the actual production costs, the sum of prices in the last analysis is determined by the value of aggregate product, that is, by expenditures of social labor. It was the theoretical revelation of this truth that gave Marx the basis to draw his fundamental conclusion that surplus value is created by the labor of the workers and is appropriated by the capitalists without compensation and that it arises from the difference between the true production costs of a commodity, which are equal to its value, and the capitalist production costs, which are equal to the value of the advanced capital.

Bourgeois political economy has always ignored the two-fold character of production costs. In a one-sided, superficial interpretation of production costs it “discovered” a unique “substitute” for the category of value, proposing an unscientific theory of production costs (reducing value to production costs and reducing these to expenditures of capital). Different variations of this theory were evolved by the vulgar economists of the 19th century such as J.B. Say, T. Malthus, R. Torrens, and N. Senior. In contemporary bourgeois political economy the theory of production costs has become widespread in combination with the theory of marginal utility (A. Marshall and others).

Under socialism. Production costs in socialist society are defined as the aggregate expenditures of social labor (past and present) to manufacture a product, which make up its value (basis of prices), and the aggregate expenditures of physical resources (part of social product) to compensate for the means of production consumed and to reproduce ability to work; these constitute the basis of prime cost. Under conditions of cost accounting, prime cost expresses the monetary (or resource) production costs of socialist enterprises. In the planned price at which the enterprise’s output is sold, society pays for the production costs measured by full expenditures of labor (value). The ratio between the price and the prime cost of output determines the results of the economic activity of enterprises and the profitability of their production. The same ratio between the two measurements of production costs on a sectorial and national economic scale serves as an index of the economic efficiency of individual sectors and of total social production.

Prime cost as the part of the price (value) isolated in monetary form does not, unlike capitalist production costs, oppose value as private production costs to social costs. In the production expenditures and turnover of resources of socialist enterprises, both forms of production costs reflect the movement (reproduction and sale) of aggregate product and the ratio of socialist social ownership. These completely eliminate the conversion of labor power into a commodity and the transformation of monetary material resources into capital that exploits labor. The surplus product formed from the excess of the price of output over its prime cost (profit, turnover tax) is appropriated by society directly and expended in the interests of all the toiling masses; part of it (the profit after fixed deductions) remains at the disposal of the enterprises.

The level of production costs in socialist society is planned in monetary and physical forms in overall terms and for each element of these costs on the basis of scientifically substantiated norms. The great advantage of socialism over capitalism is the rational use of society’s labor, material, and monetary resources. The systematic decrease in the overall level of production costs is an objective law of socialist production. It is manifested in a decrease in the value (price) and prime cost of output, which reflects a real savings of live labor and material and monetary resources.

Expenditures of live labor are the most important element of production costs. Labor productivity is the inverse index of this expenditure. A rise in the productivity of social labor directly decreases product costs. Its influence on the prime cost is mediated by change in monetary expenditures for wages. The prime cost decreases if labor productivity grows more rapidly’than wages or, in other words, if the decrease in labor input per unit (labor-intensity) is accompanied by a decrease in per-unit expenditures for wages (wage-intensity). For a steady decrease in social production costs it is essential for labor productivity to grow more rapidly than wages. Where this condition is observed, the maximum economic effect is achieved from reducing production costs; and, at the same time, the cost of output will decrease (the level of prices will fall), the society’s net income will rise, and the real wages of the working people will grow. A constant source for decreasing production costs is economizing on past labor, which is done by improving means of production (equipment and materials), continually increasing the efficiency of the use of the means of production, and reducing expenditures for administration and other general economic needs.

As the socialist economy develops, precise accounting and planning for production costs, both in monetary and physical forms and in the form of planned labor expenditures, play a larger part. Computing the index of national economic labor-intensiveness or full expenditures of live and embodied labor per unit of output directly in working time (man-days, man-hours) becomes increasingly important. Full labor expenditures for particular sectors and for the national economy as a whole are determined by using the intersectorial balance in monetary and physical terms. The Central Statistical Board of the USSR is developing intersectorial report balances of the production and distribution of output in the national economy for certain years (1959, 1966), and on this basis it is working out intersectorial report balances of labor expenditures. The search for effective ways to decrease production costs requires that external problems be resolved: finding the maximum savings or minimum expenditures for a given program and the present economic situation (within the limits of the given complex of enterprises).


Engels, F. Anti-Dühring. K. Marx and F. Engels, Soch., 2nd ed., vol. 20, pp. 198–201.
Marx, K. Kapital, vol. 3.Ibid., vol. 25, part 1, pp. 29–47, 168–88.
Marx, K. Teorii pribavochnoi stoimosti (vol. 4 of Kapital). Ibid., vol. 26, part 2, pp. 139–40, 220–40; vol. 26, part 3, pp. 71, 76–81, 167–71, 539–40.
Programma KPSS. Moscow, 1971. Part 2, sect. 1, para. 3.
Primenenie matematiki v ekonomicheskikh issledovaniiakh. Edited by V.S. Nemchinov. Moscow, 1959. (Anthology.)
Komina, L.F. Polnye trudovye zatraty. Moscow, 1969.
Belousov, R.A. Obshchestvenno-neobkhodimye zatraty truda i uroven’ optovykh tsen. Moscow, 1969.


The Great Soviet Encyclopedia, 3rd Edition (1970-1979). © 2010 The Gale Group, Inc. All rights reserved.