The theory of value created by Marshall implies that at the point of equality of two types of prices – the price of demand and the price of supply – an equilibrium price was established. It represents the actual value of the product, and that is how value creation occurs.
Before Marshall, it was believed that the value capture formed by labor determines the value of prices for goods and services. Marshall proves that the value capture does not always determine prices, but only in rare cases of equilibrium in the economy. According to Marshall, value capture is a concept that does not need to be considered in theory since, in practice, it depends on the price level.
Marshall tried to identify how value creation changes with an increase in production volumes, according to A. Marshall, the role played by nature (in raw materials industries, including agriculture) in production shows a tendency to reduce transaction costs, and the role of human contribution increases.
On the basis of this, he formulated the law of increasing returns: an increase in the volume of costs and capital – the value capture – leads to an improvement in the organization of production, which entails an increase in the efficiency of resource use.
Marshall adhered to the concept of three factors of production. However, he added the factor of the organization to land, labor, and capital. According to Marshall, the level of rent, wages, interest, and value capture is determined by value creation. Under the diversification of the company’s activities, Marshall understood the renewal of the product and the value creation at the same time.
He recommended the use of diversification in cases where there is a stagnation of the market, a drop in demand, or the company has a monopoly position. In addition, diversification should be used when an enterprise loses the value captured in the traditional market due to a decrease in competitiveness.
Marshall attributes the value capture to the fourth factor of production – organization. With the growth of corporations and the subsequent dispersion of stock ownership, the management function of the first major organization falls into the hands of professional managers.
In these conditions, the remuneration of a businessman turns out to be subject to the same laws that govern wages. It becomes sufficient to encourage a person to offer the necessary services. The second major organization captures value in relation to diversification. It has assortment advantages over other companies due to the possibility of offering new services, products, an expanded assortment, and new ways of value creation.