value added

The concept wherein the process of labour increases the value of a product beyond the value of its raw materials.

ie. Flour has a higher monetary value than grain, because the process of milling grain into flour adds to the value of the grain.

The extraction of value added, that is paying a labourer less than he or she has added to the value of a product, is the basis for the capitalist system of economics.

Value added is also an important part of Value Added Tax or VAT, which was introduced in the UK in 1973, and already existing as such in other parts of Europe (but of course named differently, for example BTW in the Netherlands: Belasting over de Toegevoegde Waarde, which means exactly the same). Clearly it means that taxes are imposed on the value beyond that of the material itself.

An exciting concept - especially here on E2, I think - is the idea that words are the raw materials of communication. Their value added is visible when words are put together in a way that makes people read them, listen to them, be inspired by them, moved by them or influenced by them.

Put simply, added value is the difference between the price which is charged and the total costs of the material inputs for a product, thus reflecting the input of labour and capital into the final product.

Value is added by the four factors of production (labour, capital, land, enterprise). Labour is probably the most prime source of added value - the quantity of manpower, and especially the quality (skill of the workers) are critical to adding value to products and services (especially the latter).

The use of capital is also very important - because companies have a larger infrastructure than most individuals, they can afford to do things more cheaply. This especially applies to services - I could do my own laundry, but I don't have the same equipment as launderette (there is also the issue of labour here - they save me time by doing it for me).

Land, obviously, is the place where all this happens.

The enterprise of the company's board or manager is also critical here - without him/her, the above wouldn't come together.

It goes without saying that the input of these factors does not guarantee added value, only if there is demand for the product or service. A product could be finely crafted and made over a process of a week, but this doesn't mean it will command a high price in the market (automatically).

Two big value added aspects these days are promotion and branding. People pay a lot to have a certain brand on their clothing - this recognition is the value added for them.