Why is it that a bag of rice costs as much as a lego toy? How is it that their prices are the same, but they are used for totally different things?
Capitalism is a system of commodity production. What the hell does that mean? It means that things are produced for the express purpose of being sold. Things are produced exclusively for exchange, thus, they are called commodities.
Our society is ruled by this process. Just look at malls; some are the size of football fields for christ's sake.
Different commodities can have totally different uses, but similar prices. What a commodity is good for is called its use value. The use value of a rice is that you can eat it. You can't eat a lego (believe me, I've tried), so its use value is something else, namely amusement.
A commodity is sold for its exchange value, or its price. It is on the market that things with totally different use values have similar exchange values. So its pretty obvious that use value has absolutely nothing to do with exchange value.
So why are two totally different things, which require two totally different ways of making them cost almost the same? What is it they have in common?
The answer is labor. Things have a similar or different prices depending on how much labor went into producing them! A car costs more than a tv because it takes more labor to produce a car than a tv! A lego toy costs as much as a bag of rice because it takes (roughly) the same amount of labor as much to produce a bag of rice as it does a lego toy. Actually, the price of a commodity is determined more or less by the average socially necessary labor used in producing it. This is called the labor theory of value. For instance, if you can make as much cotton as your competitor but in half the time, the price of cotton falls and he is driven out of business. The average socially necessary labor needed to produce X amount of cotton decreased by half.
Why isn't this simple explanation more obvious? Because the market conceals the human relationships and the labor involved in the process of production.
So what about labor? Is labor, or the amount of work already done, a commodity?
No. Labor itself is not a commodity; capitalists do not purchase labor from workers - if they did, the workers would make the product and then sell it to the capitalist. This is clearly not the case.
Capitalists don't buy labor from workers, they buy their labor power, or their ability to work. The capitalists buy their labor power and the workers put themselves at the disposal of the capitalists, to do this or that task. The capitalists decide how and under what conditions the workers' labor power is to be expended.
So what is the value of labor power? The value of labor power is the amount of socially necessary labor required to produce it. In other words, the amount of goods and products necessary to keep the worker breathing and reasonably healthy is the price of labor power. Wages are paid to the worker not in exchange for the amount of value he produces, it is for the amount of values necessary to keep the worker alive. Human labor power produces values above and beyond what is needed to maintain it. The difference between what labor power actually produces and the amount the worker is paid is called surplus value. (See the "Exploitation" article for more specifics on this.)
This is the secret of where profits come from. The process of buying and selling itself is the source of the exploitation and alienation of workers.
But more specifically, if one compares the prices between two goods that are the same, i.e., Nissan and Toyota, the price is determined by competition. The competition between sellers for the same market pushes the price down, the competition between buyers for the same amount of goods pushes the price up. The price depends upon which competition is stronger. This is commonly called supply and demand.
But the fluctuations caused by supply and demand fluctuate around an average - the average socially necessary labor time to produce that product.