Karl does some interesting logical acrobatics with use-value and exchange-value and labor-power in Chapter Seven. To open, he chooses simple yet ambiguous and confusing statements: "The use of labour-power is labour itself" and "We shall therefore, in the first place, have to consider the labour process independently of any specific social formation" (283).
The contrast between use-value and exchange-value that Marx hints at is that, where exchange-value is conditioned entirely by social relations and through comparability and competition with other commodities, use-value is not. Why is this distinction important? Because herein lies the key to the conundrum of surplus-value that Marx has set up in previous chapters. If value cannot be generated from the exchange commodities, then the only way to generate surplus-value is by somehow buying a commodity that generates more value than it itself is worth on the market.
What was really decisive for him was the specific use-value which this commodity possesses of being a source not only of value, but of more value than it has itself. This is the specific service the capitalist expects from labour-power (301).
Although he does not use the phrase "wages," Marx foreshadows the economic mathematics by explaining the general concept of labour-power's exchange-value being far exceeded by its use-value, that is, its ability to generate more money than the worth of the raw materials entered into the commodity production process. He does this by talking about "socially necessary labor time," which is central to the concept of wages. The going rate of labour is founded upon the idea that if a laborer can work all day, then they will take home an amount of money that can provide the minimum level of food and housing necessary. If they took home more money, then the dynamics of competition would drive those wages lower and lower, until some regulatory body steps in. So, we begin with the idea that wages signify the amount of money necessary to keep the workforce alive - this is labour-power's exchange value.
On the other hand, Marx raises the objection that if a worker could actually earn their socially necessary amount of wages in only six hours' time, they are not rewarded extra simply for working twelve hours. The wages would, presumably, simply be lowered such that the worker is only paid the minimum while s/he generates twice the amount of value as would be generated in a system of equilibrium. This is because the value that the laborer generates is independent of labor-power's exchange-value but rather is the usefulness, or use-value, of labor-power.
Does this make sense? Here is the decisive quote:
The value of a day's labour-power amounts to 3 shillings, because on our assumption half a day's labour is objectified in that quantity of labour-power, i.e. because the means of subsistence required every day for the production of labour-power cost half a day's labour. But the past labour embodied in the labour-power and the living labour it can perform, and the daily cost of maintaining labour-power and its daily expenditure in work, are two totally different things. The former determines the exchange-value off the labour-power, the latter is its use-value. The fact that half a day's labour is necessary to keep the worker alive during 24 hours does not in any way prevent him from working a whole day. Therefore the value of labour-power, and the value which that labour-power valorizes [verwertet] in the labour-process, are two entirely different magnitudes; and this difference was what the capitalist had in mind when he was purchasing the labour-power. (300, emphases mine)
To return to the opening line, Marx seems to argue that when labor-power is sold, before any work has ever been done, based upon past work and competitive market prices, exchange-value is at work. After the selling, then the actual labor itself is the use-value, or the creation of new values through work, which is alienated from the laborer and is the property of the capitalist.
A sports analogy: Steve Nash was signed to a 5-year, 65$ million contract in 2004. It seemed like a lot of money at the time, but it certainly wasn't the most money being paid to a basketball star. Several things worked against him. For one, he was a white point guard with the perception of being too slow at his position, and he had been injured a few years. Plus he was getting old, and as far as white point guards in the NBA go, historically, he wasn't going to play that well during the entire contract. Still, the Phoenix Suns showed him the Benjamins, and he signed, while his Dallas team let him leave and insisted he wasn't worth that much.
Since then, Nash has won two MVPs and has largely been responsible for the amount of sellout crowds, late playoff runs (which generate extra income) and Phoenix Suns merchandise sold in the last four years. Compared to the other players in the league who make more than him, he is WILDLY underpaid. But then, how could I even make such a statement? To the classical economist, he is paid what he is worth, that is, the price of the market at the time he sold his labor-power. That is, his exchange-value - his price - is his worth. Only by keeping an eye on use-value -- the valorization of the work Nash does -- can one even claim he is underpaid. That is, his use-value far exceeds his exchange-value. His labor has been alienated from him since the time he signed the contract, however, and however well he plays is not his property but that of the Suns owner, Robert Sarver. So, in a sense, the phrase "live up to your contract," so abundant in sports, only makes sense within this Marxian frame. By the way, I realize no one should ever be paid $65 million to play basketball.
If you follow the logic of this argument, you notice that it is not simply the case that exchange-value depends upon the market but use-value does not. They are both conditioned by it. In order for use-value to realize itself as surplus-value it needs to be, well, realized:
This whole course of events, the transformation of money into capital, both takes place and does not take place in the sphere of circulation. It takes place through the mediation of circulation because it is conditioned by the purchase of the labour-power in the market; it does not take place in circulation because what happens there is only an introduction to the valorization process, which is entirely confined to the sphere of production (302).
So we cannot say that use-value and exchange-value are two separate spheres of activity. And although Marx emphasizes that these concepts are ultimately indifferent to one another, he still throws out curveballs (sorry, I'll stop) like this one:
Use-value are produced by capitalists only because and in so far as they form the material substratum of exchange-value, are the bearers of exchange-value. (293)
Seductively simple, yet it begs a whole host of questions. I'll leave it there for now.
Final thought -- throughout this explanation of circulation and valorization lied dormant the concept of competition that constantly valorizes, adjusts and readjusts itself. How this competition works is something of a contested question in Marxian debates, but, taking cues from David Harvey and Anwar Shaikh, the distinction between constant and variable capital, introduced in Chapter eight, is very important. So keep your eyes peeled.