That definition killed two birds with one stone. One was a sentiment often expressed by the then critics of capitalism that the workers are being exploited by their bossess' greed that makes them pay less than the "fair" value of labor. The exchange value concept dismissed that moralistic view by claiming that capitalist exploitation is systemic not psychological i.e. it sis based on exchange of equal values, workers being paid what it takes to reproduce the commodity their sell i.e. labor-power.
The other bird to kill was the claim that capital produces any value - in Marx's scheme all value is produced by labor, the capitalist purchases it at its exchange value (i.e. socially necessary cost of its reproduction), but takes advantage of its use-value i.e. to produce commodity, which the capitalist then claims on the grounds of his ownership of the means of production. The labor in its use-value capacity can produce more commodity than labor-power is worth in terms of its-exchange value, so the difference is pocketed by the capitalist when he sells the product - which gives the false impression that he added value to the product.
Of course the logical conclusion of this argument was that the surplus realized by the dual value of labor-power (bought at exchange value but having use value of producing commodity) was that the difference should be returned to the original producers i.e. workers collectively (via their collective ownership of the means of production), rather than the workers being remunerated at a higher than the exchange value (I think the Old Man mentions something along these lines in the Critique of the Gotha Programme - but as you, I have poor memory to remember quotations).
So my point was not to apply Marx's argument to explain prices but to show that this argument works well only when applied to relatively homogenized and low-skilled labor of the 19th century, but poses problems when we apply to other contexts. Take, for instance, Bill's argument that the socially necessary time to reproduce a skilled surgeon should be reflected in the exchange value of the surgeon's labor. That is a very different proposition from that that "brute" labor power is remunerated at its exchange value. For one thing, the cost of reproducing proletarian labor power is determined by daily living expenses (food and shelter + uncompensated emotional and sexual labor as our feminist friends would say). In that situation, if you pay a proletarian a weekly wage that is barely sufficient to cover his weekly living expenses, the principle holds. If the proletarian dies today, his labor power is not reproduced anymore and he receives zero wages - end of story.
But this is very much different in case of a surgeon. Since it takes years of training to become one, the wage she commands would have to compensate for that time used to produce her surgical labor power. But then, how do we determine that time? Does the capitalist pay her a lump sum when she finishes a medical school? If not, how is that amount prorated over her career? What if she dies before the prorating scheme compensates her in full for her time in developing her skills. What if she practices medicine longer - does she get a pay cut? What is more, how do we determine the past (say, circa 1980s) of her medical training in current (2003) dollars? Some sort of hedonic valuation? If so, based on what - the price of computer chips?
The bottom line is that while the theory of value was a very clever tool to de-pychologize and demystify capitalism in the 19th country against the claims of its detractors and supporters - that theory is not logically necessary to denounce capitalism today. It is possible to think of a situation when goods are produced by robots (as it is largely the case of auto or computer mfg) - i.e. little or no human labor going into the process. So where is the exploitation, if we stick to the Ricardian-Marxian notion that only human labor produces value? A much powerful critique can be delivered by claiming that such production wastes natural resources and thus makes everyone worse off in a long run, for example.
Wojtek