If the price of X falls, then the £600 of capital value, thrown into production, and now in the form of commodity-capital, may only return £500. £100 of the capital advanced, does not return.
“It is lost in that process. But since the value, or price, of the elements of production remains the same, this reflux of £500 suffices only to replace 5/6 of the capital of £600 constantly engaged in the process of production. It would therefore require an additional money-capital of £100 to continue production on the same scale.” (p 291)
If the producers of X believe that the fall in its price is only temporary, they may throw this additional capital into the process. If they think it reflects a more permanent change in sentiment, and reduction in demand, they may simply respond to the fall in the capital returned to them, by reducing the scale of their operation.
Instead of throwing £600 of capital into production, they may throw only £500. Output will fall by a sixth. The fall in supply will then raise the price of X to its former level, but less capital will now be used for its production, and less of it will be demanded or supplied. For example, if originally the £600 produced 600 units, selling at £1, now £500 will produce 500 units selling at £1. This is the way in which, under Capitalism, the market acts as the mediating force that allocates available social labour-time, to the production of social needs, in accordance with the Law of Value.
The fall in market price of X represented a loss to its producers, but represented an equal gain to its buyers. The sellers sold it a sixth below its value, whereas the buyers bought it a sixth below its value. In consequence, whereas the sellers need to acquire additional capital, the buyers have capital released. If the buyers of X are workers, the fact they buy these wage goods below their value, may act to reduce the value of labour-power, thereby effecting a shift in favour of their employers.
By contrast, the market price of X might rise, due to a change in demand and supply. The £600 of capital laid out, producing 600 units, might now return £700. But, only £600 are required to reproduce the capital consumed in production. Now, when it is returned at the end of week 9, £100 is released. Depending upon whether producers believe this is permanent or not, they may use the released £100 to expand production, or alternatively it may simply be thrown into the money market.
However, just as a fall in its price meant a loss to the producer of X, that falls outside the production process, so the opposite here applies.
“One-seventh of this price, or £100, does not originate in the process of production, is not advanced in this process, but derives from the process of circulation.” (p 290)
But, again, this fact that it originates in circulation is itself reflected in the fact that what is a gain for the seller is an equal loss for the buyer. The buyer has to expend an additional £100, whereas the seller releases £100.
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