“... then the market-value is determined by the value of the commodities produced under average conditions. The value of the entire mass of commodities is equal to the actual sum of the values of all individual commodities taken together, whether produced under average conditions, or under conditions above or below the average. In that case, the market-value, or social value, of the mass of commodities — the necessary labour-time contained in them — is determined by the value of the preponderant mean mass. (p 182-3)
But, if the bulk of production is undertaken on the basis of less favourable conditions, Marx says that this “regulates the market or social value” (p 183) The term “regulate” here is again ambiguous. Does Marx mean that the market value is, under these conditions, equal to the individual value of commodities produced under the worst rather than average conditions? Apparently not because, as he says later,
“In case II the individual lots of commodity-values produced at the two extremes do not balance one another. Rather, the lot produced under the worse conditions decides the issue. Strictly speaking, the average price, or the market-value, of each individual commodity, or each aliquot part of the total mass, would now be determined by the total value of the mass as obtained by adding up the values of the commodities produced under different conditions, and in accordance with the aliquot part of this total value falling to the share of each individual commodity. The market-value thus obtained would exceed the individual value not only of the commodities belonging to the favourable extreme, but also of those belonging to the average lot. Yet it would still be below the individual value of those commodities produced at the unfavourable extreme. How close the market-value approaches, or finally coincides with, the latter would depend entirely on the volume occupied by commodities produced at the unfavourable extreme of the commodity sphere in question.” (p 184)
In other words, Marx is still calculating the market value on the basis of the mean average – total up total labour-time under different conditions, and divide by total output – but recognising that because production is skewed towards worse conditions, the mean value of production is higher than the median value. The opposite would be the case if the bulk of production were conducted under better conditions.
Marx also says,
“If demand is only slightly greater than supply, the individual value of the unfavourably produced commodities regulates the market-price.” (p 184)
But, “slightly above” and “regulates” are again ill-defined terms here. In fact, what will regulate the market price will be the price elasticity of demand, and the market value of the production required to meet the demand. So, where elasticity is low, a surplus of demand over supply at the market value will cause market prices to rise above market value by more than where elasticity of demand is high. At the same time, how much the supply may increase, and what the value of this new supply may be, depends on the potential to obtain economies of scale, or even just the introduction of lower cost production. As Marx points out later, demand, supply and price cannot be considered as independent variables, because each determines the other.
“Supply and demand determine the market-price, and so does the market-price, and the market-value in the further analysis, determine supply and demand. This is obvious in the case of demand, since it moves in a direction opposite to prices, swelling when prices fall, and vice versa. But this is also true of supply. Because the prices of means of production incorporated in the offered commodities determine the demand for these means of production, and thus the supply of commodities whose supply embraces the demand for these means of production. The prices of cotton are determinants in the supply of cotton goods.
To this confusion — determining prices through demand and supply, and, at the same time, determining supply and demand through prices — must be added that demand determines supply, just as supply determines demand, and production determines the market, as well as the market determines production.” (p 191)
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