Friday, 17 July 2015

Capital III, Chapter 10 - Part 12

The important point, however, from all this is that whether the market value is based upon exchange value, as it is prior to the infiltration of capitalist production, or whether it is based upon prices of production, as capitalism inserts itself, the motivating force determining the market value, and thereby the market price, is the Law of Value. If the total labour-time required for production increases, then market value also increases and vice versa.

On this basis, the conditions of supply are determined, but that leaves the analysis of demand to be undertaken to understand how the two interact.

Marx makes an important point, which distinguishes his theory of demand from that of bourgeois economics. The latter sees demand as simply the demand of homogeneous economic agents. But, for Marx demand itself is a function of the class divided nature of society.

“It should be here noted in passing that the "social demand," i.e., the factor which regulates the principle of demand, is essentially subject to the mutual relationship of the different classes and their respective economic position, notably therefore to, firstly, the ratio of total surplus-value to wages, and, secondly, to the relation of the various parts into which surplus-value is split up (profit, interest, ground-rent, taxes, etc.). And this thus again shows how absolutely nothing can be explained by the relation of supply to demand before ascertaining the basis on which this relation rests.” (p 181-2)

In Marx's analysis of the process of capitalist production, in Capital I, the issue of demand is irrelevant. Marx is only concerned there to explain the basis and evolution of value, and how this provides an objective basis for the exchange of commodities and, from there, the production of commodities and capital. The problem of demand is essentially assumed away, except in the notion that socially necessary labour-time also requires that what is produced is a use value.

In Capital II, this assumption is again essentially continued, so that, under simple reproduction, the demand and supply of capital, money and commodities proceeds smoothly, because value created in production, which results in supply, is equally matched by a demand for that supply created out of the same process. But, in Capital II, Marx does introduce the idea that the supply created in the production process – in the form of use values – may not find in the market a demand for those use values, even though sufficient value exists to produce the required monetary demand. In Capital II, Marx discusses this in relation to the replacement of fixed capital.

Fixed capital is depreciated in accordance with its wear and tear. But, the wear and tear for different pieces of equipment and for different capitals takes place at different rates. At any one time, some capitals will be replacing their worn out fixed capitals, and paying for them out of their accumulated funds. These capitals will be buyers but not sellers, in that the fixed capital they buy will not be matched by the exchange of an equivalent amount of consumer goods.

However, this is matched by the fact, that some capitals will be sellers, but not buyers, i.e. they will be selling commodities, a part of whose value is the wear and tear of the fixed capital used for their production. But, these sales are not matched by an equivalent purchase of fixed capital, which is only bought to replace worn out equipment. It is only at the level of a mass social exchange that such a balance of purchases and sales can be brought about.

However, precisely because elements of fixed capital may last for a longer or shorter period of time, it is quite possible that some capitals may continue to use existing fixed capital for longer than normal, simply because it is not worn out. The consequence is that on the basis of the same level of production, fixed capital is over produced. As Marx puts it,

“There would be a crisis — a crisis of over-production — in spite of reproduction on an unchanging scale.”

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