Tuesday, 21 July 2015

Capital III, Chapter 10 - Part 15

The importance of Marx’s comment about demand being a function of distribution can be seen, because not only does this explain the sources of the demand for commodities as means of production, as opposed to means of consumption, it also explains why demand for certain commodities, at given market prices, may already be satisfied for certain classes and strata, whilst it remains completely unsatisfied for others.

The demand of productive capitalists will in turn depend on the capitalist's perception of the state of demand for their own commodities. They will not continue to increase their purchases of means of production if they see no prospect of selling more of their own commodities. The same is true for workers. In times of prosperity, they may run down what savings they have, and buy more commodities, including some luxuries. When they think times ahead may be hard, they may reduce their consumption and increase savings, to prepare a reserve. When times are hard, they will both resort to using these savings and reduce their consumption.

Moreover, for both capitalists and workers, their demand will be affected by the price of the commodities they buy.

“But quantitatively, the definite social wants are very elastic and changing. Their fixedness is only apparent. If the means of subsistence were cheaper, or money-wages higher, the labourers would buy more of them, and a greater social need would arise for them, leaving aside the paupers, etc., whose demand is even below the narrowest limits of their physical wants. On the other hand, if cotton were cheaper, for example, the capitalists' demand for it would increase, more additional capital would be thrown into the cotton industry, etc.” (p 189)

For the capitalist, the price of the commodities they buy is important because, as seen in Chapter 6, it affects both how much profit, and what rate of profit they can make. True the constant capital does not itself affect the surplus value, which is solely the product of the variable capital, but, as set out in Chapter 6, it does directly affect the price of the end commodity. In so doing, it affects the level of demand for that end product. If the price rises too much, then as Marx sets out above, the demand falls. If it falls enough, production may not be able to proceed on the minimum efficient level. Either there is overproduction and capital must be retired from the sphere, or else the capitalist absorbs some of the increased cost out of their profits, in order to maintain the level of demand, so as to continue production at the minimum level.

Moreover, even if production continues at the same level, with the same amount of surplus value, the fact that more capital now has to be advanced, to produce it, means that the rate of profit falls. Consequently, the rate of accumulation, i.e. the rate at which demand for productive-capital increases, also falls. As Marx says, this curtailment of demand may occur even as actual social need expands. People may be extremely hungry, but if they have no money to buy food, there is no point farmers investing capital in producing it, to sell to them. The capitalist farmer does not engage in production to satisfy a social need, but to make a profit, which requires that there is sufficient demand for their products, backed by money, i.e. effective demand.

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