Sunday, 26 July 2015

Capital III, Chapter 10 - Part 19

Under capitalism, the money that each consumer – productive or individual – possesses, represents their share, their claim to a proportion of that available social labour-time. It represents the value – here represented as exchange value - side of the equation, with use value standing on the other side. Each individual action represents for each consumer, a resolution of that equation, that Marx describes in the Value Form, X amount of Value = Y amount of use value.

This is not the same as the orthodox economic theory of marginal utility, by which these aggregate consumer preferences determine the value of the commodity, because the value of the commodity has already been determined on the objective basis of how much labour-time is required for its production, not by the subjective basis of how much individual consumers are prepared to pay for it. But, what it does determine, in aggregate, is, given that value, expressed as its market value, what the level of demand for it will be. The producers of goods and their sellers will be constrained by that other side of the equation, contained in the Law of Value, i.e. that which determines objectively how much labour-time is required to produce a given quantity of any commodity.

Whilst consumers balance how much utility they obtain from a commodity, against what they have to pay for it, in determining their level of demand, producers have to balance what the demand for the commodity is, at that value, against what it costs them to produce it, in determining how much they will supply.

If the cost of production of X is £10, and the average rate of profit is 10%, the market value of X will be £11. If the demand for X at this price is only 10,000 units, there is no point in producers of X sending 20,000 units to market. If X can only be efficiently produced at a level of 20,000 units, it may be the case that it simply does not get produced, because demand is insufficient at a market price that enables producers to supply it, and obtain the average profit.

A fundamental requirement for a commodity is that it is a use value, but in practice, it must also be a use-value demanded in sufficient quantity at the market value.

“If the demand for this particular kind of commodity is greater than the supply, one buyer outbids another — within certain limits — and so raises the price of the commodity for all of them above the market-value, while on the other hand the sellers unite in trying to sell at a high market-price. If, conversely, the supply exceeds the demand, one begins to dispose of his goods at a cheaper rate and the others must follow, while the buyers unite in their efforts to depress the market-price as much as possible below the market-value.” (p 193-4)

Producers with a competitive advantage may try to undercut other producers to gain a larger share of the market, which forces other producers to look for ways of reducing their own costs. So, the average socially necessary labour required and the market value falls. The operation of demand and supply converts value into market value.

“Here it is not a question of the formal conversion of the value of commodities into prices, i.e., not of a mere change of form. It is a question of definite deviations in quantity of the market-prices from the market-values, and, further, from the prices of production. In simple purchase and sale it suffices to have the producers of commodities as such counterposed to one another. In further analysis supply and demand presuppose the existence of different classes and sections of classes which divide the total revenue of a society and consume it among themselves as revenue, and, therefore, make up the demand created by revenue. While on the other hand it requires an insight into the over-all structure of the capitalist production process for an understanding of the supply and demand created among themselves by producers as such.” (p 194-5)

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