The confusion in Marx's argument here arises from his use of the term “average”. There are three types of average – mean, median, and mode . Marx uses all of these without saying, which he is using, and seems to use them interchangeably, even though each produces a different result. So, for example, in determining the “average” value of the products of a particular producer, Marx uses the mean, i.e. take the total quantity produced and divide it by the time taken to produce it, and this gives the mean time required to produce each unit. This is then the “individual value” of the products/commodities produced by this producer. Its practically impossible to calculate this individual value any other way.
But, just as the individual units produced by this producer will contain more or less than the mean average, so the individual values of commodities produced by each producer will vary one to another.
“The individual value of some of these commodities will be below their market-value (that is, less labour time is required for their production than expressed in the market value) while that of others will exceed the market-value.” (p 178)
So, calculating the average value of the commodities produced in the same sphere, should be done on the same basis, i.e. divide the total number produced by the total time required as a mean average.
“Looking closer, we find that the conditions applicable to the value of an individual commodity are here reproduced as conditions governing the value of the aggregate of a certain kind of commodity.” (p 181)
But, Marx also says that some producers will produce above and some below this average.
“There is also the market-value — of which later — to be distinguished from the individual value of particular commodities produced by different producers. The individual value of some of these commodities will be below their market-value (that is, less labour time is required for their production than expressed in the market value) while that of others will exceed the market-value.” (p 178)
Having made this observation, Marx goes on to define the market value not according to the mean average, but the median average.
“If the ordinary demand is satisfied by the supply of commodities of average value, hence of a value midway between the two extremes, then the commodities whose individual value is below the market-value realise an extra surplus-value, or surplus-profit, while those, whose individual value exceeds the market-value, are unable to realise a portion of the surplus-value contained in them.” (p 178)
But, this median average producer will only produce commodities using the mean average labour-time, if production is normally distributed across all producers. In other words, if it comes under the normal bell curve distribution. So, Marx's statement,
“On the one hand, market-value is to be viewed as the average value of commodities produced in a single sphere, and, on the other, as the individual value of the commodities produced under average conditions of their respective sphere and forming the bulk of the products of that sphere.” (p 178)
is logically inconsistent, as there is no reason these two things will be the same. On the contrary, they will only ever be accidentally the same. Marx's argument seems to be that this normal distribution is indeed normal, and so it is only “in extraordinary combinations that commodities produced under the worst, or the most favourable, conditions regulate the market-value, which, in turn, forms the centre of fluctuation for market-prices.” (p 178) But, there is no reason why this is the case, because as capitalist development proceeds, it will necessarily result in a larger proportion of production being in the hands of a few large, efficient producers, at one end, and a small proportion in the hands of a large number of small, inefficient producers at the other, and so the distribution will be necessarily skewed, rather than normal.
But, Marx then says that under these different conditions, the market value is not determined by the average, but by the worst or best producers depending upon whether demand continues to outstrip supply or vice versa.
“And if the demand is so great that it does not contract when the price is regulated by the value of commodities produced under the least favourable conditions, then these determine the market-value.” (p 179)
This is effectively the position of the marginalists, who assume that supply will only just ever be sufficient to meet demand at the point where the marginal cost is rising and just equal to the market price. But, if the market value is determined according to the median producer, and this is different to a market value determined by the mean average, this has consequences, when the market value forms the basis of prices of production, for the calculation and distribution of the average profit, because the distribution of production in each industry will be different.
Marx probably thought he needed to introduce this argument, because it is the basis of his later theory of rent. What Marx seems to be saying is that it is the proportion of the supply, which comes from the worst, average or best producers which determines the market value. But, in that case it is still the market value as the mean average, which is determinant here. The confusion arises because of the different interpretations of “average”. What Marx means by average here is the median average, i.e. those producers half-way between the worst and best producers.
“If the ordinary demand is satisfied by the supply of commodities of average value, hence of a value midway between the two extremes, then the commodities whose individual value is below the market-value realise an extra surplus-value, or surplus-profit, while those, whose individual value exceeds the market-value, are unable to realise a portion of the surplus-value contained in them.” (p 178)
In that case Marx is making a distinction between the market-value (mean value) and the average value (median value, or conditions of production). In other words, suppose there are ten firms in a particular industry, each producing 100 units of output. The labour-time required to produce these units is distributed as follows:
2 firms 100 hours, 6 firms 80 hours; 2 firms 60 hours.
For Marx, the six firms producing at 80 hours are the average (median) firm because the time they require for production is midway between the worst and best producers. They also represent the mean average here, because production is normally distributed, so that the output of the worst and best producers cancels each other out. But, the firms requiring 80 hours remain the average (median) producer, even if the distribution is skewed. For example,
6 firms 100 hours; 2 firms 80 hours; 2 firms 60 hours.
The market value, however, is the mean average, which equals 200 + 480 + 120 = 800/1000 = £0.80 per unit in the first case, and 600 + 160 + 120 = 880/1000 = £0.88 per unit in the second case. The individual values in each case are £1, £0.80 and £0.60. In the first instance, if the output is sold at the market value, i.e. if demand and supply are equal, the worst firms sell at £0.20 below, and the best firms £0.20 above their individual value. In the second case, the worst firms sell at £0.12 below, the best firms at £0.28 above, and the average firms at £0.08 above their individual value.
Marx describes this situation where the worst firms predominate.
“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.” (p 184)
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