2) Price of Production of Commodities of Average Composition
Marx describes how prices of production, by varying from exchange values, affect thereby not just output prices, but, simultaneously, input prices, because some output prices are necessarily and simultaneously also input prices. He had described this earlier, in Chapter 9, in describing the transformation of exchange values into prices of production, where he writes,
“The foregoing statements have at any rate modified the original assumption concerning the determination of the cost-price of commodities. We had originally assumed that the cost-price of a commodity equalled the value of the commodities consumed in its production. But for the buyer the price of production of a specific commodity is its cost-price, and may thus pass as cost-price into the prices of other commodities. Since the price of production may differ from the value of a commodity, it follows that the cost-price of a commodity containing this price of production of another commodity may also stand above or below that portion of its total value derived from the value of the means of production consumed by it. It is necessary to remember this modified significance of the cost-price, and to bear in mind that there is always the possibility of an error if the cost-price of a commodity in any particular sphere is identified with the value of the means of production consumed by it. Our present analysis does not necessitate a closer examination of this point.” (p 164-5)
But, now, Marx elaborates on this point that transformed prices of production simultaneously affect both output and input prices. The point could easily be seen in relation to the gradual insertion of the capitalist mode of production, so that, for example, the capitalist producer of cotton supplies it, as raw material, to the non-capitalist spinner, who, in turn, sells the yarn they produce to the non-capitalist weaver, and so on. The last two continue to sell their output on the basis of exchange value, rather than price of production. However, the capitalist producer of cotton sells it at its price of production, and so, when the spinner buys this cotton, they already do so at a price that is modified from its exchange value. It is this modified price that then enters their cost-price, and is likewise passed on into the cost price of the weaver who buys yarn from the spinner.
But, Marx then demonstrates that this situation, in which the modified price of outputs is simultaneously a modified price of inputs, also applies to capital operating under average conditions of production, because, like the non-capitalist producer, their price of production is equal to the value of their output.
“We have seen how a deviation in prices of production from values arises from: 1) adding the average profit instead of the surplus-value contained in a commodity to is cost-price; 2) the price of production, which so deviates from the value of a commodity, entering into the cost-price of other commodities as one of its elements, so that the cost-price of a commodity may already contain a deviation from value in those means of production consumed by it, quite aside from a deviation of its own which may arise through a difference between the average profit and the surplus-value.
It is therefore possible that even the cost-price of commodities produced by capitals of average composition may differ from the sum of the values of the elements which make up this component of their price of production.” (p 206-7)
The average capital may have a composition, made up in percentage terms, of 80 c + 20 v. But, the 80 c is made up of commodities whose prices of production will vary from their actual values. In the same way as described above with a capitalist cotton producer selling to a spinner, who in turn sells to a weaver. Taking this example, for instance, capital would have moved first into the sphere of cotton production, rather than spinning or weaving, because a higher rate of profit could be made there. But, the process Marx has elaborated, for how this results in a general rate of profit, shows the consequence.
As capital moves into cotton production, in search of these higher profits, so the supply of cotton rises, and the consequence is that the market price of cotton falls, until capital realises it can make a higher profit in some other sphere. But, the consequence here is that the market price of cotton falls below its value. So, the spinner now buys cotton below its value. If this is applied to the situation above, therefore, what appears as 80 c + 20 v, might in value terms be 90 c + 10 v, because the cotton, which here appears as constant capital, is priced according to its (lower) market price, its price of production, not its value.
“Now, it is possible that in the actual capitals of this composition 80 c may be greater or smaller than the value of c, i.e., the constant capital, because this c may be made up of commodities whose price of production differs from their value. In the same way, 20 v might diverge from its value if the consumption of the wage includes commodities whose price of production diverges from their value; in which case the labourer would work a longer, or shorter, time to buy them back (to replace them) and would thus perform more, or less, necessary labour than would be required if the price of production of such necessities of life coincided with their value.” (p 207)
So, Marx says, its not just that the input prices of constant capital are simultaneously transforme alongside the output prices, this also applies to labour-power as an input price too. Workers have to buy wage goods in the market place at their price of production, not their values. If the price of production of these wage goods is higher than their value, then the value of labour-power will be higher than were they based on their value. In other words, workers would then have to spend a greater proportion of the working day to reproduce the value of their labour-power, which in turn, given a fixed working day, means that the rate of surplus value, and consequently the rate of profit, must fall, which in turn would have an effect on prices of production.
“In the same way, 20 v might diverge from its value if the consumption of the wage includes commodities whose price of production diverges from their value; in which case the labourer would work a longer, or shorter, time to buy them back (to replace them) and would thus perform more, or less, necessary labour than would be required if the price of production of such necessities of life coincided with their value.” (p 207)
So, once again, contrary to the claims of proponents of the TSSI, its clear that Marx was aware of the need to simultaneously transform input as well as output prices. What he does not do is to perform that transformation, or take on board the necessarily iterative nature of the process, as these changes in prices of production also affect the organic composition of capital – constant capital prices vary as against the value of labour-power – which, in turn, affects the rate of profit, and also, because of the effect on the value of labour-power, also affects the rate of surplus value, which, in turn, affects the rate of profit.
But, Marx cannot be faulted for having failed to elaborate all of these factors into a more comprehensive model of the transformation of values into prices. He had, after all, set out, in these writings, what needed to be done if subsequent economists would only read what he had said. His concern at this stage, was only to do what he had done throughout his analysis of capital, which is to provide a simplified model setting out the basic skeleton, which could be fleshed out to include these various complexities later.
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