The most fundamental contradiction is that of the commodity itself. It is a contradictory unity of use value and exchange-value. The more productivity rises, the more use values are produced, but the smaller the exchange-value of each of these commodities becomes. The capitalist producer of commodities seeks to obtain the maximum amount of exchange-value, and of surplus value. In order to do so, they seek to produce and to sell as many use values as possible, and to do so by raising their productivity to the greatest degree. But, by raising their productivity, in order to increase the volume of use values produced, they simultaneously reduce the exchange-value of each use value they produce, and also reduce the amount of paid and unpaid labour contained in each unit. Even as their total mass of profit rises, therefore, their rate of profit/profit margin, on each unit of output has a tendency to fall.
“Let us begin with supply. What I supply is commodities, a unity of use-value and exchange-value, for example, a definite quantity of iron worth £3 (which is equal to a definite quantity of labour-time). According to the assumption I am a manufacturer of iron. I supply a use-value—iron—and I supply a value, namely, the value expressed in the price of the iron, that is, in £3. But there is the following little difference. A definite quantity of iron is in reality placed on the market by me. The value of the iron, on the other hand, exists only as its price which must first be realised by the buyer of the iron, who represents, as far as I am concerned, the demand for iron. The demand of the seller of iron consists in the demand for the exchange-value of the iron, which, although it is embodied in the iron, is not realised. It is possible for the same exchange-value to be represented by very different quantities of iron. The supply of use-value and the supply of value to be realised are thus by no means identical, since quite different quantities of use-value can represent the same quantity of exchange-value.” (p 101)
In short, as an iron producer, I produce, say, 1 ton of iron, which has an exchange-value of £3. But, this exchange-value merely represents the degree of productivity in iron production – if we assume the value of money is constant. For example, if productivity doubles, 1 ton of iron would have an exchange-value of only £1.50, or put another way, the exchange value of £3 would be represented by 2 tons of iron. This is fundamental to understanding what Marx means by overproduction, and his theory of crises. Suppose productivity rises significantly, so that £3 of exchange-value is now equal not to 1 ton, but 100 ton of iron. The fact that this 100 tons has an exchange-value of £3, so that the exchange value of each ton has fallen from £3 to £0.03, does not at all mean, therefore, that the same £3 of demand, which bought the 1 ton of iron will now take advantage of this much lower price of iron, so as to create a demand for the 100 tons.
This is the same condition of a rise in productivity causing a crisis of overproduction that Marx referred to in Chapter 17, in relation to yarn, following the introduction of spinning machines.
“When spinning-machines were invented, there was over-production of yarn in relation to weaving. This disproportion disappeared when mechanical looms were introduced into weaving.” (Theories of Surplus Value, Part 2, Note p 521)
The buyers of iron have a demand for a certain quantity of iron. If iron is cheap, they may be persuaded to buy an additional amount, but if I only wanted 1 ton, I'm unlikely to buy 100 tons, even if its price has fallen so dramatically. This is the principle that orthodox economics refers to as the price elasticity of demand. If I want to buy a car, I will not be likely to buy 2 cars just because the price of cars is halved. I'm more likely to welcome the saving in the cost, and use the saving to buy some other commodity, or to simply increase my savings. In order that vastly increasing amounts of production find sufficient demand, it is not only necessary to get existing customers to buy more, but to constantly expand the market itself, i.e. to bring in new consumers. At a certain point, it becomes necessary to move capital into some new line of production, so that, for example, what the car buyer saves in the reduced value of the car, is then used to form a demand for some new commodity, such as a caravan, or a boat, or a jet-ski. This is the process by which whole ranges of commodities that were, at one time, the preserve of the rich, become wage goods, consumed by the mass of society.
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