Mill writes,
““Demand and supply are terms related in a peculiar manner. A commodity which is supplied, is always, at the same time, a commodity which is the instrument of demand. A commodity which is the instrument of demand, is always, at the same time, a commodity added to the stock of supply. Every commodity is always at one and the same time matter of demand and matter of supply. Of two men who perform an exchange, the one does not come with only a supply, the other with only a demand; each of them comes with both a demand and a supply. The supply which he brings is the instrument of his demand; and his demand and supply are of course exactly equal to one another.”
“But if the demand and supply of every individual are always equal to one another, and demand and supply of all the individuals in the nation, taken aggregately, must be equal. Whatever, therefore, be the amount of the annual produce, it never can exceed the amount of the annual demand. The whole of the annual produce is divided into a number of shares equal to that of the people to whom it is distributed. The whole of the demand is equal to as much of the whole of the shares as the owners do not keep for their own consumption. But the whole of the shares is equal to the whole of the produce” ([James Mil], Elements, pp. 226-27;] Parisot, pp. 254-55).” (p 103-4)
To which Marx responds,
“Once Mill has assumed that supply and demand are equal for each individual, then the whole long-winded excursus to the effect that supply and demand are also equal for all individuals, is quite superfluous.” (p 104)
To the extent, as set out earlier, the supply of any individual is equal to their demand for money, exchange-value, as expressed in the price they actually obtain for the commodity they supply, this applies equally to all individuals who supply commodities into the market. But, Mill does not recognise that this is not at all the same thing as saying that, when A supplies their commodity into the market, say 1 ton of iron, with an exchange value of £3, that either they must find a willing buyer of that 1 ton of iron, at an exchange-value of £3, or that, if they do, say in the form of a producer of 10 metres of linen, that having gained the £3 of exchange-value, for the iron, they will then use it to form a demand for the 10 metres of linen, or any any other commodity.
There is no reason whatsoever why these two opposing poles of the exchange, of production and consumption, supply and demand, should not fall apart, so that the contradictory unity they comprise is broken. The seller of the 1 ton of iron may be able to sell it all for £2.50, or they may sell it all for £3, but use only £2 so as to buy 6 metres of linen, and so on.
And, because the seller has only very limited control over the value of the commodity they supply, if the iron producer obtains only £2.50, for the iron they produce, whilst, to continue production, they needed the full £3, then the iron producer will not be able to reproduce their capital. They will have overproduced.
For Ricardo, as for Mill, there could be no general overproduction, for the reasons set out by Mill in the above quotes. That is they continued to portray capitalism as essentially a system based upon individual commodity owners, who only supplied products to the market for the purpose of exchanging them for products of equal value for their own personal consumption needs. In other words, they present capitalism as no different to the system of individual exchanges that occur under systems of barter. They avoid the contradictions of capitalism, by essentially denying the existence of capitalism, and its contradictions.
The tenets of the Ricardian theory come into conflict with real life. Mill attempted to resolve those contradictions whilst remaining inside the Ricardian system, and consequently attempts only to reconcile those contradictions by moving ever more to deny reality. Marx cites McCulloch's view as typical of how the Ricardians viewed Mill as the saviour of their system.
““… to give a strictly logical deduction of the principles of Political Economy…. Mr. Mill touches on almost every topic of discussion: He has disentangled and simplified the most complex and difficult questions; has placed the various principles which compose the science in their natural order” (op. cit., p. 88).” (p 104)
Marx responds.
“One can conclude from his logic that he takes over the quite illogical Ricardian structure, which we analysed earlier, and naïvely regards it on the whole as a “natural order”.” (p 104)
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