A Contribution To The Critique of Political Economy, Chapter 1 - Part 7 of 29

In all cases, a commodity must first be a use-value, i.e. there must be demand for it. But, also, there must be demand for it at its market value/price of production. Linen is a use-value, but, at any given time, it may not be a use-value for B, who already has enough of it. So, B would have no reason to buy it from A. Moreover, they may have a demand for, say, a metre of linen, so that if A has produced 2 metres of linen, only half of A's production constitutes a use-value for B. B may be prepared to buy 2 metres from A, but only at a price equal to half its value or less.

“The value supplied (but not yet realised) and the quantity of iron which is realised, do not correspond to each other. No grounds exist therefore for assuming that the possibility of selling a commodity at its value corresponds in any way to the quantity of the commodity I bring to market. For the buyer, my commodity exists, above all, as use-value. He buys it as such. But what he needs is a definite quantity of iron. His need for iron is just as little determined by the quantity produced by me as the value of my iron is commensurate with this quantity.

It is true that the man who buys has in his possession merely the converted form of a commodity—money—i.e., the commodity in the form of exchange-value, and he can act as a buyer only because he or others have earlier acted as sellers of commodities which now exist in the form of money. This, however, is no reason why he should reconvert his money into my commodity or why his need for my commodity should be determined by the quantity of it that I have produced. Insofar as he wants to buy my commodity, he may want either a smaller quantity than I supply, or the entire quantity, but below its value. His demand does not have to correspond to my supply any more than the quantity I supply and the value at which I supply it are identical.”

(Theories of Surplus Value, Chapter 20)

In reality, it is, then, impossible to determine what constitutes use-value, or the amount of socially necessary labour, and so the market value, without also taking into consideration the factor of demand. However, as described, demand is a function of use value, not value. If I don't like chocolate, I will not demand it, however cheap it is, or, if I already have enough of something, I will not demand more of it, at least unless its price falls significantly.

“The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.”

(ibid)

The determination of demand proceeds according to different laws than those determining supply, which is a function of value, not use-value.

“Here a great confusion: (1) This identity of supply, so that it is a demand measured by its own amount, is true only to the extent that it is exchange value = to a certain amount of objectified labour. To that extent it is the measure of its own demand -- as far as value is concerned. But, as such a value, it first has to be realized through the exchange for money, and as object of exchange for money it depends (2) on its use value, but as use value it depends on the mass of needs present for it, the demand for it. But as use value it is absolutely not measured by the labour time objectified in it, but rather a measuring rod is applied to it which lies outside its nature as exchange value.”

(Grundrisse)

Yet, without taking into consideration demand, it is not possible to determine socially-necessary labour-time, or, consequently, value. This is the fundamental error of Say's Law, of assuming that the demand and supply of commodities must balance. That only applies under systems of barter.

“The conception (which really belongs to [James] Mill), adopted by Ricardo from the tedious Say (and to which we shall return when we discuss that miserable individual), that overproduction is not possible or at least that no general glut of the market is possible, is based on the proposition that products are exchanged against products, or as Mill put it, on the “metaphysical equilibrium of sellers and buyers”, and this led to [the conclusion] that demand is determined only by production, or also that demand and supply are identical.”

(Theories of Surplus Value, Chapter 17)

Even where such a balance exists, the very process of economic expansion can disrupt it.

“By the way, in the various branches of industry in which the same accumulation of capital takes place (and this too is an unfortunate assumption that capital is accumulated at an equal rate in different spheres), the amount of products corresponding to the increased capital employed may vary greatly, since the productive forces in the different industries or the total use-values produced in relation to the labour employed differ considerably. The same value is produced in both cases, but the quantity of commodities in which it is represented is very different. It is quite incomprehensible, therefore, why industry A, because the value of its output has increased by 1 per cent while the mass of its products has grown by 20 per cent, must find a market in B where the value has likewise increased by 1 per cent, but the quantity of its output only by 5 per cent. Here, the author has failed to take into consideration the difference between use-value and exchange-value.

(Theories of Surplus Value, Chapter 20)

I have covered all these points in my book, Marx and Engels' Theories of Crisis.

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