In fact, the opposition and contradiction between use-value and exchange-value follows necessarily from The Law of Value. In order to increase the wealth of society, i.e. the quantity of use-values available to it, it is necessary to raise social productivity. i.e. to be able to produce more use-values for any given amount of labour. If 1,000 use values are produced by 100 hours of labour, then, each use value contains, on average, 0.10 hours of labour, but, if 10,000 use-values are produced, each contains only 0.010 hours of labour. However, value is labour, and so the unit value of each use-value necessarily falls, as the consequence of the rise in productivity, and social wealth. The exchange-value of any commodity is a function of its value, relative to the value of other commodities.
Marx sets out the situation in terms of supply an demand.
“The exchange value of a product falls as the supply increases, the demand remaining the same; in other words, the more abundant a product is relatively to the demand, the lower is its exchange value, or price. Vice versa: The weaker the supply relatively to the demand, the higher rises the exchange value or the price of the product supplied: in other words, the greater the scarcity in the products supplied, relatively to the demand, the higher the prices. The exchange value of a product depends upon its abundance or its scarcity; but always in relation to the demand.” (p 36)
For those familiar with Marx's analysis of value, and exchange-value, founded upon socially necessary labour-time, and his criticism if the superficial nature of supply and demand, this might seem odd, if not wrong, but far from it. Marx's criticism of analysis of prices based on supply and demand is not that it is wrong, but that it is superficial and inadequate, because it's necessary to go beyond these categories to analyse what determines the level of supply and demand. Indeed, in terms of market prices, Marx sets out that they are a function of supply and demand, causing them to fluctuate around the exchange-value/price of production, and, for the price of money-capital (which has no value/price of production), i.e. the rate of interest, it is determined solely on the basis of supply and demand.
If we take supply, then we can see that Marx's statement, here, that, given any level of demand, increased supply results in lower exchange-value is certainly true, in respect of market prices. But, further inspection, on the basis of Marx's analysis, shows its true more fundamentally than that. If the average rate of profit is 10%, so that a commodity whose cost-price is £1, sells at £1.10, then, if the supply of these commodities rises by 10%, they cannot all be sold at £1.10. The excess supply would cause the market price to fall, maybe to £1, at which no profit would be made. Some of the less efficient producers might go out of business, or switch to production of some other commodity, where the average profit could be made. Supply would fall.
In fact, if the less efficient producers moved to another line of production, that would, itself, reduce the average cost of production of the commodity, say, to £0.95, so that, with an average rate of profit of 10%, the market value/exchange-value falls from £1.10 to £1.045, so that the increased supply does now result not only in a lower market price, but also lower exchange-value, which would also be expected to promote an increase in demand. The only way that an increased supply could remain permanent, in conditions of static demand, is if the cost of production, itself, falls, bringing about a fall in market value, because otherwise less than average profit is produced, and so capital would move to other spheres, so reducing supply.
Marx sets out the argument in terms of supply and demand, because that is the terms in which Proudhon had set out his argument, and Marx wants to disprove it, even in those terms, and part of the proof resides in the fact that Proudhon, himself, misses out, entirely, the factor of demand, meaning that his argument amounts to saying that exchange-value is determined by supply, i.e. scarcity. Marx notes,
“The exchange value of a product depends upon its abundance or its scarcity; but always in relation to the demand. Take a product that is more than scarce, unique of its kind if you will: this unique product will be more than abundant, it will be superfluous, if there is no demand for it. On the other hand, take a product multiplied into millions, it will always be scarce if it does not satisfy the demand, that is, if there is too great a demand for it.” (p 36)
This should be borne in mind by those modern Marxists who also ignore the question of demand, assuming, as with Ricardo, and Say's Law, that supply creates its own demand.
“These are what we should almost call truisms, yet we have had to repeat them here in order to render M. Proudhon’s mysteries comprehensible.” (p 36)
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