Wages are the price of labour-power. Labour-power is a commodity, just like cotton or shoes. Its price is determined as for any other commodity. Prices differ from, but are ultimately determined by values, and values are determined by the labour-time required for production.
“By what is the price of a commodity determined?
By competition between buyers and sellers, by the relation of inquiry to delivery, of demand to the supply. Competition, by which the price of a commodity is determined is three- sided” (p 22)
Sellers all want to sell, and so compete against each other for sales, and they do this by lowering their prices. There is a limit to how low those prices can go, because, below a certain price, the costs of production are not met, and so losses are made. Capital is only advanced to make profit. Marx discussed this at length in his discussion of differential value, in Theories of Surplus Value.
If prices fall, some firms may find that they make losses. They would go out of business and supply would fall. The fall in supply would cause prices to rise. However, it may be that this reduction in supply could be made up by other, more efficient, firms, in which case, the market value of those commodities falls. It might even be the case that the firms, now able to expand to fill the gap in supply, enjoy economies of scale, reducing the market value of the commodity further. On the other hand, it may not be possible to expand supply to fill the gap, other than at a greater cost (diminishing returns), so that the market value rises. It may not rise to its previous level, however. The price would fall, but not to its previous market clearing level.
I have described various scenarios for this in the series of posts on The Poverty of Philosophy.
“But, competition also takes place among the buyers, which in its turn causes the commodities offered to rise in price.” (p 22)
If you need food, you must compete with other consumers for the available supply, which pushes the price up.
“Finally, competition occurs between buyers and sellers, the former desire to buy as cheaply as possible, the latter to sell as dearly as possible. The result of this competition between buyers and sellers will depend upon how the two above-mentioned sides of the competition are related, that is, whether the competition is stronger in the army of buyers or in the army of sellers.” (p 22)
In other words, is the unity of sellers greater than that of buyers, or is the competition of sellers, with each other, to sell, greater than the competition between buyers to buy. Is aggregate supply greater than, or less than aggregate demand. As Marx sets out, in Theories of Surplus Value, Chapter 17, especially in periods of already high levels of demand, i.e. economic booms, consumers may be more inclined to hold on to the general commodity – money – rather than convert it again into other commodities. In the terms of orthodox economics, their marginal propensity to consume may fall, and their propensity to save rise. This is why, Marx says, Say's Law is false, and a generalised overproduction of commodities may arise.
By contrast, the demand for commodities may exceed the supply. Again, this may be the case for individual commodities. Demand is monetary demand, and so may be derived not only from revenues, but also from the mobilisation of money reserves and savings. During lockdowns, households, partly from having their range of spending restricted, so that incomes went to pay down debt and increase savings, and partly because central banks printed money tokens, which were handed to households, had currency available to spend, when lockdowns ended. The surge in prices was explained, partly, by this excess of aggregate demand over aggregate supply, because the latter could not respond quickly to meet the demand, and, partly, by an inflation caused by the excess printing of money tokens/devaluation of the standard of prices.
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