The determining factor of supply is value. If the producer can sell their commodity at a value that is greater than the value of the commodities consumed in its production, i.e. make a profit, they will engage in production. Of course, if they can make a higher rate of profit by engaging in some other production, they will move their capital to that sphere, and so, as described above, this will bring about changes in supply, prices and profits, in these different spheres. As Marx sets out in Capital III, this is why The Law of The Tendency for the Rate of Profit To Fall, in spheres where the organic composition of capital is higher, or rate of turnover of capital is lower, is a most important law for capitalism, both in determining prices of production, and the allocation of capital.
It is this, not the preferences of the consumer, that is the determinant of value/price. The consumer may, of course, decide that they do not obtain use-value/utility from any given commodity, at its market value, and so withdraw their demand for it. So be it. In that case, supply would contract also, may be even to zero! As Marx describes in Theories of Surplus Value, Chapter 20, and in The Grundrisse, demand is a function of use-value/utility. But, just because consumers decide they are only prepared to pay £0.50 for commodity A, rather than £1 that does not mean that the price of commodity A will fall to £0.50. It means demand would collapse, but, if no producers of A could produce it, and make average profit, at £0.50, supply would also disappear.
Marx, also, deals, here, with the false arguments of orthodox economics in relation to inflation. If we take the most basic condition of an economy, with just two commodities, A and B, both with a value of 10 hours per unit, then 1 unit of A will exchange for 1 unit of B. Put another way, the price of 1 unit of A is 1 unit of B. But, now, suppose demand for A doubles, but cannot be increased to meet this demand? As Marx described earlier, owners of B, who are buyers of A will increase competition between themselves to buy the available supplies of A. The same would be true if the supply of A fell.
As a result of this, the B price of A would rise, even though the value of A and B remains unchanged. The price of A might rise to 2B. But that is just another way of saying that the A price of B has fallen! Previously, the A price of 1 unit of B, was 1 unit, but, now, is just 0.5 units of A. The sum of all prices, therefore, remains the same. The price of A has doubled, the price of B halving, cancelling each other out.
“If the price of a commodity rises considerably because of inadequate supply or disproportionate increase of demand, the price of some other commodity must necessarily have fallen proportionately; for the price of a commodity only expresses in money the ratio in which other commodities are given in exchange for it. If, for example, the price of a yard of silk material rises from five marks to six marks, the price of silver in relation to the silk material has fallen, and likewise the prices of all other commodities that have remained at their old prices have fallen in relation to the silk.” (p 24)
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