Marx describes the principal factors determining productivity. Firstly, natural conditions, such as the fertility of the soil, mines etc. Secondly, the “social powers of labour”, which rise as a result of economies of scale, division of labour, cooperative labour, concentration of capital, and application of science and technology to improve the instruments of labour, machines, and means of transport and communications.
“As a general law we may, therefore, set it down that: —
The values of commodities are directly as the times of labour employed in their production, and are inversely as the productive powers of the labour employed.” (p 50)
All of this analysis, so far, has dealt with value, and its indirect measure, as exchange-value. But, in everyday life, commodities are bought and sold at prices, not exchanged, one for another, as existed under barter, on the basis of these values. However, as Marx sets out in A Contribution To The Critique of Political Economy, and Capital, it is the very process of commodity production and exchange which leads to the development of money. In the first instance, to reduce the concrete labour used in the production of different commodities to a single abstract labour, itself requires it to have some physical representation, some single commodity, separated from all others, that acts as the manifestation of this abstract labour, and which, then, acts as the indirect measure of the value of all other commodities. The money-commodity acts, in the first instance, as this measure of value.
“Price, taken by itself, is nothing but the monetary expression of value.” (p 50)
But, of course, as indicated previously, price, as simply the expression of exchange-value, against this specific money-commodity, is subject to the same laws as any other exchange-value, and this is relevant to Marx's criticism of Weston's arguments, as well as the critique of today's Keynesian explanation's of inflation, and of Modern Monetary Theory. Whilst the prices (exchange-values against money) of commodities may rise or fall, individually, whilst the value of money remains constant, as a result of changes in their own value, it is only a change in the value of money itself, or, more precisely, the standard of prices, that can bring about a change in the prices of all commodities simultaneously – inflation.
If gold is the money-commodity, a fall in its value will cause the prices of all commodities to rise. But, as Marx sets out, in A Contribution To The Critique of Political Economy, exchange-value, including price, is always based on a comparison of specific quantities of the given commodities – a kilo of cotton, a litre of wine, for example. The standard of price is also originally a given quantity of the money commodity, for example, a quarter ounce of gold, given a name such as sovereign, or £1. Yet, as Marx illustrates, whilst the name of this standard is retained, its actual value, the amount of social labour-time it represents, changes, not only because of changes in the value of gold, but also because of changes in the quantity of gold it represents. The value of gold may remain constant, but, if the £ represents only ⅛ ounces, rather than ¼ ounces, its value is halved, and prices double accordingly.
“The value of gold or silver, like that of all other commodities is regulated by the quantity of labour necessary for getting them.” (p 50-51)
Nowadays, with fiat currencies, this link to gold or silver no longer exists, but the link to social labour-time remains. Just as the standard of price could be changed, previously, by changing the amount of precious metal it represented, which was just the same as changing the amount of social labour-time it represented, so, now, the amount of social labour-time the standard of prices/currency represents is changed by simply increasing or decreasing the supply of currency. If total social labour-time represented by the commodities to be circulated is 1 million hours, and 50,000 £1 notes are put into circulation, each performing 10 transactions, then, each note represents 2 hours of social labour-time, with average unit prices being £0.50. But, if 100,000 £1 notes are put into circulation, each note can now only represent 1 hour of social labour-time, and average unit prices rise to £1.
“Looking somewhat closer into the monetary expression of value, or what comes to the same, the conversion of value into price, you will find that it is a process by which you give to the values of all commodities an independent and homogeneous form, or by which you express them as quantities of equal social labour. So far as it is but the monetary expression of value, price has been called natural price by Adam Smith, “prix necessaire” by the French physiocrats.” (p 51)
However, this natural price, i.e. market value, simply expressed as a quantity of money, is not the same as market price, for the reasons previously described. The natural price sets the equilibrium price, but fluctuations in supply and demand cause the actual market price to always rise above, or fall below it. But, as Adam Smith put it, “whatever may be the obstacles which hinder them from settling in this centre of repose and continuance, they are constantly tending towards it.”. (p 52)
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