As Marx sets out, in Capital I, Chapter III, and in A Contribution To The Critique of Political Economy, price is only a specific form of such an exchange-value. It is the exchange value of a commodity measured by a quantity of the money-commodity, which, over time, becomes represented by the standard of prices. So, as with any other exchange-value, no conclusion about a change of values can be deduced from a change in prices on its own. If, in the example above, wine is the money commodity, and a litre of wine is the standard of prices, the price of 2 metres of linen is a litre of wine. But, suppose this price becomes 2 litres of wine. Is that because the value of linen has risen, or because the value of wine has fallen? It could be that the value of linen has risen to 10 hours/metre, and value of wine remained constant, or the value of linen remains 5 hours/metre, but value of wine has fallen to 5 hours/litre. Simply on the basis of their exchange-value, the proportional relation between them, it is impossible to know.
If the prices of commodities, in aggregate, rise, it is fairly safe to say that this is the result of a fall in the value of the standard of prices, because there is a fairly continuous rise in social productivity that reduces the unit value of commodities, even if specific factors cause the value of some commodities to rise in the short-term. So, if, in aggregate, the value of commodities fall, but their prices rise, or even do not fall, this can only be explained by a fall in the value of the standard of prices, i.e. inflation.
Of course, by price, in this context, what Marx means is what Smith and Ricardo refer to as Natural Price, or what orthodox economics calls equilibrium price. But, what Bailey referred to was market price, and, at any point, market price differs from this equilibrium price, being above or below it due to fluctuations and imbalances in supply and demand. However, these fluctuations and constant adjustments always result in a tendency towards that equilibrium price. What Smith, then Ricardo, and finally Marx showed was that this tendency towards the equilibrium price was not the result of some inexplicable force, or purely random, but was objectively determined by value, by the labour-time required for production, which can be summarised as being the social cost of production of the commodity.
This social cost of production is unaffected by whether the demand for the commodity is great or small, if we ignore, for now, the question of economies of scale. It is an application of The Law of Value. All that this demand can determine, at any given social cost of production, for the commodity, is how much of the available social labour-time of society is devoted to its production, i.e. the quantity of supply.
If the social cost of production of a metre of linen is 10 hours labour, but, at the existing level of supply, the demand is double the supply, the market price will rise to ration the demand to the supply. But, at this market price, linen producers will make excess profits, or, put another way, they will get, say, 20 hours of labour in exchange for the 10 hours of labour represented by their linen. So, other producers will rush into linen production, and existing linen producers will increase their own output. Eventually, supply will rise to meet the demand at the equilibrium price of 10 hours labour. Available labour-time of the society will have simply been reallocated to linen production, but the value of linen itself will not have changed.
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