Although both commodity and money represent units of exchange-value and use-value, we have already seen in volume I, chapter I, 3, that in buying and selling both of these functions are polarised at the two extremes, the commodity (seller) representing the nse-value, and the money (buyer) the exchange-value. It was one of the first conditions for the sale of a commodity that it should have a use-value and satisfy some social need. The other essential condition was that the quantity of labor contained in a certain commodity should represent socially necessary labor, so that its individual value (and what amounts to the same under the present assumption, its selling price) should coincide with its social value.^^ Xow let us apply this to the mass of commodities on the market, which represent the product of a whole sphere of production. The matter will be most easily explained by regarding this whole mass of commodities, coming from one line of production, as one single commodity, and the sum of the prices of the many identical commodities as one price. In **Karl Marx, Critique of Political Economy, Berlin, 1859.
Market Prices and Market Values. 215 that case the statements made in regard to one individual commodity apply literally to the mass of commodities sent to the market by one entire line of prodnction. The postulate that tlie individual value of a commodity should correspond to its social value has then the significance that the total quantity of commodities contains the quantity of social labor necessary for its production, and that the value of this mass is equal to its market-value.
Now let us assume that the bulk of these commodities has been produced under approximately the same normal conditions of social labor, so that this social value is at the same time identical with the individual value of the indivdual commodities constituting this mass. In that case, a relatively small portion of tliese commodities may have been produced below, and another above, these conditions, so that the individual value of the one portion is greater, and that of the other smaller, than the average value of the bulk of the commodities, but in such proportions that these extremes balance one another. The average value of the commodities in these extremes is then equal to the average value of the great bulk of average commodities. Under such circumstances, the market-value is determined by the value of the commodities produced under average conditions. ^^ The value of the entire mass of commodities is equal to the actual sum of the values of all individual commodities combined, no matter whether they were produced under average conditions, or under conditions above or below the average. In this case, the marketvalue, or the social value^ of the mass of commodities — the necessary labor time contained in them — is determined by the value of the average bulk.
Let us assume, on the other hand, that the total mass of commodities brought to market remains the same, while the value of the commodities produced under the least favorable conditions is not balanced by the value of the commodities produced under the most favorable conditions, so that the mass of commodities produced under the least favorable conditions constitutes a relatively large quantity, compared to the 29 Karl Marx, Critique of Political Economy^ Berlin, 1859, 2i6 Capitalist Production.
average mass as well as to the other extreme. In that case the mass produced under the least favorable conditions determines the market-value, or social value.
Take it, finally, that the mass of commodities produced under the most favorable conditions is considerably in excess of the mass produced under the least favorable conditions, and is large even compared with the average mass. Then the mass produced under the most favorable conditions deteraiines the market-value. We leave aside the question of a transfer of the market, whenever the mass of commodities produced under the most favorable conditions regulates the market-price. We are not dealing here with the market-price in so far as it differs from the market-value, but with the various modes of determining the market-value itself.^*^ In fact, assuming the strictest case (which, of course, is realised only approximately and with a thousand modifications) of our first illustration, the market-value regulated by the average values of the total mass of commodities is equal to the sum of their individual values, although this market-value is forced as an average value upon the commodities produced at the extremes. Those who produce under the worst conditions must then sell their commodities below their individual values; those producing under the best conditions sell them above their individual values.
In the second case, the two lots of commodities produced '" The controversy between Storch and Ricardo, incidental to their discussion of ground rent (a controversy which is merely referring to the same object, while the two opponents take no notice of one another) whether the marketvalue (or rather what they call market-price and price of production respectively) is regulated by the commodities produced under the least favorable conditions (Ricardo), or by those produced under the most favorable circumstances (Storch), resolves itself into the fact that both are right and both wrong, and that both (f them have left out of consideration the average case. Compare Corbett on the cases, in which the price is regulated by the commodities produced under the most favorable conditions. — " It is not meant to be asserted by him (Ricardo) that two particular lots of two different articles, as a hat and a pair of shoes, exchange with one another when those two particular lots were produced by equal quantities of labor. By ' commodity ' we must here understand the ' description of commodity,' not a particular individual hat, pair of shoes, etc. The whole labor which produces all the hats in England is to be considered, for this purpose, as divided among all the hats. This seems to me not to have been expressed at first, and in the general statements of this doctrine. (Observations on some verbal disputes in Political Economy, etc. London, 1821, pages b'A, 5-JJ Market Prices and Market Values. 217 at the two extremes do not balance one another. The lot produced under the worst conditions decides the question. Strictly speaking, the average price, or the market-value, of everj individual commodity, or of every aliquot part of the total mass, would now be determined by the total value of the mass as ascertained by the addition of the values of the commodities i^roduced under different conditions, and by tlie aliquot part of this total value falling to the share of the individual commodity. The market-value thus ascertained would be above the individual value, not only of the commodities belonging to the most favorable extreme, but also of those belonging to the average lot. But still it would be below the individual value of the commodities produced at the most unfavorable extreme. The extent to which this market-value would approach the individual value of this extreme, or coincide with it, would depend entirely on the volume occupied in that sphere of commodities by the lot of commodities produced at the unfavorable extreme. If the demand exceeds the supply but slightly, then the individual value of the unfavorably produced commodities regulates the market-price.
Finally, if the lot of commodities produced at the most favorable extreme occupies the greatest space, as it does in the third case, compared not only to the other extreme, but also to the average lot, then the market-value falls below the average value. The average value, computed by the addition of the sum of values of the two extremes and of the middle, stands here below that of the middle, and approaches it or recedes from it, according to the relative space occupied by the favorable extreme. If the demand is weak compared to the supply, then the favorably situated part, whatever may be its size, makes room for itself forcibly by contracting its price down to its individual value. The market-value cannot coincide with this individual value of the commodities produced under the most favorable conditions, except when the supply far exceeds the demand.
This mode of determining market-values, which we have here outlined abstractly, is promoted on the real market by competition among the buyers, provided that the demand is 2i8 Capitalist Production.
just large enough to absorb the quantity of commodities at the values fixed in tiis manner. And this brings us to the second point.
2) To say that a commodity has a use-value is merely to say that it satisfies some social want. So long as we were dealing simply with individual commodities, we could assume that the demand for any one commodity — its price impl^dng its quantity — existed without inquiring into the extent to which this demand required satisfaction. But this question of the extent of a certain demand becomes essential, whenever the product of some entire line of production is placed on one side, and the social demand for it on the other. In that case it becomes necessary to consider the amount, the quantity, of this social demand.
In the foregoing statements referring to market-value, the assumption was that the mass of the produced commodities remains the same given quantity, and that a change takes place only in the proportions of the elements constituting this mass and produced under different conditions, so that the marketvalue of the same mass of commodities is differently regiilated. Let us suppose that this mass is of a quantity equal to the ordinary supply, leaving aside the possibility that a portion of the produced commodities may be temporarily withdrawn from the market. K'ow, if the demand for this mass also remains the same, then this commodity will be sold at its market-value; no matter which one of the three aforementioned cases may regulate this market-value. This mass of commodities does not only satisfy a demand, but satisfies it to its full social extent. On the other hand, if the quantity is smaller than the demand for it, then the market-prices differ from the market-values. And the first differentiation is that the market-value is always regulated by the commodity produced under the least favorable circumstances, if the su])ply is too small, and by the commodity produced under the most favorable conditions, if the supply is too large. In other words, one of the extremes determines the market-value, in spite of the fact that the proportion of the masses produced under different conditions ought to bring about a different re- Market Prices and Market Values. 2ig suit. If the difference between demand and supply of tlie product is very considerable, then the market-price will likewise differ considerably from the market-value in either direction. Now, the difference between tlie quantity of the produced commodities and the quantity of commodities which fixes their sale at their market-value may be due to two reasons. Either the quantity itself varies, by decreasing or increasing, so that there would be a reproduction on a different scale than the one which regulated a certain market-value. If so, then the supply changes while the demand remains unchanged, and we have a relative overproduction or underproduction. Or, the reproduction, and the supply, remain the same, while the demand is reduced or increased, which may take place for several reasons. If so, then the absolute magnitude of the supply is unchanged, while its relative magnitude, compared to the demand, has changed. The effect is the same as in the first case, only it acts in the opposite direction. Finally, if changes take place on both sides, either in opposite directions, or, if in the same direction, not to the same extent, in other words, if changes take place on both sides which alter the former proportion between these sides, then the final result must always lead to one of the two abovementioned cases.
The real difficulty in determining the meaning of the concepts supply and demand is that they seem to amount to a tautology. Consider first the supply, either the product on the market, or the product which can be supplied to the market. In order to avoid useless details, we shall consider only the mass annually reproduced in every given line of production and leave out of the question the varying faculty of some commodities to withdraw from the market and go into storage for consumption at a later time, for instance next year. This annual reproduction is expressed in a certain quantity, in weight or numbers, according to whether this mass of commodities is measured continuously or discontinuously. They represent not only use-value satisfying human wants, but these use-values are on the market in definite quantities. In the second place, this quantity of commodities has 220 Capitalist Production. <;,' a definite market-value, wliicli may be expressed by a multiple '} of the market-value of the individual commodity, or of the {^| measure, which serve as units. There is, then, no necessary connection between the quantitative volume of the commodities on the market and their market-value, since many commodities have, for instance, a high specific value, others a low specific value, so that a given sum of values may be represented by a very large quantity of some, and a very small quantity of other commodities. There is only this connection between the quantity of articles on the market and the marketvalue of these articles: Given a certain, basis for the productivity of labor in every particular sphere of production, the production of a certain quantity of articles requires a definite quantity of social labor time; but this proportion diflf crs in different spheres of production and stands in no internal relation to the usefulness of these articles or the particular nature of their use-values. Assuming all other circumstances to be equal, and a certain quantity a of some commodity to cost h labor time, a quantity na of the same commodity will cost nh labor-time. Furthermore, if society wants to satisfy some demand and have articles produced for this purpose, it must pay for them. Since the production of commodities is accompanied by a division of labor, society buys these articles by devoting to their production a portion of its available labor-time. Society buys them by spending a definite quantity of the labor-time over which it disposes.
That part of society, to which the division of labor assigns the task of employing its labor in the production of the desired article, must be given an equivalent for it by other social labor incorporated in articles which it wants. Tliere is, however, no necessary, but only an accidental, connection between the volume of society's demand for a certain article and the volume represented by the production of this article in the total production, or the quantity of social labor spent on this article, the aliquot part of the total labor-power spent by society in the production of this article. True, every individual article, or every definite quantity of any kind of commodities, contains, perhaps, only the social labor required Market Prices and Market Values. 221 for it3 production, and from this point of view the marketvalue of this entire mass of commodities of a certain kind represents only necessary labor. ISTevertheless, if this commodity has been produced in excess of the temporary demand of society for it, so much of the social labor has been wasted, and in that case this mass of commodities represents a much smaller quantity of labor on the market than is actually incorporated in it. (Only when production will be under the conscious and prearranged control of society, will society establish a direct relation between the quantity of social labor time employed in the production of definite articles and the quantity of the demand of society for them.) The commodities must then be sold below their market-value, and a portion of them may even become unsaleable. The opposite takes place, if the quantity of social labor employed in the production of a certain kind of conunodities is too small to meet the social demand for them. But if the quantity of social labor spent in the production of a certain article corresponds to the social demand for it, so that the quantity produced is that which is the ordinary on that scale of production and for that same demand, then the article is sold at its market-value.
The exchange, or sale, of commodities at their value is the rational way, the natural law of their equilibrium. It must be the point of departure for the explanation of deviations from it, not vice versa the deviations the basis on which this law is explained, ^ow let us look at the other side, the demand.
Commodities are bought either as means of production or means of subsistence, in order to be used for productive or individual consumption. It does not alter matters that some commodities may seiwe both ends. There is, then, a demand for them on the part of the producers (who are capitalists in this case, since we have assumed that the means of production have been transformed into capital) and on the part of the consumers. It appears at first sight as though these two sides ought to have a corresponding quantity of social demands offset by a corresponding quantity of social supplies in the various lines of production. If the cotton industry is to accomplish its annual reproduction on a given scale, it must produce the usual quantity of cotton and an additional quantity determined by the annual extension of reproduction through the necessities of accumulating capital, always assuming other circumstances to remain t' e same. This is also true of means of subsistence. The working class must find at least the same quantity of necessities on hand, if it is to continue living in the accustomed w'ay, although these necessities may be of different kinds and diftVrently distributed. And there must be an additional quantity to allow for the annual increase of population. This appli;'S with more or less modification to the other classes.
It would seem, then, that there is on the side of demand a definite magnitude of social wants which require for their satisfaction a definite quantity of certain articles on the market. But the quantity demanded by these wants is very elastic and changing. Its fixedness is but apparent. If the means of subsistence were cheaper, or money-wages higher, the laborers would buy more of them, and a greater " social demand " would be manifested for this kind of commodities, leaving aside the question of paupers, whose " demand " is even below the narrowest limits of their physical wants. On the other hand, if cotton were cheaper, the demand of the ca]v italists for it would increase, more additional capital would be thrown into the cotton industry, etc. It must never be forgotten that the demand for productive consumption is a demand of capitalists, under our assumption, and that its essential purpose is the production of surplus-value, so that commodities are produced only to this end. Still this does not argue against the fact that the capitalist as a buyer, for instance of cotton, represents the demand for this cotton. Moreover it is immaterial to the seller of cotton, whether the buyer converts it into shirting or into guncotton, or whether he intends to make it into wads for his and the world's ears.
But it does exert a considerable influence on the way in which the capitalist acts as a buyer. His demand for cotton is essentially modified by the fact that he disguises thereby his real demand, that of making profits. The limits within Market Prices and Market Values. 223 which the need for co7nmodities on the market, the demand, differs quantitatively from the actual social need, varies naturally considerably for different commodities; in other words, the difference between the demanded quantity of commodities and that quantity which would be demanded, if the moneyprices of the commodities, or other conditions concerning the money or living of the buyers, Avere different.
Nothing is easier than to realise the inequalities of demand and supply, and the resulting deviation of marketprices from market-values. The real difficulty consists in determining what is meant by balancing supply and demand.
Demand and supply balance one another, when their mutual proportions are such that the mass of commodities of a definite line of production can be sold at their market-value, neither above nor below it. That is the first thing we hear.
The second is this: If the commodities are sold at their market-values, then supply and demand balance.
If demand and supply balance, then they cease to have any effect, and for this very reason commodities are sold at their market-values. If two forces exert themselves equally in opposite directions, they balance one another, they have no influence at all on the outside, and any phenomena taking place at the same time must be explained by other causes than the influence of these forces. If demand and supply balance one another, they cease to explain anything, they do not affect market-values, and therefore leave us even more in the dark than before concerning the reasons for the expression of the market-value in just a certain sum of money and no other. It is evident that the essential fundamental laws of production cannot be explained by the interaction of supply and demand (quite aside from a deeper analysis of these two motive forces of social production, which would be out of place here). For these laws cannot be observed in their pure state, until the effects of supply and demand are suspended, are balanced. As a matter of fact supply and demand never balance, or, if they do, it is by mere accident, it is scientifically rated at zero, it is considered as not happening. But political economy assumes that supply and demand balance one an- 224 Capitalist Production.
other. Why? For no other reason, primarily, than to be able to study phenomena in their fundamental relations, in that elementary form which corresponds to their conception, that is to say, to study them unhampered by the disturbing interference of supply and demand. The other reason is to find the actual tendencies of economic movements and to fix them, as it were. For the inequalities are of an antagonistic nature, and since they continually follow one after another, they balance one another by their opposite movements, by their opposition. Since supply and demand never balance each other in any given case, their differences follow one another in such a way that supply and demand are always balanced only when looking at them from the point of view of a greater or smaller period of time. For the result of a deviation in one direction is a deviation in the opposite direction. Such a balance is only an average of past movements, a result of a continual movement in contradictions. By this means the market-prices differing from the market-values reduce one another to the average of market-values and balance the different plus and minus in their divergencies. And this average figure has not merely a theoretical, but also a practical, value for capital, since its investment is calculated on the fluctuations and compensations of more or less fixed periods of time.
The relation of demand and supply explains, therefore, on the one hand only the deviations of market-prices from market-values, and on the other the tendency to balance these deviations, in other words, to suspend the effect of the relation of demand and supply. (Such exceptions as commodities having prices without having any value are not considered here.) Demand and supply may bring about a balance in the effects caused by their inequalities in many different ways. For instance, if the demand, and consequently the marketprice, fall, capital may be withdrawn and the supply reduced. But instead it may happen that the market-value itself is reduced and balanced with the market-price through inventions, which reduce the necessary labor time. Vice versa, if the demand increases, and consequently the market-price rises Market Prices and Market Values. 225 above the market-value, too much capital may flow into this line of production and production may be increased to such an extent, that the market-price finally falls below the marketvalue. Or, it may lead to a rise of prices which cuts down the demand. It may also bring about a rise in the marketvalue itself for a shorter or longer time, in some lines of production, in which a portion of the desired products must be produced under more unfavorable conditions during this period.
If demand and supply detemiine the market-price, so does the market-price, and in the further analysis the marketvalue determine demand and supply. This is obvious in the case of demand, which moves in opposition to price, rising when prices fall, and falling wdien prices rise. But it may also be noted in the case of suppl;)\ For the prices of the means of production wdiich are incorporated in the supplied commodities determine the demand for these means of production, and thus the supply of the commodities whose supply implies the demand for these means of production. The prices of cotton are determining elements for the supply of cotton goods.
This confusion of a determination of prices by demand and supply, and at the same time a determination of supply and demand by prices, is worse confounded by the determination of the supply by the demand, and the demand by supply, of the market by production, and of production by the market.^ ^ '^ The following sagacious statements are great nonsense: "Where the quantity of wages, capital, and land, required to produce an article, have become different from what they were, that which Adam Smith calls the natural price of it, is also different, and that price which was previously its natural price, becomes, with reference to this alteration, its market-price; because, though neither the supply, nor the quantity wanted may have changed " — both of them change here, just because the market-value, or, in the case of Adam Smith, the price of production, changes in consequence of a change of value — " that supply is not now exactly enough for those persons who are able and willing to pay what is now the cost of production, but is either greater or less than that; so that the proportion between the supply, and what is, with reference to the new cost of production, the effectual demand, is different from what it was. An alteration in the rate of supply will then take place, if there is no obstacle in the way of it, and at last bring the commodity to its new natural price. It may then seem good to some persons to say that, as the commodity gets to its natural price by an alteration in its supply, the natural price is as much owing to one proportion between the demand and supply, as the market-price is to another; and conse- O 226 Capitalist Production.
Even the ordinary economist (see our foot-note) recognizes that the proportion between supply and demand may vary in consequence of a change in the market-value of commodities, without a change in the demand or supply by external circumstances. The author of the Observations continues after the passage quoted in the foot-note: ^' This proportion " (between demand and supply) '' however, if we still mean by ' demand ' and ' natural price ' what we meant just now, M'hen referring to Adam Smith, must always be a proportion of equality; for it is only when the supply is equal to the effectual demand, that is, to that demand, which will pay neither more nor less than the natural price, that the natural price is in fact paid; consequently there may be two very different natural prices, at different times, for the same commodity, and yet the proportion which the supply bears to the demand, be in both cases the same, namely the proportion of equality." It is admitted, then, that with two different natural prices of the same commodity at different times demand and supply may balance one another and must balance one another, if the commodity is to be sold at its natural price in both instances. Since there is no difference in the proportion of supply and demand in either case, but only a difference in the magnitude of the natural price itself, it follows that this price is determined independently of demand and supply, and cannot very well be determined by them.
In order that a commodity may be sold at its market-value, that is to say, in proportion to the necessary social labor contained in it, the total quantity of social labor devoted to the quently, that the natural price, just as much as the market-price, depends on the pioportion that demand and supply bear to each other. (The great principle of demand and supply is called into action to determine what A. Smith calls natural prices as well as market-prices. Malthus.)" — Observations on certain verbal disputes, etc., London, 1821, pages 60 and 61. — The good man does not grasp the fact that it is precisely the change in the cost of production, and thus in the value, which caused a change in the demand, in the present case, and thus in the proportion between demand and supply, and that this change in the demand may bring about a change in the supply. This would prove just the reverse of what our good thinker wants to prove. It would prove that the change in the cost of production is by no means due to the proportion of demand and supply, but rather regulates this proportion.
Market Prices and Market Value.
total mass of this kind of commodities must correspond to the quantity of the social demand for them, meaning the solvent social demand. Competition, the fluctuations of marketprices which correspond to tlie fluctuations of demand and supply, tend continually to reduce the total quantity of labor devoted to each kind of commodities to this scale.
The proportion of supply and demand repeats, in the flrst place, the relation of the use-value and exchange-value of commodities, of commodity and money, of buyer and seller; in the second place, the relation of producer and consumer, although both of them may be represented by third merchants.