Thursday 19 February 2015

US Retail Sales And False Profits - Part 5

In contrast to the orthodox bourgeois view that prices are subjectively determined, on the basis of the utility each consumer derives individually from the acquisition of an additional unit, Marxists argue that prices are merely the monetary expression of the value of the commodity, a value which is not determined on the basis of subjective valuation, but on the basis of the labour-time required for its production. In the former case, the value of each individual commodity unit, is different for each consumer, because each consumer obtains varying degrees of utility from each commodity unit, compared to some other consumer, and even compared to themselves under different conditions.

For example, I may like Mars Bars, and you may hate them. I would be prepared to pay more money to acquire one than you, and indeed, you may not be prepared to buy one at any price. Similarly, I may obtain a great deal of utility from the first Mars Bar I eat during the day, but by the time I am on to my tenth bar, I might feel sick at the sight of another. I have dealt with this argument about Marginal Utility theory elsewhere. The orthodox theory essentially comes down to a theory that prices are determined by demand, by what consumers are prepared to pay, because they will not buy a commodity if it does not provide them with the required utility at that price, whereas, by contrast, the Marxist theory is that prices are actually determined by supply, by what it costs to produce any commodity, because producers will not continue to produce commodities for exchange unless they are able to obtain an equal amount of value to that which they are giving up.

If I have expended 10 hours of labour producing a commodity, and my labour and yours are comparable, then I will expect to obtain commodities in exchange that also require 10 hours of labour to produce. Although the labour one worker provides will always be different to that of some other worker, and even different today from yesterday even for the same worker, as Marx says, quoting Edmund Burke, if the labour of groups of workers is compared, even as few as five in a group, in Burke's example, these individual differences are evened out. Even if my labour, and your labour are not comparable, or in the aggregate the labour say of tailors with the labour of carpenters, this still applies, all that is required is that an appropriate adjustment to the value produced in a given time by my labour to yours be made. If my labour is seen to produce twice as much value as yours, then commodities I produce in 5 hours, will exchange for commodities that your labour produces in 10 hours.

If we put this in the terms a capitalist understands, if a firm makes widgets that cost £1,000 to produce, and on average the rate of profit is 10%, then the firm will expect to sell them at £1,100. If it produces 1100 widgets, the individual price will be £1. But, if consumers are only prepared to pay £0.90 per widget, and its uneconomical for any firm to produce less than 1100 widgets, none will be produced, because it would involve the producer not just making no profit, but making a loss of £0.10 per widget. Capitalist firms do not engage in business to meet consumers needs, but to make profits, so the firm would stop producing widgets, and use the capital to make some other commodity instead, on which it would hope to make at least average profits.

In Part 6, I will examine why both views about the determination of prices are correct.

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