Abstract
If commodities are sold at their value, the profit rate will be lower in those production spheres where the capital composition is high and higher in those with a low capital composition. When the movement of capital is free, capital will shift to those spheres with a higher rate of profit. This means that the quantity of capital in those spheres increases, as does the quantity of commodities supplied. And the opposite is the case for spheres with a lower rate of profit. The result of this is that in the former spheres, prices and the rate of profit fall, with the opposite holding true in the latter spheres. In this way, for commodity prices in all spheres, there is a convergence towards the same rate of profit. The commodity price that brings about this average rate of profit is the «production price». However, the capital composition in each sphere is constantly fluctuating as individual capital continually increases the productive power of labour in pursuit of surplus profits, and since individual capital always accumulates unequally, what exists is a constant equalisation of incessant inequalities. Under capitalist production, this is the way in which value determines overall production.
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Notes
- 1.
Marx (1894) writes: «When we consider supply and demand, . . . the supply is equal to the sum of commodities provided by all the sellers or producers of a particular kind of commodity, and the demand is equal to the sum of all buyers or consumers (individual or productive) of that same kind of commodity. These totals, moreover, act on one another as unities, as aggregate forces. Here the individual has an effect only as part of a social power, as an atom in the mass, and it is in this form that competition brings into play the social character of production and consumption.» (Marx 1981, p. 295; my emphasis.)
- 2.
When we looked at the value of commodities in 7 Sect. 2.2.2 in Part I («Value of a Commodity»), it was explained that because value is a social attribute of things, its quantity is determined by the labour-time socially required to produce a given commodity and that socially necessary labour-time is the labour-time required to produce the commodity under the normal conditions of production and with the average degree of skill and intensity of labour for a given society. At that starting level of our view, we still left out of consideration that the totality of the same sort of commodity forms the supply on the market. But now we have observed that each commodity is a constituent unit (aliquot part) of the mass of the same commodity that forms the supply in the market. So the entire labour-time required to produce the total mass of the commodity must be taken into consideration as a vital factor determining its value. And the value of the commodity as an aliquot part of the mass of the same commodity is its average value. In other words, the total labour-time required to produce the entire mass of the commodity divided by its total quantity.
However, the market value, which is fundamentally the average value, has an actual influence within the market on the market price in the following manner: The capital that supplies the market a large quantity of the same commodity sort, so its individual value is near to the market value, holds the initiative for determining price. Therefore, when we observe the market value from the viewpoint of which commodity should be taken as the average sample from out of the commodity mass so that its individual value can be considered as the representative to indicate the level of the market value, we can suppose the market value is determined by the individual value of the commodity produced by the capital that supplies a prodigious quantity of the commodity mass. Mathematically speaking, the average of the preceding average value was the weighted average, whereas the average of this average is a mode (the value that occurs most frequently in a given set of data). Although the two, quantitatively observed, are not identical, the latter determination, called the «mass determination of market value», is very useful when we must concretely grasp the market price as the value of the representative commodity that determines the market price.
- 3.
Marx (1894) writes: «If commodities were sold at their values this would mean very different rates of profit in the different spheres of production, as we have already explained, according to the differing organic composition of the masses of capital applied. Capital withdrawn from a sphere with a low rate of profit and wends its way to others that yield higher profit. This constant migration, the distribution of capital between the different spheres according to where the profit rate is rising and where it is falling, is what produces a relationship between supply and demand such that the average profit is the same in the various different spheres, and values are therefore transformed into prices of production.» (Marx 1981, p. 297; my emphasis.)
- 4.
Marx (1894) writes: «Since it is the total value of the commodities that governs the total surplus-value, while this in turn governs the level of average profit and hence the general rate of profit—as a general law or as governing the fluctuations—it follows that the law of value regulates the prices of production» (Marx 1981, p. 289).
References
Marx K (1868) Letter to Friedrich Engels, 30 April 1868. English edition: Marx K (1988) Marx-Engels Collected Works, vol 43. Progress Publishers et al. New York
Marx K (1894) Das Kapital. Kritik der politischen Oekonomie. Bd. 3. Buch 3: Der Gesammtprocess der kapitalistischen Produktion. Hrsg. von F. Engels. Hamburg. English edition: Marx K (1981) Capital. A critique of political economy, vol 3 (trans: Fernbach D). Penguin Books, Harmondsworth
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Otani, T. (2018). Average Rate of Profit and Production Price. In: A Guide to Marxian Political Economy. Springer, Cham. https://doi.org/10.1007/978-3-319-65954-1_16
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