this post was submitted on 04 Jul 2025
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Supply and demand are important for the law of value to operate dynamically. We can make a distinction between the actual prices in a market, the market prices, which fluctuate due to supply and demand, and the prices which allow for an economic system to reproduce itself. The latter are called prices of production or natural prices. The market prices fluctuate around the prices of production, there is a gravitation of market prices toward the prices of production as others have mentioned. Or, in other words, the prices if production serve as the attractor.
The prices of production are given by values (and there is a whole question of the transformation problem on how to go from values to prices of production - this is a topic worth its own post).
In Capital Marx studies a capitalist system where the prices are given by their values. There is no price fluctuation due to supply and demand and the prices are at their natural price. Remember that the natural price, or the price of production, are those prices that allow for an economic system to reproduce itself (or if we want to extend it, expand with some given growth rate). These natural prices can be seen as structural.
Even without introducing fluctuations due to supply and demand, and by using natural prices, Marx showed that surplus value (think profit) exist even when capitalists buy and sell commodities at their value. Aggregate profit doesn't derive from arbitrage nor have its source in temporary price fluctuations. It is because labor creates more value than it is worth, or bought for at its value. Surplus value has its source in production.
That there is a transformation from value to these natural prices or prices of production is one aspect of the law of value. I'll call it the "static" aspect of the law of value.
The above is shown without introducing supply and demand. But supply and demand, and hence the fluctuating market prices, does have a role in the "dynamic" aspect of the law of value assuming that capital and labor are mobile and can be reallocated to different economic sectors and there is sufficient competition. This dynamic aspect of the law of value explains how price fluctuations around natural prices can serve as signals which reallocate our social labor to meet (or get closer to) demand.
Supply and demand comes in to play in the following way: if a commodity is underproduced (not enough labor is allocated to produce that commodity) then its demand outstrips its supply. Its market price then rises above its natural price (or value) as bidders compete. The rise in the commodity's actual market price vs its cost to produce means that there is a temporary increase in profits to be made by producing and selling this underproduced, and hence "overpriced" commodity. This increase in profits is like arbitrage. It is temporary and caused by a market fluctuation in the price. The increased profits that can be made leads to an increase of investment, or capital, by others in producing this commodity. This also means an increase in the labor that is reallocated to produce this commodity. Fluctuations in marker prices impact temporary profits, which impacts investment, which reallocateds labor. This is the dynamic part of the law of value.
The opposite scenario also reallocates labor. An overproduced commodity (one where too much labor is allocated toward producing it) causes supply to outstip demand. This leads to a fall in prices, hence a fall in those temporary profits, and hence a flight of investment/capital from the production of thay commodity. And a flight of investment means that labor is reallocated away from that sector.
And notice these two scenarios work together. An underproduced commodity can become overproduced as more capital (and hence labor) is allocated toward sectors that produce it. And vice versa. They create a feedback system that causes the turbulent gravitation of market prices around their values.
So supply and demand impact market prices, which lead to a reallocation of human labor so that supply can meet demand. And that is accompanied by market prices gravitating around the natural prices, or prices of production, which can be given by (a transformation of) values.
This is a "dynamic" and "static" aspect of the law of value.
Thanks for this response
The dynamic aspect makes sense, but I'm confused by the static part. Naively, someone might interpret the phrase "prices that allow an economy to reproduce itself" to mean "prices that cover production cost plus owner spending habits," because then everyone in the economy breaks even in their expenses and earnings over time, and the economy remains static. But that naive interpretation must be wrong because, mathematically, the problem would have no unique solution—there are infinitely many ways to assign arbitrary wages and prices in an economy such that everyone breaks even—so we don't learn anything that way. But, I'm not sure how else to interpret the phrase.
Possibly a non sequitur: is it Marxist to view profit as a consequence of bargaining power? I.e., the capitalist owns the means of production, which the workers need access to, so they essentially pay the capitalist a toll to use the equipment? The capitalist can withhold access to the means of production, and the worker can in theory withhold labor.
Are you okay with a mathematical example? I can go into one using input output tables to show how prices are found in a static toy economy. Note, that the example I could provide wouldn't be the only mathematical interprtation of Marxism. There are different schools that attempt to build this mathematical framework. I am familiar with a framework that uses input output tables and is inspired by Sraffa's The Production of Commodities by Means of Commodities with modifications. There are other schools, such as the temporal single-system interpretation (TSSI).
I don't mind giving a more detailed example in the school that I'm most familiar with. Familiarity with linear algebra helps, but even if one doesn't know linear algebra, it can be written out in such a way that you dont have to know how vectors and matrices multiply (and you may find yourself intuitively understanding the math). I can start writing it up if interested!
But, you are right in that in this framework there is an extra peice of info to know. We must say something about the wage rate and/or profit rate. This approach can also be adjusted alightly to show us that if we know how much the working class consumes (or we know the minimum consumption required by the working class) then the profit rate is constrained to have some particular value (given by an eigenvalue) and the (natural) prices are given by an eigenvector. Something about (natural) prices in this framework is that if given by a eigenvector, then we only know the relative prices of all commodities. We can say what p~i~ is vs p~j~, for example.
The "absolute" natural prices can then be given by choosing a (hopefully meaningful) way to normalize, or scale, those prices. The equation of exchange, Mv = pq, could give one such meaningful way for scale prices.
For your last point, I think most Marxists would avoid this type of interprtation as if accepts the bourgeoisie's own ideology of individual property rights. I mean the bourgeoisie would certainly love to see things the way you spelled out. Tit for tat transactions and what not. The bourgeoisie is a class that has monopolized control over the means of production and because of this the proletariat is a class that has nothing to sell but its labor. If we don’t then we die. This creates a bourgeoisie ideology that private property (that the bourgeoisie just happened fo control) is sacred and almost god given. And part of this ideology is that the exchange is free and fair (we are free to starve). Marxists would focus more on the class struggle and how the ideological statement you repeated is as product of this class struggle.
This takes the focus away from individuals and toward emergent structures which historicaly evolve, and the focus is social relations. Individuals are discussed in that they are representatives or bearers of these social relations.
The capital worker social relation is one where capitalists have, through the process of history, taken control of means of production and workers have become dispossesed of them. The capitalists are able to control the production process, how many hours are worked, the speed and conditions.
If you want to see it as a "toll" we workers pay, then it would be a payment we give to capitalists for their brutal conquest of colonies, their genocide of whole peoples, and their power to extract surplus labor from us. That sounds less and less like a toll.
In fact, if we start to view this through the lens of value production, there is no toll at all. It's just pure stealing.
For capitalists as a class to exist they must consume. These consumed items must be produced by workers, and that means workers must be producing values that are consumed by capitalists. Capitalists can buy the labor required to produce all value, and they only have to pay workers an amount that allows them to consume only the value they need to consume.
The above doew relate back to the natural prices we discussed. What are the prices that allow for the capitalists (as a class) to recreate this level of surplus value, and also don't allow the workers (as a class) to buy back the products given their wage. (Note that some dependence on either the wage or profit rate comes back into play as discussed above).
I.e. imagine it takes 6 hours for workers, collectively, to produce the values (products) they need to survive. What happens if capitalists make workers work for 12 hours total? In the first six hours they produce value for themselves, in the second six hours the workers produce value beyond what they need for their own survival. When workers get paid their wages they get paid enough to buy and consume their first six hours of value. What happens to that second six hours of value? Well it is consumed by the capitalists. It is the surplus labor we workers produce that gets consumed by an exploitative and non laboring class whom control the labor process.. The most essential process of social metabolism!
So if profit is a toll, it is a toll that we reward the capitalists for the blood they've spilled in grabbing the means of production, and the blood they spill daily in holding on to that control. Capitalists would certainly love to see it as some type of fair bargaining position, but that's just an ideological statement. Workers give everything and the only thing they get from the capitalists is the ability to not starve (sometimes).
It's the modern day version of Plato telling us that slaves are naturally disposed to follow orders and the slave master arrangement is part of natural law.
This isn't to put any heat on you for asking, its difficult to tell tone in our internet discussions. So I definitely want to apologize if any part of the above sounded like an attack on you for asking.
But the question is a subtle acceptance of bourgoise ideology. A Marxist approach would look at
A.) Where is value being produced, by who, and under what conditions?
B.) Let's take social relations as primary. Individuals come into the picture as bearers of social relations. This is an approach that looks at the emergent structure of a society. Classes, and the struggle between them, are primary over individuals.
C.) We must always historicize our analysis. How did the bourgeoisie get into the position where they control the means of production. How did the working class get in the position that it has nothing to sell but its labor.
D.) When using the above points to analyze the workings of a social system, we can then ask how certain ideas or consciousness came into being. And are these ideas serving as a justification, or a way to naturalize or eternalize, exploitative relations. This means criticizing even basic notions of "rights", "private property", "wages", "profits". The rights we know of are products of an historical class struggle.
My apologies for talking too much. I'm very long winded. Again, I can give some examples for your first question if still interested!
Hell yeah, lay it on me.
When I say "bargain" I don't mean a civilized transaction. I get the systemic violence. But isn't it a kind of bargain? Isn't that the whole point of a union? The individual worker has little or no bargaining power, because we are easily replaced, which is why we band together and threaten to withhold labor as a group.
In the early days of industrial wage labor, we had no unions or legislation to protect us. Our wages were individual bargains — and yes, our main leverage was that that we needed to stay alive to work. Our main threat was, "If you pay me any less, or work me any harder, I may starve and be too weak to work." That continued until the labor movement had sufficiently demonstrated the power of organized labor, forcing capital to grant concessions to stop us from radicalizing and militarizing any further.
But capitalists also depend on bargaining power — they just have a lot more of it than we do. If tomorrow the cops and the feds suddenly stopped protecting private property, and announced, "workers, you now have the choice to commandeer your boss's business and run it however you want," profits would vanish. The owners would no longer have the leverage to pay themselves millions of dollars a year, because we would just take over the business and keep the profits ourselves.
Not at all! Thanks for taking the time. And yeah, I am interested.
Give me a bit to write it up and I'll send you what I got!
But, I wanted comment on something you mentioned before I go.
I don't think that's a naïve interpretation, and in fact I think the insight there is spot on! When I say that natural prices are those prices that allow for the system to reproduce itself, I do mean the capitalist system. So natural prices under a capitalist formation must be able to reproduce the class exploitation of the capitalists (and hence their consumption), else it isn’t capitalism that is being reproduced.
In fact, bringing this insight into a definition of value is something that Ian Wright has done, and is part of his solution to the transformation problem, i.e. how to get natural prices from value. Essentially, his argument as I understand it is that one can create an extended measure of value that includes the labor required to cover products made for the owner’s consumption (surplus value), and that this extended measure of value is still a measure of value, just through lens of your insight. This extended measure of value is still measured in labor-hours, and is commensurate with prices under capitalism because while the surplus labor is not necessary for the workers, it is necessary for the system of capitalism to reproduce itself.
Though, like I mentioned before the transformation problem is worth its own post. And this is one solution, of many proposed, for the transformation problem.
The rest of your question was on the uniqueness of the solution
and I'll respond with a write up on solving for natural prices with the framework I'm most familiar with.
Just want to let you know that I'm still very much interested (and I won't lose interest so there's no rush), but also, no pressure! if life gets in the way or you run out of steam it's all good! Thanks either way. It's a potentially laborious effortpost, on a niche forum, in a small thread where I might be the only person who reads it. Stoked if you do but 110% understand if you don't.
I'm in the process of writing it up. I'm starting with a pure labor economy (simplest model and lays the foundation) and building it up from there. Not yet, finished but I am working on it.
And you may be the only one who reads it
but I've been wanting to write something like this up for a while anyways
Hopefully I dont get back to you within a year with some massive tome
Hell yeah
godspeed