Value and Price

I’m currently working my way through volume 1 of Capital by Marx, aided by David Harvey’s superb “Companion”.

I’ll no doubt post more thoughts on this another time, but in the meantime I reached a crucial section at the beginning of Chapter 3 which I think explains something I’ve struggled with for quite a long time – that is the relationship between value and price.

I think the key rests in the fact that capitalism is a system in perpetual motion. Money is indeed the measure of value – and that value is determined by the amount of average labour power socially necessary to produce a commodity. But the gold basis for money is itself a commodity (query – how does the move away from the gold standard impact this theory?) and therefore it’s own value – and hence it’s relationship to other commodities – is constantly changing.  Be that as it may, all other things being equal it should maintain the relative value of different commodities in relation to itself. How then can prices fluctuate?

Because in the market will all assess what we think the value of a commodity is before attempting to effect an exchange. In Marx’s words this labelled price is ‘imaginary’. On any given day, supply and demand will determine a fluctuating price which is then actually realised at exchange. Over time this will coalesce around an ‘equilibrium’ price which is a reasonably accurate assessment of the socially necessary labour time embodied in a commodity. Once you reach this equilibrium point, supply and demand fail to explain anything.

If price is then determined by supply and demand, why do we need the labour theory of value? The answer is that this orthodox view of the world cannot otherwise explain why for example the equilibrium price for shoes is lower than the equilibrium price for coats. This is what determines the amount around which the price on any given day fluctuates.


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