The real difficulty in determining the meaning of the con- cepts 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 pro- duction 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 discontinu- ously. They represent not only use-value satisfying human wants, but these use-values are on the market in definite quan- tities. 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 commodi- ties have, for instance, a high specific value, others a low specific value, so that a given sum of values may be repre- sented 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 market- value of these articles: Given a certain, basis for the produc- tivity 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 re- lation to the usefulness of these articles or the particular na- ture 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 com- modities 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 de- sired 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 in- dividual 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 market- value of this entire mass of commodities of a certain kind rep- resents only necessary labor. ISTevertheless, if this com- modity 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 in- corporated 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 commodi- ties 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 produc- tion 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 produc- tion 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 sup- plies 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 cap- ital, 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 necessi- ties on hand, if it is to continue living in the accustomed w'ay, although these necessities may be of different kinds and diftVr- ently 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 mar- ket. 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 for- gotten that the demand for productive consumption is a de- mand of capitalists, under our assumption, and that its essen- tial purpose is the production of surplus-value, so that com- modities are produced only to this end. Still this does not argue against the fact that the capitalist as a buyer, for in- stance of cotton, represents the demand for this cotton. More- over 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 nat- urally considerably for different commodities; in other words, the difference between the demanded quantity of commodities and that quantity which would be demanded, if the money- prices 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 de- mand and supply, and the resulting deviation of market- prices from market-values. The real difficulty consists in de- termining what is meant by balancing supply and demand.
Demand and supply balance one another, when their mu- tual 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 op- posite directions, they balance one another, they have no in- fluence 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 produc- tion cannot be explained by the interaction of supply and de- mand (quite aside from a deeper analysis of these two mo- tive 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 bal- ance, 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 direc- tion. 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 bal- ance 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 market- price, fall, capital may be withdrawn and the supply reduced. But instead it may happen that the market-value itself is re- duced 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 market- value. Or, it may lead to a rise of prices which cuts down the demand. It may also bring about a rise in the market- value itself for a shorter or longer time, in some lines of pro- duction, 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 market- value 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 pro- duction, 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 pro- duction, 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 pro- portion between the supply, and what is, with reference to the new cost of pro- duction, 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 cir- cumstances. 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 com- modity, 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 de- mand 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 de- mand 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 con- tained 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 dis- putes, 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 market- prices 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 com- modities, of commodity and money, of buyer and seller; in the second place, the relation of producer and consumer, al- though both of them may be represented by third merchants. In studying buyers and sellers, it is sufiicient to confront them individually, in order to set forth their relations. Three individuals suffice for the complete metamorphosis of com- modities, and therefore for the complete transactions of sale and purchase. A converts his commodity into the money of B, to whom he sells his commodity, and he reconverts his money into commodities which he buys for it from C. The whole transaction takes place between these three. Further- more: In the study of money it had been assumed that the commodities are sold at their values, because there was no reason to take into consideration any divergence of prices from values, it being a question of changes of form experi- enced by the commodities in their transfonnation into money and their reconversion from money into commodities. As soon as a commodity has been sold and a new commodity bought with the receipts, we have the entire metamorphosis before us, and for the consideration of this process it is inmiaterial whether the price of the commodity stands above or below its value. The value of the commodity is essential as a basis, because the concept of money cannot be developed on any other foundation but this one, and because price, in its general meaning, is but value in the form of money. Of course, it is assumed in the study of money as a medium of circulation that more than one metamorphosis of a certain commodity takes place. It is the social interrelation of these metamorphoses which is studied. Only by this means do wc arrive at the circulation of money and at the development 228 Capitalist Production.
of its fimction as a medium of circulation. While this con- nection of the matter is very important for the transition of money into its function of a circulating medium, and for its resulting change of form, it is of no moment for the transac- tion between the individual buyer and seller.
In a question of supply and demand, however, the supply means the sum of the sellers, or producers, of a certain kind of commodities, and the demand the sum of the buyers, or consumers, of the same kind of commodities (both produc- tive and individual consumers). There two bodies react on one another as units, as aggregate forces. The individual counts here only as a part of a social power, as an atom of some mass, and it is in this form that competition enforces the social character of production and consumption.
That side of competition, which is momentarily the weaker, is also that in Avhich the individual acts independently of the mass of his competitors and often Avorks against them, whereby the dependence of one upon the other is impressed upon them, while the stronger side always acts more or less unitedly against its antagonist. If the demand for this particular kind of commodities is larger than the supply, then one buyer out- bids another, within certain limits, and thereby raises the price of the commodity for all of them above the market-price, while on the other hand the sellers unite in trying to sell at a high price. If, vice versa, the supply exceeds the demand, some one begins to dispose of his goods at a cheaper rate and the others must follow, while the buyers unite in their efforts to depress the market-price as much as possible below the mar- ket-value. The common interest is appreciated only so long as each gains more by it than Avithout it. And common action ceases, as soon as this or that side becomes the weaker, when each one tries to get out of it by his own devices with as little loss as possible. Again, if some one produces more cheaply and can sell more goods, thus assuming more room on the market by selling below the current market-price, or marketvalue, he does it, and thereby he begins an action which grad- ually compels the others to introduce the cheaper mode of pro- duction and which reduces the socially necessary labor to a 6 Market Prices and Market Values. 229 new, and lower, level. If one side has the advantage, every- one belonging to it gains. It is as though they had exerted their common monopoly. If one side is the weaker, then every one may try on his own hook to be the stronger (for in- stance, any one working with lower costs of production), or at least to get off as easily as possible, and in that case he does not care in the least for his neighbor, although his ac- tions affect not only himself, but also all his fellow strugglers.^^