Letter: How goods are priced (1996)

Letter to the Editors from the July 1996 issue of the Socialist Standard

How goods are priced

Dear Editors,

Nearly all goods today have price bar codes giving the maximum retail price before the goods go on to the market. Is this practice in any way in contradiction to the Marxist concept of how goods are priced, which claims that the price of a commodity is determined by competition and supply and demand after the good is manufactured and goes on the market, not before?

D. Brooks, 

London

Reply:

Such a practice is confirmation of Marx's labour theory of value. This argues that supply and demand generally determine the exact prices at which commodities sell, but do so only about a prior axis around which variations occur. This axis is determined by the amount of labour socially necessary to produce a commodity under average conditions of production. It is this, not the oscillations of supply and demand, which determines that a motor car generally has a value many times greater than a shirt, or that an oil tanker has a much higher value than a car. Variations in supply and demand no more determine average commodity price levels than the waves of the sea determine the height of the ocean above the sea bed. What determines average prices of commodities is value—and this in turn is determined by socially necessary labour time.

It is not true, however, that prices and values are always identical—very often they are not, and we refer you to our pamphlet on Marxian Economics and Part 2 of Capital, Volume 3, for further explanation of this. In fact, competition determines that commodities sell at what Marx called their price of production—that is cost of production plus the average rate of profit. But profit is unpaid labour and the elements of the cost of production can be reduced to labour at every stage if you go back far enough in the productive process. In contradiction to bourgeois economic thinkers and standard economics textbooks, real practical studies of capitalist enterprises show that they calculate their initial prices on the basis of total average cost plus a preconceived average profit margin, both of which are reducible to labour, and the bar code practice you write of illustrates this point well enough.

Editors