Letter: What determines prices? (1927)

Letter to the Editors from the January 1927 issue of the Socialist Standard

Some questions and our reply.

To the Socialist Standard.

The answer to A.W.S. on Currency in December Socialist Standard interests me, as I too am perplexed about prices, and will ask for instruction.

As I understand Marx, prices are governed by value. Now as coal, bread, boots, etc., embody no more labour since than before the war, and are of no more value, why is it that prices have at times doubled? I have read Socialist Standard for June, ’22, but can’t gather from it a reply to my difficulty. I’m putting the question thus tersely, so to avoid complications. If I could get this clear, perhaps my other perplexities would dissolve.

Some phrases in your answer to A.W.S. seem to fog me: e.g., (3) “It depends,” “a huge inflation of the paper currency, the rise in prices, due to this movement.”

And in last few lines of the answer, e.g., “When a movement of currency affects prices.”

Does currency affect prices?

I shall be obliged for instruction.

A. S.

P.S.—Your reference to “Pleb’s” discussion, I did not find in December, ’21, or May ’22, Socialist Standard.

Answer to A. S.

The general question of the relation between prices and value is so well worked out by Marx in “Value, Price and Profit” that our correspondent is referred to that volume for a full answer.

Briefly it may be said that while prices are based on value they may deviate within quite wide limits above or below value in certain circumstances. The most usual of these are supply and demand. If demand increases relative to the supply, prices will tend to rise, even though value has not altered. On the other hand if the demand falls relative to the supply, prices will tend to fall, and may fall below value.

The special conditions at the opening of the Great War enabled capitalists to raise prices enormously. Since the War ended they have kept up prices in many instances by combinations, cartels, and trade agreements. It must be remembered that a general rise in prices means a rise in the cost of commodities required to maintain and reproduce labour power. This means that either the price of labour-power—that is, wages—must rise, or the workers’ standard of living must fall. Even with some rise in wages the standard of living may fall if the rise in wages is not equal to the rise in the cost of living at the old standard.

As we tried to show in the answer to A.W.S., when a currency is inflated as a result of the fall of credit (see example in June, 1922, Socialist Standard), the purchasing power of each piece of currency falls. If the labour time necessary to produce the commodities remains unaltered, the fall in the purchasing power of the currency is necessarily followed by a rise in prices. In other words, if a currency falls in value —or credit—while other things remain the same, prices will rise. If a currency rises in value—or credit—and other things remain the same, prices will fall. This is what was meant when referring to a movement of currency affecting prices.

By a slip of the pen the dates were given wrongly in the answer to A.W.S. They should have been as follows :—Socialist Standard for June, 1922, December, 1922, and May, 1923.

Ed. Com.