Prices of Production and Market-values

Abstract

How are prices of production (costprice+average profit) formed? What is the mechanisn of competition of capitals by which these prices are formed? This problem is of a great significance, since it pvovides a very important key to the solution of not only economic crises, but also so-called 'Transformation Problem' and monopoly prices. Karl Marx's 'Capital', vol. III, chap. 10 mainly deals with this problem. Yet, it has many points which we cannot clearify. For one thing, why does it chiefly observe market-values and market-prices, though it was originally meant to discuss prices of production? Capitals, always seeking higher profits, compete with each other and move around among different spheres of producton. If they yield only lower rate of profit in one sphere where the organic composition of capitals is originally higher, they will get out of it and blow into another where the composition is originally lower, hence higher rate of profit. This kind of competition of capitals taking place among various spheres of production changes in each sphere the amount of supply and consequently, if demand remains unchanged, the ratio of supply to demand. Under this ratio changed, how can the prices of production be formed? This problem is, indeed, nothing but a formation of prices through competition within one single sphere which was fully analysed in the chapter above-quoted. Competetion of capitals among different spheres influences only the ratio of supply to demand in each sphere through incessant transfer of capitals, but this is all. It leaves the problem of formation of prices to the competition taking place within one single sphere. This kind of competition is three-sided ; competition among sellers (producers), among buyers, and among the two. Under a certain ratio of supply to demand, these three sides of competition, cooperating together, achieve one and same market-value out of various different individual values which are produced under different conditions of production. Now, competition of capitals in different spheres modifies that old ratio. So the three sides of competition in each single sphere change. In the sphere where the rate of profit was originally lower, sellers' competition gets less tense with the outflow of capitals from this sphere, and buyers' competition gets hotter, and the competition between sellers and buyers goes in favor of the former. In the sphere where the rate of profit was originally higher, with the flow of capitals into this sphere, things go reversely. All this process of competition in a single sphere will result in the formation of prices of production in every sphere. Thus, the principle of market-value decision through competition within a single sphere provides the basis on which the prices of production are formed through competition among different spheres.