We have seen how the changing relation of supply and demand causes now a rise, now a fall of prices; now high, now low prices.If the price of a commodity rises considerably owing to a failing supply or a disproportionately growing demand, then the price of some other commodity must have fallen in proportion; for of course the price of a commodity only expresses in money the proportion in which other commodities will be given in exchange for it.If, for example, the price of a yard of silk rises from two to three shillings, the price of silver has fallen in relation to the silk, and in the same way the prices of all other commodities whose prices have remained stationary have fallen in relation to the price of silk.A large quantity of them must be given in exchange in order to obtain the same amount of silk.Now, what will be the consequence of a rise in the price of a particular commodity? A mass of capital will be thrown into the prosperous branch of industry, and this immigration of capital into the provinces of the favored industry will continue until it yields no more than the customary profits, or, rather until the price of its products, owning to overproduction, sinks below the cost of production.
Conversely: if the price of a commodity falls below its cost of production, then capital will be withdrawn from the production of this commodity.Except in the case of a branch of industry which has become obsolete and is therefore doomed to disappear, the production of such a commodity (that is, its supply), will, owning to this flight of capital, continue to decrease until it corresponds to the demand, and the price of the commodity rises again to the level of its cost of production; or, rather, until the supply has fallen below the demand and its price has risen above its cost of production, for the current price of a commodity is always either above or below its cost of production.
We see how capital continually emigrates out of the province of one industry and immigrates into that of another.The high price produces an excessive immigration, and the low price an excessive emigration.
We could show, from another point of view, how not only the supply, but also the demand, is determined by the cost of production.But this would lead us too far away from our subject.
We have just seen how the fluctuation of supply and demand always bring the price of a commodity back to its cost of production.The actual price of a commodity, indeed, stands always above or below the cost of production;but the rise and fall reciprocally balance each other , so that, within a certain period of time, if the ebbs and flows of the industry are reckoned up together, the commodities will be exchanged for one another in accordance with their cost of production.Their price is thus determined by their cost of production.
The determination of price by the cost of production is not to be understood in the sense of the bourgeois economists.The economists say that the average price of commodities equals the cost of production: that is the law.The anarchic movement, in which the rise is compensated for by a fall and the fall by a rise, they regard as an accident.We might just as well consider the fluctuations as the law, and the determination of the price by cost of production as an accident -- as is, in fact, done by certain other economists.
But it is precisely these fluctuations which, viewed more closely, carry the most frightful devastation in their train, and, like an earthquake, cause bourgeois society to shake to its very foundations -- it is precisely these fluctuations that force the price to conform to the cost of production.
In the totality of this disorderly movement is to be found its order.In the total course of this industrial anarchy, in this circular movement, competition balances, as it were, the one extravagance by the other.
We thus see that the price of a commodity is indeed determined by its cost of production, but in such wise that the periods in which the price of these commodities rises above the costs of production are balanced by the periods in which it sinks below the cost of production, and vice versa.
Of course this does not hold good for a single given product of an industry, but only for that branch of industry.So also it does not hold good for an individual manufacturer, but only for the whole class of manufacturers.
The determination of price by cost of production is tantamount to the determination of price by the labor-time requisite to the production of a commodity, for the cost of production consists, first of raw materials and wear and tear of tools, etc., i.e., of industrial products whose production has cost a certain number of work-days, which therefore represent a certain amount of labor-time, and, secondly, of direct labor, which is also measured by its duration.
