Price of Production
Price of Production
the price of a capitalist commodity, equal to production costs plus the average profit on all capital advanced; the converted form of a commodity value.
Every capitalist is interested in realizing maximum profit on his investment. Dissimilar economic conditions developed, however, in the various branches and spheres of social production as a result of various factors, including technical, economic, and market conditions. Interbranch differences in the volume of profits are chiefly caused by inequalities in the organic composition of capital and unequal rates of capital turnover. Capitalists compete fiercely with one another for the most profitable spheres of capital investment. In the course of interbranch competition, capital is continuously transferred from one branch to another, and market prices are constantly changing as a result of the spontaneous operation of the law of supply and demand. Consequently, like amounts of capital yield equal profits to their owners, no matter where invested; interbranch competition leads to the establishment of a certain level of market prices that ensures the compensation of production costs and guarantees an average profit to each operating capitalist enterprise. Under premonopoly capitalism, it is this average market price that constitutes the price of production. This production price is the central point around which the market prices of commodities fluctuate.
The conversion of value into the price of production was a protracted historical process. In simple commodity production and in the early stages of the capitalist mode of production, commodities were exchanged at prices that approximated or coincided with value. Small-scale commodity producers expended labor directly on the production of commodities, and exchanges between such producers were therefore proportional to the labor input. Capitalism originated in the feudal system of production; in the beginning stages, stable and sizable differences were preserved between the profit rates of different branches. Feudal privileges and the crafts regimentation of economic activity prevented the equalization of profits. It was only the firm establishment of capitalist production relations that created the prerequisites for interbranch competition and for the transformation of value into the price of production.
Exchange based on the price of production would appear to contradict the law of value. The price of production differs from value in terms of both structure and magnitude. The value of a commodity is determined by the expenditure of labor; the price of production, by the expenditure of capital. As a rule, the profit realized from the price of production is not of the same magnitude as the bulk of the profit generated within the branch. This gives rise to the impression that, as Marx put it, “profit added to the cost price is actually determined not by the limits of the formation of value within its own sphere but by outside influences” (K. Marx and F. Engels, Soch., 2nd ed., vol. 25, part 1, p. 184). There is, however, an internal organic relationship between value and the price of production. Interbranch competition merely leads to the redistribution of aggregate value and surplus value. Some capitalists sell their commodities at above-value prices, while others sell below value; ultimately, however, the gains and losses balance each other out.
The capitalist class as a whole cannot appropriate a greater amount of profit than is produced by the working class, so that on the scale of the entire society the sum of production prices equals the sum of their values. In cases where the organic composition of capital is at an average level, the value of the commodities produced by a given capitalist will coincide with their production price. Accordingly, production prices that exceed value in the profitable branches are balanced out by production prices that fall below value in the relatively or totally unprofitable branches. Moreover, the continuously operating mechanism of interbranch competition hinders the establishment of stable differences in branch rates of profit.
The dynamics of production prices are based on a multitude of factors, the most important being those that alter the magnitude of the value of commodities. Any decrease or increase in the work time embodied in a commodity exerts a decisive influence on the price of production. “Since the total value of the commodities,” as Marx pointed out, “regulates the level of average profits and thereby the general rate of profit (as a general law governing fluctuations), it follows that the law of value regulates the prices of production” (ibid., p. 197).
The price of production expresses class relations between the bourgeoisie and the working class as a whole. The magnitude of the average profit contained in the price of production of marketed commodities depends on the conditions of exploitation not only within a given branch but in the entire capitalist society as well. Every capitalist has an objective interest in intensifying the exploitation of the entire working class—hence the solidarity of the bourgeoisie in the struggle against the working class. At the same time, all capitalists strive to obtain maximum profit, and there is relentless competition within the bourgeoisie for a greater share of the surplus output. The price of production therefore expresses not only the interclass contradictions of bourgeois society but also the contradictions within the capitalist class.
The transformation of premonopoly capitalism into imperialism led to changes in the capitalist pricing system. The replacement of free competition by monopoly rule interfered with the interbranch flow of capital and the equalization of branch profit rates. Because of their economic power, monopolies are able to play an important role in determining quantitative market relationships; they are able to conclude agreements with respect to prices, to partially control the dynamics of prices through the marketing mechanism, and to arrange direct contractual relations. Under state-monopoly capitalism, commodities are exchanged on the basis of monopoly prices—which does not mean that the economic preconditions of production prices are eliminated. Ultimately, over a certain period of time, monopoly competition equalizes the profitability of individual production units or branches.
The age of imperialism is marked by mergers and absorptions of banks and monopolies. The diversification of production and the formation of conglomerates—the characteristic features of the present level of concentration of production—are evidence of the growing degree of concentration at the interbranch level. Monopolies engage in heated nonprice competition, with the result that production and marketing conditions in the various branches are constantly changing. Sometimes monopolies resort to price wars or to economic blackmail and pressure. In addition to the monopolies, the economic system of modern capitalism also has an unmonopolized or poorly monopolized sector, where there are fewer obstacles to the flow of capital.
The intertwining of two opposing principles—monopoly and competition—does not cancel the laws of capitalist pricing; rather, it causes their eventual modification. Monopoly prices emerge within the framework of market operations, and their level is ultimately determined not by the omnipotence of the monopolies or of the bourgeois state but by the objective conditions of social capital reproduction. The mechanism of monopoly competition causes monopoly prices to be set at a level that dynamically reflects the actual array of forces—a level that coincides with the economic interests of individual monopoly groupings and of the financial oligarchy. Consequently, for any specific period of time, monopoly prices fluctuate around a given center. Under imperialism, the price of production constitutes that central point, even though the two categories are not in a one-to-one relationship.
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A. A. KHANDRUEV