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price,amount of money for which a unit of goods or services is exchanged. Price is equivalent to market value and may or may not measure the intrinsic value of the goods or services to the buyer or seller. Most economists hold that, in the long run, price in a competitive market will equal the cost of production. Such a long-term equilibrium price is called the normal price. In the short run, however, the market price will be determined by supply and demand without reference to cost. The price of an individual item changes with time as well as in its relation to the prices of other goods. In general, prices are closely related to the amount of currency in circulation. If money is plentiful compared with the supply of goods, prices are high and money has less value and is "cheap"; when the opposite condition prevails, goods are cheap and money has greater value and is "dear." The general price level may therefore be influenced by the action of government agencies (such as, in the United States, the Federal Reserve Board) that regulate the supply of currency. Because of the relation of the general price level to the business cycle, government action is usually designed to steer a middle course between the inflationary effects of a too plentiful currency and the deflationary effects of a glut of goods. Stabilization of prices would ensure that the dollar used in repaying a loan would have the same value as the dollar borrowed. The price level is an average of prices of a number of commodities that are important in the economy. It is generally converted into an index, with a particular year designated as the norm and given a value of 100. By comparing the value of an index at different dates, it is possible to ascertain whether prices are rising or falling. Common indexes used by U.S. government economists include the consumer price index and the wholesale price index. Historically, prices have tended to move upward; the wholesale price index, for example, more than doubled between 1930 and 1970. For the history of prices, classic works are Thomas Tooke, A History of Prices … . from 1793 to 1856 (6 vol., 1838–57; repr. 1928) and J. E. T. Rogers, A History of Agriculture and Prices in England (7 vol., 1866–1902; repr. 1963).
the monetary expression of the value of a commodity; an economic category that is used as an indirect measurement of the amount of socially necessary work time expended on the production of commodities. The scientific theory of price was formulated by K. Marx, who revealed the composition of prices and the laws governing their formation and movement. In Marx’ words, “Price is the money name of the labor realized in a commodity . . ., the index of the magnitude of commodity’s value” (K. Marx and F. Engels, Soch., 2nded., vol. 23, p. 111).
Price levels, price relationships, and their dynamics are based on the law of value. At the same time, price dynamics are also influenced by other factors, such as changes in the value of gold or in the quantity of paper money in circulation, the relation between supply and demand, and various social factors, which may cause discrepancies between price and value: “the possibility . . . of a quantitative incongruity between price and magnitude of value, or the deviation of the former from the latter, is inherent in the price form itself” (K. Marx, ibid., p. 112). In the overall social context, however, these deviations cancel each other out, and the sum total of prices coincides with the sum total of commodity values. Price levels for specific commodities are established with due regard to their varying quality and end use.
Prices were first instituted at the time of the decline of the primitive communal system, when the social division of labor led to a stable exchange system and the concurrent need to single out a special commodity—namely, money—that would express the value of all other commodities.
Prices were established spontaneously: at first, in the process of exchange, certain prices were set on products of the joint labor of members of the community; subsequently, prices were established for products of the labor of private landowners and craftsmen, slave laborers (in slaveholding societies), and serfs (under feudalism). Most of the products of labor, however, were either directly consumed by the producers or handed over in their natural form to the slaveholders or feudal lords; such products were not commodities and had no price.
In the capitalist economic system, price has taken on a universal character. Virtually all the products of labor are changed into commodities having a certain value and price, and the same is true of man’s labor power, whose value and prices are monetarily expressed in wages. Many commodities that have no value of their own acquire a certain price (the price of land, for example, or of stocks). Price is an expression of capitalist production relations; it promotes the production and realization of surplus value, which is both the substance and the means of exploitation of hired labor by capital.
With the development of capitalism, price undergoes changes, being directly affected by changes in value. In the initial stage of capitalism, price was based on commodities’ market value, which reflected the expenditures involved in the production and reproduction of the bulk of a given commodity. The market price fluctuated around market value and ultimately reflected the level of and the quantitative changes in value. The applicable price formula here is Pc = c + v + m, where Pc represents prices directly based on the value of commodities, c is the transferred value of the means of production expended in manufacturing the commodities, and v + m represents the newly created value, consisting of the value created by necessary labor (v) plus surplus value (m).
When the capitalist mode of production prevailed over and transformed the technological base of all the basic areas of production, the fact that market prices were pegged to value resulted in unequal rates of profit from equal amounts of capital; this was due to differences in the organic composition of capital employed in different branches. As a result of transfusions of capital, these differences were smoothed over by means of steady deviations of price from value and the establishment of an average rate of profit. Prices and their fluctuations were now based directly on the price of production (Pp): Pp = C + r’C, where C = c + v, representing commodity production costs, or the capitalist’s outlays on the means of production and labor power (expenditures on raw materials, supplies, amortization, wages, and overhead) expended in the commodity manufacturing process, r’ is the average rate of profit, and C stands for capital advanced for production of the commodity (including the full value of fixed capital—for example, of buildings and installations).
As shown by K. Marx in Das Kapital and elsewhere, the modification of value in the price of production does not alter the law of value: in the branches where the index of the organic composition of capital is low, commodity prices fall consistently below value; where the index of the organic composition of capital is high, prices are consistently above value. On the whole, the sum total of prices continues to express the sum total of commodity values. The shift to production prices is the specific method by which capitalism ensures the economic feasibility of expanded reproduction in branches where the index of the organic composition of capital is high.
Monopoly prices are an increasingly common feature of the stage of imperialism. It is by means of monopoly prices that the monopolies, drawing upon their economic strength, realize monopoly superprofits. In the following formula, Pm = monopoly price: Pm = C + r’C + M, where M is the monopoly superprofit, or the excess over average profit. The predominance of monopoly prices leads to the further deviation of market prices from value; such prices are higher than production prices in the case of monopolized commodities, and below value for certain capitalists—specifically, for outsiders who are unable to realize an average profit, for craftsmen, for workers who sell their labor, and for the exploited peoples of the colonies, semicolonies, and economically backward countries.
The dominance of monopolies, like state-monopoly regulation of prices, means an extension of the confines of nonequivalent exchange. Even under monopoly prices, however, the law of value continues to operate. Monopolies regularly make use of nonequivalent exchange and of price inflation in order to increase their profits, as well as to step up the exploitation of the working class and of economically backward nations.
World prices are based on the international price of production as it develops on the world market.
Planned prices, which are an inherent feature of the socialist economic system, express the regular patterns of economic relations based on socialist ownership. Like commodity-money relations, price has now lost its universal character: labor power is not a commodity and has no cost; there is no selling of land, timber, or minerals, and there is no stock market. Planned prices, whose value content remains intact, continue to be the monetary expression of the value of commodities. In addition to the law of value, certain specific laws of socialism, such as the fundamental economic law of socialism and the law of planned development, simultaneously influence price-setting and price dynamics. The prices of certain commodities may be deliberately set above or below cost. This is dictated by what may be required in any given case by socialist state policy as applied to prices.
Planned prices were first instituted in the period of transition from capitalism to socialism; they were established by the agencies of the proletarian state in opposition to the speculative prices of the free market and to the prices set by the capitalists and private traders. As the socialist state took over the regulation of commodity-money relations and of the price system, as capitalist arrangements were eliminated, and as small-scale forms of commodity trading were changed, the range of application of planned prices continued to grow.
Under advanced socialism, prices play an increasingly greater role in the planned management of the national economy. Price becomes a powerful lever of economic management in the hands of the socialist state. Prices are intentionally used as an instrument to increase the efficiency and raise the technological level of production and to ensure the steady growth of the population’s real income.
The Twenty-fifth Congress of the CPSU (1976) resolved that prices must be used more actively as a stimulus to accelerate the rate of scientific and technological progress, to update and improve the quality of production, and to make rational use of material resources.
Planned prices have several functions: (1) an accounting function—that is, a means of reporting and measuring the socially necessary expenditures of labor on the production and marketing of commodities, whereby planned prices can be used as an instrument of economic planning computations and as a norm for expenditures of social labor; (2) a stimulating function—a lever to influence the rate and efficiency of technological progress, to improve product quality, to lower the prime cost of production, and to increase the efficiency of social production; and (3) a re-distributive function—a means of redistributing income on the basis of deviation of prices from the value of commodities in order to solve social problems and meet the demands of profit-and-loss accounting (for example, setting relatively low prices on commodities classified as children’s goods, on meat, milk, and potatoes, and on housing services, while setting high prices on alcoholic beverages and luxury goods; or using accounting prices for enterprises operating under dissimilar natural conditions).
Planned prices are based on the value of commodities and on the socially necessary expenditures of labor on commodity production and marketing. Prices may also be directly based on some modification of value. After the 1967 reform of wholesale prices, differential norms of profitability were adopted for different branches, these norms being calculated as percentages of the value of fixed production assets and of standard-rate circulating capital. The level of profit in prices is planned in such a way that a normally functioning enterprise can, as a rule, use its profits to make payments to the budget for its production assets; profits may also be used to pay the interest on loans, or they may be assigned to the economic incentive fund.
The price system in socialist society includes several different classes and types of domestic prices:
(1) Wholesale prices, which include (a) enterprise wholesale prices on industrial products that compensate costs and ensure a standard profit; (b) industry wholesale prices, which are the prices that consumers pay for products (for various types of commodities, these prices include the costs and profits of sales organizations in addition to the enterprise wholesale price, and in some instances they also include the turnover tax—specifically, in the case of popular consumer goods, petroleum products, gas, and electric power); (c) accounting prices, which are differentiated by enterprise or group of enterprises on the basis of objectively different production conditions (in such instances, consumers are generally charged uniform prices); (d) wholesale prices of agricultural equipment, mineral fertilizers, and other means of production sold to kolkhozes and sovkhozes (these prices may be lower than wholesale prices for industrial enterprises); (e) prices of finished construction projects (the estimated cost of construction can also function as the price); (f) electric power rates charged to enterprises and organizations; (g) rates charged for freight shipments by rail, truck, water, air, or pipeline; and (h) markups and discounts on supplies of materials and machinery, sales, trade, and procurements, as well as discounts and markups by the All-Union Board for the Supply of Farm Machinery, Fuel, and Fertilizers (Soiuzsel’khoztekhnika). Special types of wholesale prices include ceiling prices (that is, maximum permissible prices), which are determined in the planning stage of new technology; contractual prices for research and development work; and payment rates for the natural resources used by enterprises (for example, rates of compensation for geological prospecting expenditures, stumpage rates, and water charges).
(2) State purchase prices paid for agricultural products, game, and fish, as well as for mushrooms, berries, and other products purchased by state procurement organizations from kolkhozes, sovkhozes, and private individuals.
(3) Retail prices paid by individuals for consumer goods and services. Such prices include (a) state retail prices, or the prices paid by individuals for commodities sold by state and cooperative trade enterprises; (b) prices and rates charged for such consumer services as home maintenance, housing and public utilities, and entertainment; (c) rates charged for passenger transport and communication services; (d) prices of goods sold on commission (that is, products purchased from individuals by consumer cooperatives and sold in specialty shops at prices approximating kolkhoz market prices); and (e) kolkhoz market prices, which are influenced by the levels of demand for and supply of the products of private subsidiary farm plots and kolkhozes.
In terms of effective duration, prices may be classified as permanent prices, temporary prices (such as the temporary wholesale prices of fundamentally new technology produced in the USSR for the first time), temporary wholesale and retail prices on novelty items, seasonal prices (for early vegetables, fruit, and potatoes), graduated prices (that is, prices that are lowered, in stages of predetermined duration, with the gradual expansion of production, reduced production costs, and product obsolescence), and prices that are established for a set period.
Depending on the extent to which prices include shipping costs (see FRANCO), the following categories are distinguished: free delivery to consumer (for example, for electric power and gas), free to building site (for construction materials, in various regions of the USSR), free on rail, station of consignee (for example, for rolled ferrous metals and petroleum products), free on rail, supplier’s station (for example, for coal, nonferrous metals, and machine-building products), and ex supplier’s warehouse (for example, for peat).
Prices may be uniform throughout the country (wholesale prices on rolled nonferrous metals and machine-building products) or they may apply to a geographic belt (wholesale prices on various petroleum products and cement; retail prices on certain foodstuffs), to a zone (wholesale prices on coal and iron ore; state purchase prices on agricultural products), or to a republic (prices are uniform throughout the Union republics). The category of local prices (which are established by local agencies) includes charges for most of the common consumer services and wholesale and retail prices of toys and various other products.
The economic content, functions, and basic types of prices in the other socialist countries are the same as in the USSR. In some countries, where different methods of fixing prices are used, three categories of prices are distinguished: centrally established firm prices on basic goods and services; fixed-ceiling prices, which are maintained in certain limited areas; and free prices, which are established by mutual agreement.
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IU. V. IAKOVETS