Towards a Marxian Economics: Chap. 3/32

In Chapter 3 of Principles, Krugman and Wells introduce supply and demand. The supply and demand model is premised on a competitive market. Krugman and Wells first illustrate the demand curve; they then examine the supply curve; they then put the two together to locate market equilibrium; and lastly they examine what happens when the supply or demand curves shift and when both shift simultaneously.

To repeat, my aim is not to lay out all that Krugman and Wells have to say or all that Marx might say in response. My aim is simply to show that Marx was a fairly unremarkable neoclassical economic thinker. His contribution to economic thinking rests in his showing how economic action in fully elaborated capitalist societies is socially and historically embedded. Economic actors behave as they do in capitalist societies not because it is “in their nature” so to act. There is too much history, 2.4M years, that says otherwise. They behave as they do in capitalist societies because their social relations are mediated by the two-fold form of the commodity. The commodity’s two forms — its abstract value form and its material form of appearance — shape but are in tension with one another. They are not identical. This mutually constitutive relationship within the commodity is what lends to capitalist society its dialectical, dynamic, progressive form. In neoclassical terms, since the value of a commodity is subject to aggregate supply and demand prices, and since producers can increase/decrease the values of commodities in any number of ways without changing the commodity’s surface form of appearance, there is an abstract compulsion within capitalism to produce more with less: there is a compulsion to increase ΔQ/ΔL.

Demand seems like a transhistorical, universal phenomena. It is. What is novel is that demand is subject to a form of value that is specific neither to the substances out of which a good is composed nor to the specific labor by which it is composed. It is subject instead to the differential values of all goods and all labor and demand for both within a comprehensive, integrated market (see 2/32).

Supply and demand are distorted whenever they are constrained by non-market forces. So, for example, an entity that enjoys a monopoly over a good or factor of production does not necessarily undermine the principles of supply and demand since that entity is not free to set a price on that good above the price that consumers are willing and able to pay. Should that entity set a price for the good above “market price” that entity will, by definition, begin to see a decline in demand. If, on the other hand, an entity is able to compel consumers to purchase its good irrespective of price, this would constitute a market distortion. When a cable company is the only company offering Internet in an area, and when Internet is necessary for conducting business, that company introduces a distortion into the market. “A competitive market is one in which there are many buyers and sellers of a good.”

It is important that we notice that markets permit distortions, some of them quite significant, all of the time. So, for example, fire, police, utilities, and public safety constitute huge market distortions tolerated in even the freest of free markets. It could be argued that they give rise to efficiencies elsewhere in other markets for other goods. But this does not mitigate their own distorted character. What is their supply price? We may never know.

Assuming a reasonably competitive market, Krugman and Wells represent the demand schedule and demand curve as follows:

There is nothing specially noteworthy about the demand curve except perhaps to notice that it calibrates a surface form of appearance, coffee beans, to a value that presumably is not stamped on each or all of the beans. Their value is not the same as, but is nevertheless related to, their substance or surface form of appearance. But, as Krugman and Wells point out, their values are also related to differential valuations of other goods and changes in production elsewhere in the market that have nothing to do with this surface form of appearance.

Krugman and Wells then point out the difference between a shift along the curve and a shift of the entire curve:

We can imagine any number of reasons why beans might become more or less expensive. And we can imagine any number of reasons why, at any price, people might choose to purchase more beans. And we can imagine any number of reasons why at the same price, consumers might purchase a higher quantity.

What needs to be noticed is that all of the reasons Krugman and Wells suggest are in line with Marx’s analysis, i.e., they are not uniquely “Marxian.” For example, the value of a substitute good falls while another rises. If the values of two complementary goods rise (or fall). Income of consumers in aggregate may rise. If the value of a good falls as incomes rise, we call that good “inferior.” Tastes change. Expectations change. The market grows.

In all of these cases we have not to do with the substances out of which things are composed, but their differential values relative to one another. That is to say, the values of goods are socially mediated.

But the same also holds true for the supply curve:

The supply price is in no manner related to my desire for beans. It is related to aggregate desire for beans. Aggregate desire for beans, in turn, is differentially correlated to the values of other competing and complementary goods. But, again, we can imagine any number of reasons why, along the curve, producers might be willing to produce more or less at a greater or lower cost.

And these reasons have little to do with the substances out of which beans are composed or the desire consumers express for these goods. Similarly, we can imagine any number of circumstances under which producers would be able to produce more for less, circumstances that leave the substances of beans or the satisfaction consumers derive from beans unchanged.

What needs to be noted is not that need or desire remain constant; or that the substances out of which beans are composed remain constant. What needs to be noted is that desire and need can be mapped infallibly without the least need to consult the desire or need of consumers or producers. In an integrated multivariate map of goods and values, any individual consumer’s or producer’s subjective need or desire is buried beneath the aggregate. The sole aim of the aggregate is to increase the MPL or MPC, the marginal product of labor or the marginal product of capital.

Obviously supply and demand intersect. Optimally, they intersect where all consumers who want a good obtain it and where all producers who produce a good find a consumer willing to produce it at the price they can afford. The illusion of neoclassical economics, which Marx shared, but by which he was not fooled, is that this is always already the constant, ever-present, condition of the market. But this only holds true, of course, in aggregate. Households there are many that want affordable healthcare. But since the value and price of healthcare is generated in aggregate, the equilibrium price of healthcare will be well within the means — a mere drop in the bucket, pocket change — for some families, while it will be completely out of reach of others. Nevertheless, the equilibrium price — the equilibrium supply and demand at a price — of healthcare will be infallibly generated by the market.

If it is not already clear, then by now it must be. Krugman and Wells are illustrating their point with price of coffee beans and quantity of coffee beans. But we could be talking about anything, or nothing. We are talking about value and its surface form of appearance, in this case beans.

Obviously Krugman and Wells have much more to teach us. But they have already taught us about as much as we need to know. In the capitalist social formation, you are powerless. In the capitalist social formation, aggregate supply and aggregate demand are everything. But supply and demand themselves are not for things. Supply and demand are for values, which are constantly shifting both along the curve and with the curve, both of which shift for reasons entirely independent from the substances out of which things are composed.

More importantly, consumer desire shifts irrespective of these substances, irrespective of these surface forms of appearance.

Krugman and Wells do not dispute these points. They illuminate them. Neoclassical economic thinking is not anti-Marxist. It is agnostic. It is simply providing tools for characterizing economic behavior. Marx wished to show how the principles of neoclassical economic thought themselves showed why capitalism was not inherently emancipatory. It is not.

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