Lesson 23: Communist Economics 3: Commodity Prices

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Synopsis of Week 23

Communist Economics

Part 3

Our entire Western structure is at risk due to a 100-year+ participation in communism. Since we live in a society of easy credit, fiat currency, inordinate interest rates, bailout, handouts, and entitlements, and so forth, there is a hardly a person today with any conception of true free-market principles. The non-capitalist, the poorest among us, persists through a variety of IOU’s, including Federal Reserve notes (dollars), welfare and food stamps, tax breaks and refunds, and etc. The capitalist proliferates via debenture (non-collaterization), long-term invoices, credit schemes, government subsidies, and the like. While true that our lifestyle far exceeds that of any other system (the United States leading the way), we must also accept that much of it has been purchased with non-existent money. These promissory notes (mortgages, student loans, derivative securities, insurances) are now coming due at an alarming rate, and there is not the wherewithal to pay it back. Thereby, we have come to the point of either bankruptcy, slavery, or some type of war. The first option makes the most sense but thereafter subjects us to hard-asset capitalism, that is, very little credit and therefore very little future expansion. Not many are willing to consider this pain. The second option implies that we pay only interest for a very long time, continuing meanwhile to accumulate more debt, which, without a future bankruptcy or war, makes as far as the eye can see every current and future citizen, by way of higher taxes and fewer service, responsible for the excesses. The third option is not really an option, but a distraction. It purportedly eliminates the debt without any financial or economic constraint. In actuality, such debt is merely forestalled until the aggression is complete and the chips are recounted at the end.

Those who have led the charge to this precipice are, of course, the progressives, the Fabian Socialists. Still using Marxist economics, they nevertheless have employed for those 100 years erosive rather than explosive methods. The progressive income tax, for example, is meant to strip wealth from the rich for redistribution to the poor. But even here, the more powerful oligarchies have been able to garner the lion’s share of that thievery, so that the so-called compassion for the poor has been waylaid. Thus, we see that anti-corporatism is in fact a backlash by communists who failed to receive their stolen goods! The Occupy protests, besides being a message that private property does not truly exist (as discussed in previous Synopses), facilitates this “anguish” against those crony capitalists. When Occupy chants “Eat the rich!” they are lamenting their own empty hands. We do not pity the Occupiers because they have no moral high ground. They are merely leeches without blood, that sanguinity having already been pumped to a variety of recipients at the federal intravenous trough.

The corrosiveness of progressivism, having educated our children to hate money but love sin, having corrupted the media and entertainment industries to laud sympathy but eschew hard-nosed practicality, leads to the types of attitudes found on the street today. It is a deliberate agenda to create the feeding frenzy. It is coveting success, breeding hatred for those who have any air of betterment. Naturally, this is not 100% pervasive, but the division has become almost even-sided, and the world is ready to explode in that class warfare which Marx 170 years ago predicted.

We continue this week studying Marxist economics, so essential to understanding today’s economic and financial crises, and the language of the players in it.

Marx’s Wage-Labour and Capital:

By What is the Price of a Commodity Determined?

“By the competition between buyers and sellers, by the relation of the demand to the supply, of the call to the offer. The competition by which the price of a commodity is determined is threefold.”

“The same commodity is offered for sale by various sellers. Whoever sells commodities of the same quality most cheaply, is sure to drive the other sellers from the field and to secure the greatest market for himself. The sellers therefore fight among themselves for the sales, for the market. Each one of them wishes to sell, and to sell as much as possible, and if possible to sell alone, to the exclusion of all other sellers. Each one sells cheaper than the other. Thus there takes place a competition among the sellers which forces down the price of the commodities offered by them.”

An oversimplification, Marx here ignores the fact that successful and profitable niche markets are built around better quality merchandise, unusual and underground merchandise, better customer service (including reliability, speed, and honesty), and more. He assumes that all sellers offer product from the same or similar manufacturer. The variety inherent to capitalism is missing from his paradigm.

“But there is also a competition among the buyers; this upon its side causes the price of the proffered commodities to rise.”

Again, Marx proposes that buyers cannot choose to pay more for those reasons mentioned in the previous paragraph, and therefore his reasoning is too simplistic to even analyze properly.

“Finally, there is competition between the buyers and the sellers: these wish to purchase as cheaply as possible, those to sell as dearly as possible. The result of this competition between buyers and sellers will depend upon the relations between the two above-mentioned camps of competitors – i.e., upon whether the competition in the army of sellers is stronger. Industry leads two great armies into the field against each other, and each of these again is engaged in a battle among its own troops in its own ranks. The army among whose troops there is less fighting, carries off the victory over the opposing host.”

The description is apt where the market is limited, but more so it concerns a true commodity market, such as cotton, following such:

“Let us suppose that there are 100 bales of cotton in the market and at the same time purchasers for 1,000 bales of cotton. In this case, the demand is 10 times greater than the supply. Competition among the buyers, then, will be very strong; each of them tries to get hold of one bale, if possible, of the whole 100 bales. This example is no arbitrary supposition. In the history of commerce we have experienced periods of scarcity of cotton, when some capitalists united together and sought to buy up not 100 bales, but the whole cotton supply of the world. In the given case, then, one buyer seeks to drive the others from the field by offering a relatively higher price for the bales of cotton. The cotton sellers, who perceive the troops of the enemy in the most violent contention among themselves, and who therefore are fully assured of the sale of their whole 100 bales, will beware of pulling one another's hair in order to force down the price of cotton at the very moment in which their opponents race with one another to screw it up high. So, all of a sudden, peace reigns in the army of sellers. They stand opposed to the buyers like one man, fold their arms in philosophic contentment and their claims would find no limit did not the offers of even the most importunate of buyers have a very definite limit.”

Opposition to private property starts immediately, beginning with a straw man argument that sellers who withhold commodities do so as a form of extortion, even against society. That cotton scarcity causes an inflation in the price of clothing has nothing to do with it, for that can happen also by natural causes (weather, infestation). It is the supposition that free trade is evil which furtively begins Marx’s dissertation.

“If, then, the supply of a commodity is less than the demand for it, competition among the sellers is very slight, or there may be none at all among them. In the same proportion in which this competition decreases, the competition among the buyers increases. Result: a more or less considerable rise in the prices of commodities.”

The truth of market dynamics is no mystery. However, Marx fails to consider the circumstances of sellers. What if, for example, one seller is more desperate for money than another? Answer: his price comes down. Competition is thus also determined by human nature and foibles, not only by simple supply and demand.

“It is well known that the opposite case, with the opposite result, happens more frequently. Great excess of supply over demand; desperate competition among the sellers, and a lack of buyers; forced sales of commodities at ridiculously low prices.”

While Marx diffuses his argument concerning rising commodity prices, the reason for falling prices is more accurate, though the circumstances appear similar. The inherent risk in selling is less manageable, being subject to those unforeseen circumstances which can make panic selling. By contrast, buying connotes an ability to wait, and therefore panic buying is much rarer than panic selling.

“But what is a rise, and what a fall of prices? What is a high and what a low price? A grain of sand is high when examined through a microscope, and a tower is low when compared with a mountain. And if the price is determined by the relation of supply and demand, by what is the relation of supply and demand determined?”

“Let us turn to the first worthy citizen we meet. He will not hesitate one moment, but, like Alexander the Great, will cut this metaphysical knot with his multiplication table. He will say to us: "If the production of the commodities which I sell has cost me 100 pounds, and out of the sale of these goods I make 110 pounds – within the year, you understand – that's an honest, sound, reasonable profit. But if in the exchange I receive 120 or 130 pounds, that's a higher profit; and if I should get as much as 200 pounds, that would be an extraordinary, and enormous profit." What is it, then, that serves this citizen as the standard of his profit? The cost of the production of his commodities. If in exchange for these goods he receives a quantity of other goods whose production has cost less, he has lost. If he receives in exchange for his goods a quantity of other goods whose production has cost more, he has gained. And he reckons the falling or rising of the profit according to the degree at which the exchange value of his goods stands, whether above or below his zero – the cost of production.”

The profit of the citizen above is his wage, after all, for the capitalist employer indeed makes his living through labor and production (or service). Profit being thus the same as payday, the concerns of the capitalist citizen are the same as that of the laborer, that is, food, shelter, and the other needs and desires of living. If profit comes in at an expected rate, projected to cover all costs of production plus living expenses (at whichever level one can attain), there is cause to be cheerful. Expectations have been met, and the business concern is a success. If profit exceeds expectations, it is windfall, and may be used to capitalize further business (expansion) or expended in the economy (consumerism).

Marx describes the nature of comparative value. Is there a value beyond the cost of production? Naturally. It is that which the capitalist uses himself to live. Marxism sees this as unnecessary, the capitalist being merely a parasite. The purported solution, central government, does not however solve this problem, for those bureaucrats who would control and run such centralization must themselves be fed and housed. But if the argument is that the elimination of the capitalist creates a more even wage for all, this does not take account for the authority necessary to enforce such laws of sameness, for indeed it must be a law! Marx himself dictates it is human nature which causes marketplaces and capitalism. Therefore, human nature must be subjugated by whatever means necessary for the continued “common good.” Rather then the cruelty of individualist capitalist markets, we shall have one market ruled by the all-seeing eye. It is a choice between levels of authoritarianism and coercion.

“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.”

This applies only in ideal circumstances. Marketplaces react to many stimuli, the secondary market especially being subject to rumors.

“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.”

This is an incorrect vision of commodity prices. It expresses price only in sameness of currency, and therefore of limited market. The international markets have always fluctuated according to different measures, more so in the computer age. Furthermore, the expression of relative price intimates some deficiency in the marketplace which cannot account for momentary shifts. For example, rising silk prices cause more demand which eventually brings down 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.”

Marx errs. Falling commodity prices are not a consequence of market blunders but market accuracy. Those who buy silk first, at the higher price, do so from necessity or desire. Those who buy silk later, at the lower prices, benefit from those who first bought, bringing more product to market. The “overproduction” of which Marx speaks is glut, that is, plenty, indicating a strong economy, not weak business minds. It should be understood that those who overproduce, taking in low prices later, have already profited earlier from the higher prices. It is a natural leveling of incomes. But if the argument is that the laborer loses employment in times of glut, this cannot be rectified without the mass enslavement (full employment) of the citizenry under socialism. Not everyone benefits under capitalism, but nobody benefits under communism.

“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.”

The inefficiency of the market is perceived well. This inefficiency is the mechanic by which Marx makes his eternal grievance, that the laborer under capitalism is always at the whim of commodity price deviation, and therefore wage insecurity. This creates a Victim and an Oppressor. Communism is offered as the Savior.

There are no other economic systems but capitalism and communism. Either money flows by individual choice, both in capitalization of business, and consumerism of spending, or else it flows by mandate. The choice devolves to freedom or authoritarianism. All other systems (“third way,” et al) are merely compromises or syntheses of these two, the result being only some admixture which contains one of more component than another. This, however, is also authoritarianism, for it relies upon an elitism which supposes to create the proper percentages for an apt and correct solution, as if marketplaces may be designed in laboratories. It is central control.

“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.”

This is a cop-out. Cost of production does not determine demand except if it exceeds expectation. Demand, on the other hand, determines production.

“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.”

This is not exactly correct. Price is determined by cumulative cost of production, not to mention the terms of demand.

“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.”

Commodity price fluctuations, being a natural consequence of price itself, consider the marketplace. Marx’s contention, that natural consequence equals “anarchy,” brings to bear the concepts of price fixing and centralization. Rather than permitting the market to stabilize itself, the market will be stabilized. This causes well-known distortions, either in the market or external to it. Fixed prices, for example, retard competitive nature, and therefore the quality of merchandise is dependent upon personal craftsmanship rather than the demands of the consumer. This is the beginning of laziness, poor work ethic, shoddy workmanship, and all the other hallmarks of collectivist society, known from time immemorial.

“We thus see that the price of a commodity is indeed determined by its cost of production, but in such a manner 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.”

Marx builds upon his error to systemic proportions, as if the excesses or deficiencies of one market must have inexorable pull upon all other markets. In actuality, Marx describes centralization, wherein a small error must by bureaucracy and stringency be magnified until entire frameworks are corrupted and fall. By contrast, capitalism has the flexibility and individual creativity necessary to not only self-correct but also protect against external forces. This is of course not foolproof, human nature and foibles being what they are; but confidence in markets rises on projected growth, not on stable prices.

Only authoritarians desire to never see growth, the ups and downs of reality being too much for them.

“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.”

Making the quick transition to his desired principle, Marx finds himself nevertheless surrounded by error. Primarily, labor cannot be quantified in the same manner as other commodities, except to the degree that quality control is possible. Whereas cotton may be sifted visually for a certain standard, labor value is in the eye of the beholder. In one industry, a laborer (whatever the job title) could be in high demand, his skill or talent rare. Or, it could be that labor in general is scarce, employment being high. Or, it could be that certain individuals are worth more than others for their reliability or positive other character traits.

It is worthwhile remembering that business runs with people, who have their own individual natures, needs and desires. This is the true marketplace. Marx’s counter-offer, to limit persons of their individuality, is authoritarianism.