Marxism and prices

The sky-high prices of housing, fuel, medicines and many other necessities raise the question: How are prices really set? The answer has profound implications for billions of people worldwide – and for the class struggle.

The monopoly media often claim that the impersonal “law” of supply and demand is the key factor in determining prices. Supply and demand does affect prices. But “overproduction” is plaguing most industries, including oil. If supply and demand was decisive, the prices of oil and most necessities should be rock-bottom today. More than one-quarter of U.S. industrial capacity is currently idle. An even larger portion is idle worldwide. The reason for the idleness is lack of paying demand (not lack of need).

The media also claims high prices are caused by “excessive wages.” Their real aim is to set the mass of consumers against workers and unions. The Federal Reserve Bank is a champion of that theory. But even the Fed’s studies have shown that wages lag behind prices. In other words, struggles for higher wages follow rising prices, not vice versa.

What “law” did Marx believe was decisive in setting prices? To get to the perhaps surprising answer, consider the price of a bus or subway ride in New York City. A few weeks ago, it jumped 33 percent, from $1.50 to $2.00. This amounts to a significant pay cut for millions of workers and self-employed. In ramming the increase through, NYC transit management cried poverty and losses.

A few months earlier, the same NYC transit management had also cried poverty and demanded considerable givebacks in contract negotiations with the transit workers’ union. “Open your books,” responded the union’s leader, Roger Toussaint. He correctly raised doubts about management’s accounting.

Ignoring the union’s call, the state and city governments threatened to break the union and arrest its leaders. The union settled with the contract containing some significant, but relatively small, pay raises, as well as concessions.

Shortly thereafter, transit management pushed the outrageous fare hike. It justified it on claims of losses, now supposedly exacerbated by the union contract.

But the union’s call to open the books struck a chord. Investigations recently confirmed that management did in fact keep two sets of books, with a false one used against both the union and the millions of transit riders.

A struggle joining the city’s unions with civic and immigrant groups actually has a chance of rolling back the fare hike. Such a struggle in turn can greatly strengthen the transit workers’ and other unions.

Developments around NYC transit hold profound lessons. The union’s call to open the books has the potential of joining labor and millions of transit riders in common struggle. This can result in both lower fares and higher wages. Productivity increases alone more than allow for both.

The decisive factor in ultimately setting the price of a commodity turns out to be struggle. That is also true for wages, the price of labor – the most important “commodity” of all under capitalism.

This is the greatest lesson in the best introductory economics textbook of Marxism, Marx’s “Value, Price and Profit.” In this work, Marx demonstrates that the amount of socially necessary labor embodied in a commodity is what establishes its value.

But Marx also points out that the value of a commodity, and its actual price on the market, can and often do diverge. And the most important factor in setting a commodity’s price is – struggle.

If the capitalists can get away with it, they can and will charge high prices for necessities, such as fuel. The average cost of producing a barrel of oil is only around $2.30. But they currently charge more than ten times that.

If the capitalists can get away with it, they will cut wages. They have recently done just that at several airlines around the world.

But workers, leading other classes, can successfully combat the capitalists. There are many examples of that in history, from struggles to raise wages, even in the Depression years, to struggles to keep down the prices of necessities, including housing. Because production is global, the equations in the struggle are not only local and national, but worldwide.

The author can be reached at pww@pww.org