Price of Production

The transmuted form of the value of a commodity under the capitalist system. It is equal to the cost-price of the commodity plus the average profit.

The formation of the price of production of a commodity presupposes the equalization of the rate of profit. Commodities are originally bought and sold according to the value (cost-price + surplus-value), and after the surplus-value is transformed into average profit, they are no longer bought and sold according to value, but according to the price of production. However, the formation of the average rate of profit and the transformation of value into the price of production does not deny the labor theory of value and the law of value.

In terms of individual branches, the price of production does not usually coincide with the value in quantitative terms. In branches where the organic composition of capital is higher than the average composition of aggregate social capital, the average profit is greater than surplus-value, and thus the price of production is higher than the value; conversely, the price of production is lower than the value; they are equal only in those branches where the organic composition of capital is the same as the average composition of aggregate social capital. But in the society as a whole, the sum of surplus-values is equal to the sum of average profits, and thus the sum of the prices of production is equal to the sum of values. Under the condition that value is transformed into the price of production, the law of value comes into play in the form of the law of the price of production. The market price of a commodity is no longer determined on the basis of value, but on the basis of the price of production, and oscillates up and down around the center of the price of production in response to changes in the relation of market demand and supply. As for individual branches, the price of production seems to deviate from value, but as for society as a whole, such deviations cancel each other out. The price of production is in the last instance based on value. Individual branches of production cause a change in the price of production, either because of a change in the average rate of profit or because of a change in the value of the commodities themselves.

As value is transformed into the price of production, it is usually the case that the profits realized in each industry deviate from the surplus-value actually produced. In this way, the real nature and origin of profit are completely concealed.

Since the price of production is inconsistent with value and commodities are sold at the price of production rather than their value, some bourgeois vulgar economists used this to create the fallacy that Marx’s doctrine of average profit and price of production “contradict” the labor theory of value. Quite the opposite is true; Marx’s doctrine of the price of production is based on the labor theory of value. The emergence of the price of production not only does not deny the law of value but is based on the law of value. The law of value governs the movement of prices, and a decrease or increase in the amount of labor-time required for production leads to a lower or higher price of production. As Lenin said, Marx solved the problem of how the average rate of profit is formed on the basis of the law of value. “In this way, the well-known and indisputable fact of the divergence between prices and values and of the equalization of profits is fully explained by Marx on the basis of law of value, since the sum total of values of all commodities coincides with the sum total of prices.”