As early as 1847, Marx wrote that prices were determined on a microeconomic scale by the everyday interaction of supply and demand. Böhm von Bawerk criticized Marx’s analysis on the grounds that products cannot exchange in proportion to their values if there is such a thing as a general rate of profit. He was right, but this was exactly the point that Marx was making. The brilliance of Marx’s model consisted in showing how an advanced system based on production for exchange would inevitably diverge from the premises of simple commodity production. “The transformation of values into prices of production serves to obscure the basis for determining value itself,” as he wrote. Marx did not predict that individual prices would express labor values, but that individual prices would diverge further and further from labor values as capitalism developed. The purpose of labor theory is not to allow us to predict the prices of individual commodities, but to understand how a system of value production inevitably collapses.1
- Reynolds, Ben. The Coming Revolution: Capitalism in the 21st Century (Kindle Locations 1510-1520). John Hunt Publishing. Kindle Edition.