[Thought] Price and Labor

In our everyday lives, we want many different goods, which we need as necessities, for satisfaction, or even just for showing off.

We may want many things, but we have only limited resources – money – to exchange with goods. It is the heart of modern Economics – scarcity and decision making-.

The price of goods has always been the main factor in decision-making. What if many people are vying for a product that has a limited supply? The answer comes from common sense – supply and demand. But have you ever thought about why we think like this automatically?

Let’s start with the explanation of the market from mainstream Economics.

In microeconomics, supply and demand is an economic model of price determination in a market. It postulates that, holding all else equal, in a competitive market, the unit price for a particular good, or other traded item such as labor or liquid financial assets, will vary until it settles at a point where the quantity demanded (at the current price) will equal the quantity supplied (at the current price), resulting in an economic equilibrium for price and quantity transacted. It forms the theoretical basis of modern economics.

https://en.wikipedia.org/wiki/Supply_and_demand

The market determines the price through demand and supply. In this model, the price is just the agreement between human needs and the supply power. Some luxury goods can be really expensive just because there are some people out there who are willing to buy them.

But there are other ways to think about the price. In human societies, any goods for sale are the result of human labor. Yes, we need raw materials and tools (or machines and factories). But any additional value can be added through labor. Even law materials and machines are the values added by human labor. In this view, the price you need to pay for any product is the accumulation of human labor in production.

If the price is the sum of the values of human labor, where does the profit come from? The profit can be generated only by paying the partial value of the labor to the laborers. For example, a worker works 8 hours a day. Her paycheck is the value of her 4 hours of work, and the remaining goes to the profit. The ratio is called productivity.

Surplus labour means labour performed in excess of the labour necessary to produce the means of livelihood of the worker (“necessary labour”). The “surplus” in this context means the additional labour a worker has to do in their job, beyond earning their keep.

https://en.wikipedia.org/wiki/Surplus_labour

We live in capitalism, and the explanation of mainstream Economics really helps us to understand how our economy works. But it does not mean there is only one explanation, which is always correct. The assumed competitive market does not exist in its pure form. In a biased market, the price is skewed unreasonably, and the buyers or suppliers lose while only a small number of capitalists will enjoy the enormous gains.

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