Marx’s Theory of Price in the Simple Circulation of Commodities

Marx’s purpose in Capital is to study the dynamics of the capitalist system; the laws of motion that govern, and tendencies that characterise, it. To understand these dynamics he considers it necessary to understand the movement of capital as a process of value expansion or wealth augmentation. At the very heart of this process is the circulation of commodities (including services) and formation of prices. Marx takes the circulation of commodities to be the exchange of commodities for money and money for other commodities. He depicts this as C-M-C’, where C-C’ represents both a change in the form of the commodity and, as is implied by the commodity as capital, an increase in value. He sees the circulation of commodities as facilitated by the circulation of money as capital. He depicts the latter as M-C-M’, where M-M’ represents an increase in the value of money. Marx argues, that to understand the fundamental nature of this circulation of commodities and accompanying formation of prices in capitalism, one must first abstract from capital; from commodities and money as capital.1 One must begin with the simple circulation of commodities (C-M-C’) and money (M-C-M), where C-C’ represents only a change in form of the commodity and M-M signifies that there is no increase in the money worth of the commodity in the process of circulation.