this post was submitted on 21 Oct 2025
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Essentially, supply and demand meet each other, but that doesn't explain prices alone, why a chair sells for 100 USD while a car sells for 50,000 USD. What matters is the difference in resources needed to devote to create one, ie labor time and raw materials, as well as the extent to which machinery, ancillary materials, semi-finished goods, etc are used up.
For a car, you use up far more of these than for a chair. A sudden influx of cars, say, by discovering a hidden trove, or a sudden decrease, ie a warehouse exploded, will have temporary distortions on price. However, this central, "natural price" is what supply and demand press towards over time.
Further, since raw materials exist naturally, the difference in their value is driven by the labor required to extract them, refine them, etc. Each step in the process makes it more valuable, unless supply is kept artificially low or high. Further still, these are averages. If someone spends a lot of time making an equivalent chair, they aren't going to be able to take it to market for a higher price.
Right, but I’m having some trouble connecting that summation of supply and demand to your implied disconnect between productivity increases and supply. Were you specifically talking about scenarios where there is no space for output to grow, only input to shrink?
For instance, four people extract 1 ton of raw material in a day. A new machine means it only takes two people to extract that same 1 ton, but the size of the material patch stays the same so you can still only operate the one machine rather than using all four people to operate two machines. Thus increasing productivity without increasing “supply?”
Kinda, not quite. Supply and demand naturally cover each other in societies at certain levels. Price is primarily determined by the cumulative labor that goes into it, including the previous labor for machinery, raw materials, etc. If the composition of said commodity raised in constant capital (machinery, raw materials, etc) while lowering by ratio in variable capital (labor), price generally lowers. The supply can increase or decrease, what impacted the value was the change in total labor time.
In other words, supply and demand are best seen as averages that push and pull price above and below value. Productivity changes that value, which sets new supply and demand.