The People’s Republic: The Forces At Work

CONTINUED FROM LAST WEEK

In any case, experience has shown that it is impossible under the present method of production to equate supply to demand with any anticipated degree of precision.

DISTRIBUTION

As we have noticed, there are a number of unrequited elements in the process of exchange which must be recompensed in order to achieve equity and perfect quid pro quo equilibrium in exchange. Otherwise the inequity and injustice which, as we have noted, exist in the process of exchange will remain.

Those who take part in production – the agents of production – must be rewarded for their respective labour and contribution to the total output. In other words, the persons who provide land, labour, capital, and entrepreneurship must be separately and – -adequately remunerated. To this end, rent must be paid to the land-owner, wages to the labourer, interest to the supplier of capital, and profit to the entrepreneur. But the rent, wage, interest and profit paid to the land-owner, labourer, capitalist, and entrepreneur respectively must be regarded by each as not only adequate but also equitable and just. That is to say each of these agents must be satisfied that he has been equitably and justly remunerated per se, as well as vis-a-vis the other factors. Unless this is the case, it will be difficult to maintain mutual satisfaction among the factors as well as social equilibrium and peace within the society or societies from which these factors derive.

The aim of distribution, therefore, is to achieve adequacy of reward or remuneration for each of the factors which enter into a particular production as well as equity and peace and mutual satisfaction amongst the said factors concerning the share-out of such reward or remuneration. To achieve social equilibrium in the solution of this problem, the quantity to be distributed must be large and variegated, while the quality must be of the desired order.

Granting this, the next thing to do is to fashion a yardstick by means of which the contribution of each factor can be measured and hence its reward accurately determined. The yardstick which economic forces in their blind and impersonal operations have established beyond dispute is marginal productivity. It is the marginal productivity of each factor of production which determines its value – that is which determines its individual share of total reward. In its turn, however, marginal productivity is determined by the law of value, that is by the interaction of supply and demand. Let us see how this interaction takes place.

In the satisfaction of his wants, each consumer pursues his own self-interest. He does not care a hoot about the self-interest of other consumers. In the pursuit of this self-interest-he seeks to buy in the cheapest possible market. [fyam is cheaper a mile away than it is 50 yards away from his house, account having been taken of transport differential, he will travel a mile from his house to buy yam. He has his scale of preferences for each of the commodities that he wants. One consumer may want six pieces of yam, 11 b weight of maize, and six yards of textile; whilst another wants 4 pieces of yam, 11 b. weight of maize, arid 10 yards of textile. Furthermore, the more he has of a thing the less he wants of it. That is to say, to the consumer who wants 6 pieces of yam, the value of the first piece of yam to him may be as high as 6/-, that of the second 5/9d., that of the third 5/-, fourth 4/-, fifth 2/9d., and sixth 1/-. So that the value of the sixth yam to him is only 1/-, as compared with the value of the first which is 6/-. If there is only 1 yam in the market he will pay 6/-, but if there are 6, he will only pay 1/- for each of them.

On the other hand, to the consumer who wants only 4 pieces of yam, the value of the first to him may be 5/9d. and that of the fourth 1/-. In economic parlance, the marginal utility of 1 yam and 6 yams to the first consumer is 6/- and 1/- respectively, and to the second consumer the marginal utility of the first and the fourth yam is 5/9d. and 1/-. It is this marginal utility that determines what each of these two consumers of our illustration actually pays for yam. But we have already noted that the marginal utility of yam to each of them depends on the quantity of yams in the market. It is clear from this brief analysis that, under the law of value, scarcity  is richly rewarded, whilst plentifulness is heavily penalized.

The producer also pursues his own self-interest. He wants to get the best possible price for his yam or textile. In any case, he must always make sure that he covers more than his cost of production, if he is to stay for any length” of time at all in business, without incurring excessive losses.

Furthermore, some farmers are able to produce yams at less cost than others. Besides, there are a number of factors which determine or influence costs of production. The size of the farm must not be too small or too large – that is, not below or above the optimum. The land must be best suited for the cultivation of yam, and.the species of yam must be high yielding, and so on and so forth.               .

From all these, it is clear that the average cost of 6 yams to some farmers may vary between 1/- and 9d. and to others the average cost may be as much as 1/1d. Only the former group of farmers can come into the market and stay there to compete among themselves, with reasonable hope of making profits or at least covering costs.

Furthermore, as we have seen, if the farmers bring 10 yams into the market they only get 1/- a piece; but if they bring only four yams, about 5/-; and. if only two yams, they get as much as 6/-. However, they never know the scales of the preferences of the consumers in advance. They have to ascertain these by a process of trial and error, from day to day, from month to month, and from year to year.

It is easy to realize that the number of consumers is unascertainable, and that their individual preferences are unrelated and unco-ordinated. But these unco-ordinated preferences do make their cumulative impact on the market, when they are translated by the various consumers into effective demand.

The producers too are many in number, and their activities also are unrelated and unco-ordinated. In their case, they come into the market with what they have got.

CONTINUES NEXT WEEK

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