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Concept
Prices of production
Summary
Prices of production (or "production prices"; in German Produktionspreise) is a concept in Karl Marx's critique of political economy, defined as "cost-price + average profit". A production price can be thought of as a type of supply price for products; it refers to the price levels at which newly produced goods and services would have to be sold by the producers, in order to reach a normal, average profit rate on the capital invested to produce the products (not the same as the profit on the turnover).
The importance of these price levels is, that a lot of other prices are based on them, or derived from them: in Marx's theory, they determine the cost structure of capitalist production. The market prices of products normally oscillate around their production prices, while production prices themselves oscillate around product-values (the average current replacement cost in labour-time required to make each type of product).
This understanding already existed in classical political economy (the idea of market prices which gravitate to "natural prices" or "natural price levels") but, according to Marx, the political economists could not really explain adequately how production prices were formed, or how they could regulate the trade in commodities. In addition, the political economists could not theoretically reconcile their labour theory of value with value/price deviations, unequal profit/wage ratios and unequal capital compositions. Consequently, the labour theory of value of the political economists pre-Marx was more in the nature of a metaphysical belief, than a scientific proposition.
The concept of production prices is introduced and elaborated systematically in chapter 9 et seq. of the third volume of Das Kapital, although it is already referred to in earlier texts by Marx. The first significant discussion occurs in the Grundrisse (1857-1858), followed by numerous references in Theories of Surplus Value (1862-1863), letters by Marx to Engels of 2 August 1862 and 30 April 1868 outlining his theory, the Resultate manuscript (1863-1866), Capital, Volume I (1867) and Capital, Volume II (1865-1877).
Official source
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