It may be best to begin from the general concept of a commodity. In the first place, commodities exchange for other things upon a market. For example, one may sell a door for a certain price, and then buy two windows with this price, in which case one has effectively exchanged one door for two windows, or, what is the same, given up one door to gain two windows. As the market is not a charity, giving up the door is not incidental, nor an act of gifting, but rather a necessary prerequisite if one is to obtain the window upon the market. As such, the door, other than simply being a physical object which is useful by merit of its physical properties, also gains a use as an exchangeable object. This is not, of course, a natural or material property; it need not be elaborated why it is not a natural property of an object that humans exchange it in a certain proportion with others.
Here, the door’s use in exchange was expressed in terms of another commodity, windows. However, the door will also exchange with all other commodities in some proportion. For example, one door may also exchange with three cars, which may exchange with one pencil (it is, you see, a very good pencil); in that case, two windows would also exchange with three cars and one pencil, three cars with two windows, and so on. The result of this is that one pencil, three cars and one door will all exchange for two windows, and as such if one wants two windows, it does not matter which of these one has, because they are equal upon the market. While as physical bodies they may be widely different, as commodities they are essentially equal.
In that case, the way that things appear is essentially that one goes to the market, one sells one’s commodities according to their properties in exchange, and then one buys commodities according to the same. In selling one’s commodities, of course, one must sell them for something, and hence one must bring one’s commodity into relation with another. This is carried out according to the commodity’s inherent properties as a commodity, rather than as a physical object as such. Now, a physical object gains its utility as such from its physical body. However, as ‘commodity-bodies’, one door and three cars in the above example are essentially equal. The commodity as commodity appears as essentially a non-physical body of a certain quantitative magnitude, equal qualitatively with all other commodities (and hence interchangeable with them all in a specific quantity).
One could also look at the matter in this manner: when an object transforms into another object, it does so according to its own properties. If one drops an egg, this will have a different effect to that of dropping an atomic bomb. On the market, the door is transformed for the seller into two windows. It does this too according to its properties, but it is clear that this cannot be a result of its physical properties, but rather it takes on the quality of having objective properties as a commodity rather than simply a physical thing. These properties, however, consist entirely of its ability to relate to other commodities upon the market in certain proportions. As such, the seller must bring the commodity to the market, and then must bring it into relation with other commodities in accordance with its own properties as a commodity, hence serving simply to facilitate the relation.
This is the essence of commodity fetishism, by which essentially commodities come to have lives of their own, and come into relations with each other as commodities. Once one puts commodities on the market, one is then subject to the laws of the marketplace, and to the relations of the commodities between themselves. Only through this may one realize one’s commodity as a commodity. One may hold a commodity as a physical object at one point, but as soon as one puts it upon the market, it comes into relation with other commodities essentially by its own accord and in accordance with its own properties and laws. The object is transmogrified into a commodity-body, which is no longer a specific physical object, but rather simply a relation to other commodities.
Now, let us look at the form taken by production in this wider context. In the first place, let us return to our example, where one door, three cars and one pencil are all equally capable of exchanging for two windows. The result of this is that, insofar as one is producing simply for exchange, one may produce any of these to the same effect. The same applies, of course, to all other commodities on the market as well. Insofar as the products of labour are commodities, they are qualitatively equal on the market; that is, they feature as simply exchangeable goods for the seller, and in this they are undistinguished. All commodities are exchangeable goods, and only quantitatively different in this matter. The result of this is that labour carried out towards the aim of producing commodities for exchange is itself indifferent to the various specific physical objects which are produced by it, and hence to the physical form of labour itself (after all, what you get depends upon what you do. Production of cars requires different actions to the production of pencils). Insofar as the product is a commodity, it does not matter what form it takes, merely what it will bring on the market; the physical commodity is merely an inessential body which houses the commodity as its soul. As such, the same applies to labour insofar as it is production for exchange. Now, if one produces for one’s own consumption, then one must indeed be very precise about what one produces; if one wants two windows, one must produce two windows, and hence perform the actions necessary to produce two windows. Conversely, if one wishes to buy two windows upon the market, then one may produce cars, doors, beds, umbrellas, shoddy romance novels and so on.
The result of this is that we have abstract labour. All forms of labour, that is, are made qualitatively equal, as production of market wealth, or exchangeable goods. Their products are made qualitatively equal, and so are they also. A product of abstract labour is a value (this is a definition). One may view this from another angle: a producer, in producing commodities, does not perform labour simply to give it away gratis (nor does a capitalist pay wages in such a manner). The market, as we said, is not a charity. Rather, they labour for private gain (not necessarily their own). Conversely, they do not produce any physical object for themselves, but rather for the consumption of others. So then how are they to make their labour worthwhile for themselves (or the capitalist make the wages so)? Well, it must be private labour, labour carried out for private gain of the labourer or owner of their labour-power. Labour would not be private if one did not retain the product, but rather simply surrendered it to society. The result of this is precisely that their product cannot appear as simply a physical body, which they do in fact surrender to society; rather, it appears as a commodity-body, as a non-physical entity which is retained and realized by the producer or capitalist. The producer or capitalist do not abandon the product at all upon the market, but rather in fact redeem it, and hence realize their labour as private labour rather than forfeiting it as charitable social labour. Their labour, thus, insofar as it is private labour, does not produce as its product a specific physical object, but rather a non-physical commodity body.
The result of this is that the sale of the commodity comes to represent the realization of the producer’s own labour, and hence the product as a physical body becomes essentially simply a means by which this labour becomes such for the labourer. It is, as a physical body, unimportant; its function is rather to redeem the labour expended, and hence to be replaced with another commodity. It is simply a means by which the labour gains a purpose for the private producer, and in this a commodity. In itself, it is worthless to the producer or capitalist, or at the least forfeited, so that the labour expended on it as a use-value is not presented as private labour, but rather its labour must seek elsewhere for this character. As a result of this, it becomes essentially a vessel of labour, by which the producer’s labour (or hired labour) is deposited upon the market in some form or other (it does not matter, so long as it is labour as such, abstract labour), and as such conveyed into the territory where it may be actually realized through exchange. If it had not been produced, the producer or capitalist could not actually purchase anything with nonexistent commodities (market, charity, etc.); conversely, only through production for the market may this production be realized, and hence the commodity as a physical object serves only as a necessary means for the labour’s realization. This character of a vessel of labour is how value here appears, and a commodity as a commodity is a vessel of labour.
An object has a ‘natural’ physical form, namely its own physical body. This is natural insofar as it is transhistorical, and does not depend upon any form of society. However, value is not realized through this, as if the object were to be consumed by itself rather than sold, it would not be a commodity as such. On the other hand, value, if it is to be realized, must take on a physical form, else it is simply an empty conjecture and has no real, material existence. This is what we may call a commodity’s value-form. Now, as a value, it finds substance only through being converted into the physical body, the ‘natural form’ of another commodity. As such, its physical value-form is that of another commodity, for which it exchanges; this is what Marx calls its ‘exchange-value’. This is the basis of Marx’s discussion of the various forms of value in his explanation of money, which I think should be fairly clear.
In any case, once all of this has been seen, we may now finally examine the relevance of the laws of the market to which the seller bravely exposes his wares. Now, we have seen that abstract labour, while qualitatively equal in principle, may differ quantitatively. This is the basis of the law of supply and demand. In the first place, we may as well briefly examine the category of demand. On the market, demand is effective demand, that is, one must have something to exchange if one wishes to exchange for something. This is not the same as psychological demand, and indeed on the market most starving people have no demand for food. Effective demand is not any sort of psychological ‘wanting’, but is expressed in terms of commodities. One’s supply is, then, one’s demand to some extent (this does not hold absolutely due to the separation of sale and purchase which Marx notes in the chapter on money, as well as the chapter on crises in ‘Theories of Surplus-Value’); that is, one’s commodity expresses not only one’s supply to others, but also one’s demand for oneself. This is the same thing as saying that one does not produce for the market simply to give stuff to others, but also as private labour, and hence as an expression of demand for other people’s stuff.
Now, a product has a value, but it also has a concrete price, for which it is sold. This is determined, of course, by market forces; putting in a certain amount of labour needn’t mean that you get the same amount back. That would imply that the commodity producer had complete control over the price of their commodities, whereas, as we have seen, the commodities inhabit a world of their own, uninhibited by any such arbitrary stipulations. As Engels comments, “continual deviations of the prices of commodities from their values are the necessary condition in and through which the value of the commodities as such can come into existence.” (that is, only insofar as these are possible can values exist) Of course, if one product is exchanged for another product which represents less labour (has a smaller quantitative magnitude of value), then that other product is exchanged for one with more labour, and hence the discrepancies necessarily cancel each other out on the total social scale, so that total price, expressed in labour-time, is equal to total value expressed in labour-time; every product, in order to act as a value, must also be sold, and hence bought by somebody, therefore serving for the buyer not as a value but as the price earned for their own commodity’s sale, which conversely featured as a value for them and so on.
Now, the price-commodity, the commodity for which the commodity is exchanged away, is itself a value of a specific magnitude. As such, the commodity is itself ‘valued’ in terms of this commodity, which may have a value greater or lesser than its own. What this means is simply that more or less labour was expended upon buying it than making it, or, what is the same, that the effective demand in labour terms is greater or lesser than the supply in labour terms. However, undervaluation implies overvaluation elsewhere, which can only mean that more labour was performed in order to purchase the product than upon the product itself. As producers perform only abstract labour, they will therefore tend to migrate to production of overvalued commodities, where the same amount of labour-time (or labourers hired) will grant them a greater price. This tendency would only rest if prices were equal to values, and hence there were no overvaluation, and hence no supply-demand discrepancies. This is the context in which it is said that price equals value when supply and demand are equal.
In actual fact, however, we must take into account not only living labour (represented by variable capital, wages), but also dead labour (spent labour already incarnated in a product; labour carried out in producing means of production, in this context), as if prices were equal to values here, a capitalist who hired more dead labour and less living labour would have to gain less profit than one who hired less dead and more living labour (given equal wages for both capitalists, so that an equal amount of labour-time will be necessary in both cases to reproduce these wages for each labourer, and the rest spent on profit), even if their products represented an equal amount of the total labour of society (as, after all, the production of means of production of car-production in fact forms a part of the production process of the car). The result is, ultimately, that the former would tend towards increasing profits, and the latter towards lower profits than according to prices = values (although they would still do so on a social level, of course.) Whether or not prices do equal values is irrelevant to the theory of value; they may or they may not. The theory of value is not an empirical description of price-levels, it is a description of what price is.
However, that aside, we end up with the result that, “Only through the undervaluation or overvaluation of products is it forcibly brought home to the individual commodity producers what society requires or does not require and in what amounts.” This in fact explains the nature of the market forces which appear as essentially independent and sovereign to commodity sellers. The operation of supply and demand upon price is simply an expression of the amount of the total social labour expended upon the product in question. In other words, in the market, the seemingly accidental and chaotic fluctuations in price are simply the means by which producers interact with each other. Capitalist production is not performed according to conscious social planning, but rather by private individuals, which, as we saw, was the basis of value. These private individuals may come into relation to each other only through their commodities coming into relation, and their commodities themselves serve as products of abstract labour. As such, the activity of the rest of society is materialized for the individual commodity seller as simply alterations in the relations of commodities.
In that case, the fact that commodities come to follow autonomous laws, which the sellers must simply respect and follow, is merely a result of the fact that the rest of society becomes something autonomous from them, and they may interact only through the mediation of commodity relations, so that likewise the activity and needs of the rest of society are only expressed thus. Marx points out that in every society, if it is to survive at all, labour must be not only performed, but divided between various forms in specific ways (if one spends all of one’s time creating swords, then one may end up starving). In capitalist society, this takes the form of autonomous laws impinging upon the private producers; as production is private, so society may only be asserted in the form of a law imposed upon this private production, and these laws may only take place through the mediation between society and the private producer, social labour and private labour, namely the commodities themselves qua values. The fact that the product of the producers comes to be autonomous of them, and form relations independent of them, simply expresses the fact that society is alien to them (not in the sense that such statements are used by various annoying blokes whining and moralising about the internet, how people are engaging in too little social interaction, and such. We are not moralising here, and one may engage in as much social interaction as one wants while still being alienated), as are their relations to society. This is simply the early formulation of Marx, namely that alienation of man from his product necessarily involves the alienation of man from man.