[OPE-L] Marx on the general rate of profit/rate of interest: a translation error

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Sun Oct 28 2007 - 09:22:46 EDT

Hi Gary, 

A distinction without a difference? I would say not, I think that is just the hubris of economists. What seems like a nuance really describes a crucial difference.

My reason is that if, as Marx explicitly argues, different owners of capital aim to get a similar return to anyone else in the market for the same quantity of capital invested, resulting in a tendency for profit rates on capital invested in similar activities to level out across time through competition, this does not ipso facto represent any movement towards "equilibrium". The empirical proof is an unending sequence of economic fluctuations, recessions, depressions, booms, busts and crashes. Indeed I would argue that the very existence of competition implies that equilibrium never occurs, and is only an idealisation or theoretical justification. 

As I have noted in previous OPE-L posts, economics defines equilibrium in numerous different, and sometimes incompatible ways - it is completely meaningless to talk about equilibrium at all, unless you can specify exactly what is being equilibrated. The notion of equilibrium refers to a balance, that "things are in balance", but since the "things" could be all sorts, all kinds of different balances could be conceived of. Indeed, e.g. in monetary theory, the economists cannot even agree on many foundational concepts, and consequently cannot even agree on how the balances should be correctly defined.

The central claim of equilibrium theorists is that the free operation of markets spontaneously tends towards equilibrium - at the simplest level, an equilibrium of supply and demand (sellers had an amount of goods sufficient for the buyers of those goods, and buyers had sufficient money to buy the goods), or a balance in the accounting ledgers (sufficient income was generated, to meet expenses). 

The "tendency towards equilibrium" is something which cannot be proved however, it is more an axiom or dogma, abstracting from the difference between actual and potential demand or supply. All that you can really prove is:

- that supply and demand will tend to adjust to each other (markets normally will clear, if you allow for sufficient time and space)
- that a degree of constancy in price levels across time is observed
- that income matched expenditure
- that a set of prices is possible, at which all markets will clear. 

Marx obviously does argue that supply and demand will tend to adjust to each other across time, at least in the normal situation, but this presumes no equilibrium, nor necessarily even a movement to equilibrium. It describes only a perpetual adjustment process, in the context of the uneven and anarchic development of the capitalist economy. How that adjustment process occurs, is precisely the subject of the theory of capitalist dynamics. The "law of value" is not an equilibrium principle, it is a theory of economic adjustment. 

My interpretation is really that for Marx, markets do not generate equilibrium, and equilibrium does not inhere in markets anyway, since what motivates market actors is precisely the imbalance between supply and demand. Rather, bourgeois society is in equilibrium, so long as it can reproduce capitalist relations of production on an expanding scale, permitting capital accumulation to occur, i.e. so long as it can secure the social framework (the social stability) within which the "balancing act" can take place, which is compatible with a wide range of market fluctuations. 

I wouldn't deny the utility of equilibrium models in (1) "intelligent gambling with prices", i.e. in probabilistic predictions of price trends, and (2) for price regulation in a socialist economy, but equilibrium theory explains very little about what actually happens in a capitalist economy. Indeed the TSSI supporters claim is that equilibrium theory abstracts precisely from everything that is vital for a real explanation of capitalist markets, and that is what is wrong with it, or, putting it differently, it assumes what needs to be explained.

Markets of course can function fine, even although the theories about how they operate are partly or completely false; all you need is an agreed and enforcable accounting system. This however is not possible in a socialist economy, since if the conscious collective regulation of economic activity is based on false theories, it leads to economic ruination. For the purpose of a socialist economy, you need to understand how economic life really works.


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