[OPE-L:7139] [OPE-L:641] Re: Re: equilibrium and non-equilibrium

Fred B. Moseley (fmoseley@mtholyoke.edu)
Tue, 9 Mar 1999 11:25:33 -0500 (EST)

Thanks to Alan for his response to my earlier post.

I asked Alan in my last post:

in what precise sense is Marx's price of production NOT an
equilibrium concept and Ricardo's natural price IS an equilibrium
concept? What condition of equilibrium is satisfied by Ricardo's
natural price and not satisfied by Marx's price of production?

Alan has replied (605) that Ricardo's definition of equilibrium includes
the condition that EQUILIBRIUM ACTUALLY HAPPENS (or approximately
happens) in every period.

> Now, if one was literally to take the Ricardian approach I think one would say
> that equal-profit-rate-prices-of-production (EPRP) are the prices at which
> goods actually exchange. One would take profit rate equalisation as the
> definition of price. Indeed this is Ricardo's literal argument; treating
> interest as the price of capital he states (pace Gil) that capital cannot have
> two prices.

Alan argues that Ricardo assumed that S=D in every period and therefore
his concept of natural price is an equilibrium concept in this sense. On
the other hand, Marx did not assume that S=D in every period, and hence
his concept of price of production is not an equilibrium concept in this

But Alan is wrong to attribute this "actual fact" definition of
equilibrium to Ricardo. Ricardo (and Smith before him) clearly did not
assume that equilibrium actually happens (or approximately happens) in
every period. They were quite well aware of and emphasized the
difference between market prices and natural prices. They did not assume
that natural prices actually occurred (or approximately occurred) in
every period. For them, natural prices were LONG-RUN CENTER-OF-GRAVITY
PRICES around which actual market prices fluctuate, just like Marx's
prices of production (more on this similarity below). If natural price
is a long-run center-of-gravity price, then it cannot be an actual
equilibrium price in every period. Conversely, if natural price is an
actual equilibrium price in every period, then it cannot be a long-run
center-of-gravity price. Smith and Ricardo clearly emphasized that their
concept of natural price was a long-run center-of-gravity price, around
which actual market prices fluctuate from period to period. Alan's
Ricardo is a straw man.

We can also see that Alan's characterization of Marx's prices of
production as NON-EQUILIBRIUM prices follows only if Alan's "ACTUAL FACT"
definition of equilibrium is accepted. If, on the other hand,
equilibrium is defined as a LONG-RUN TENDENCY, not as an actual fact in
every period, then Marx's prices of production are indeed long-run
EQUILIBRIUM prices in this long-run sense.

2. Alan says later in his post:

> I think that is one of the reasons that Marx himself doesn't use the word
> 'natural price'; that's why he doesn't say "I'm doing natural prices, better
> than Ricardo"; he says "I'm doing something else, superior to Ricardo". Of
> course in so doing he is entitled to say, and does say, "this is what Ricardo
> was actually trying to get at, and couldn't", just as Einstein is entitled to
> say "The curvature of space-time is what has hitherto been called gravity."

To the contrary, Marx stated explicitly several times that his concept of
price of production is THE SAME as Smith's and Ricardo's concept of
natural price. I will include these passages at the end of this post
(they are also included in my Boston paper). In addition, it is very
clear from Marx's long discussion of Smith's and Ricardo's concept of
natural price in Chapter 10 of Theories of Surplus-Value that these two
concepts are essentially THE SAME. Throughout this chapter, Marx
switched back and forth between his critical discussion of Smith and
Ricardo and the development of his own concept cost-price (his early term
for price of production), using the concepts of cost-price and natural
price interchangeably and synonymously. In this long chapter, Marx
nowhere stated or even hinted that his concept of cost-price meant
something different from Smith's and Ricardo's concept of natural price.

Marx's criticism of Smith and Ricardo in this chapter was NOT that they
assumed that equilibrium of S and D and equality of profit rates actually
happens in every period. Nowhere did Marx say anything like this.
Instead, Marx's main criticism of Ricardo and Smith in this chapter is
that they did not EXPLAIN how the natural prices of commodities are
DETERMINED. Marx was of course able to explain how these long-run
center-of-gravity equilibrium prices are determined. THIS was Marx's key
theoretical advance over Ricardo, NOT a shift from actual equilibrium in
every period to equilibrium as a long-run tendency. Both Ricardo and
Marx defined equilibrium in the same way, as a long-run tendency, not as
an actual fact in every period.

There is no great divide between Marx and Ricardo on this issue.

3. The rest of Alan's post has to do with the various problems involved
in a concept of long-run equilibrium price (never happens, cannot explain
disequilibrium, don't need to explain the determination of prices, etc.).
The inference seems to be that, since there are these problems with the
concept of long-run equilibrium price, such a long-run equilibrium price
could not have been the main focus of Marx's theory. Marx's theory is
instead, Alan argues, primarily about actual market prices.

But this inference is incorrect. Marx was capable of making mistakes or
at least of not fully realizing the implications of some of his
assumption (I am not saying that Marx made a mistake here, but only that
this has to be considered a possibility; the fact that there are problems
with a concept does not imply that Marx didn't utilize the concept). If
one wants to know whether Marx's theory (e.g. in Volume 3 of Capital)
is primarily about prices of production (as long-run equilibrium prices)
or market prices, then one should examine Volume 3.

Such a close examination of Volume 3 reveals unambiguously that it is
primarily about prices of production (as long-run equilibrium prices,
with equal rates of profit), and not about actual market prices. Part 2
is of course about the determination of prices of production. Part 4
revises the theory of prices of production presented in Part 2 to take
into account commercial capital and commercial profit. Part 5 explains
the division of the general rate of profit into profit of enterprise and
interest. Part 6 explains how landlords appropriate another part of the
total surplus-value as rent, with the explicitly stated assumption
throughout that agricultural commodities (like all commodities) exchange
at their prices of production (e.g. p. 779). Part 7 explains how the
different forms of surplus-value explained in Volume 3 - industrial
profit, merchant profit, interest, and rent - appear to capitalists (and
hence to vulgar economists) as independent sources of value, rather than
due to the surplus labor of workers. For this explanation, the
distinction between market prices from prices of production is
inessential and hence ignored. Indeed, for this explanation, the
distinction between values and prices of production is not even
necessary, so that Marx assumed in Part 7 that commodities exchange at
their values (see p. 971).

Market prices are hardly ever mentioned in these remaining parts of
Volume 3, and when they are mentioned, they are dismissed as irrelevant
to the analysis at hand. The main purpose of Volume 3 is to explain the
distribution of surplus-value, i.e. to explain how the different
particular forms of surplus-value - industrial profit, commercial profit,
interest, and rent - are determined as parts of the (already determined)
total surplus-value produced by the surplus labor of workers. The
purpose is not to explain actual market prices. Volume 3 remains at a
higher level of abstraction than market prices. The deviations of market
prices from prices of production are irrelevant to Marx's more abstract
purpose of explaining the distribution of surplus-value, and hence are
ignored. To say that market prices are more important than prices of
production in Volume 3 seems to me to be a complete misreading of the
volume. Everything Marx said in Vol. 3 about prices of production and
market prices contradicts this interpretation, and supports the opposite

There may indeed be problems with a concept of long-run equilibrium price
- this is certainly an important question that should be pursued. But
there can be no doubt that Volume 3 is primarily about such long-run
equilibrium prices, just like Smith's and Ricardo's theory before Marx.

I look forward to further discussion of these issues in Boston.



The natural price of the commodity is not the market-price but the
average market-price over a long period, or the central point towards
which the market-price gravitates. (Theories of Surplus-Value, Vol. 2,
p. 319) (1862)

Price regulated in this way = the expenses of capital + the average profit
(for instance 10 percent) is what Smith called the natural price,
cost-price, etc. (Selected Correspondence, p. 122; 1862 letter to Engels)

The price of production includes the average profit. And what we call
price of production is in fact the same thing that Adam Smith calls
"natural price", Ricardo "price of production" or "cost or production",
and the Physiocrats "prix necessaire", though none of these people
explained the difference between price of production and value.
(Capital, Vol. 3, p. 300) (1864)

Supply and demand regulate nothing but the temporary fluctuations of
market prices. They will explain to you why the market price of a
commodity rises above or sinks below its value, but they can never
account for that value itself... At the moment when supply and demand
equilibrate each other, and therefore cease to act, the market price of a
commodity coincides with its real value, with the standard price round
which its market prices oscillate.

So far as it is but the monetary expression of value, price has been
called natural price by Adam Smith and "prix necessaire" by the French
physiocrats. What then is the relation between value and market prices,
or between natural prices and market prices? ... (T)he oscillations of
market prices, rising now over, sinking now under the value or natural
price, depend upon the fluctuations of supply and demand. The deviations
of market prices from values are continual, but as Adam Smith says:
The natural price ... is the central price to which the prices
of all commodities are continually gravitating...
(Wages, Price and Profit, p. 207-08) (1866)