[OPE-L:7412] [OPE-L:944] Re: Marx's concept of prices of production

John R. Ernst (ernst@PIPELINE.COM)
Tue, 04 May 1999 14:19:08

Re: OPE-L 942

In OPE-l 939, concerning Marx's transformation procedure,
I had written:

> John's Comments:
> On Point 1. Here we have to question Marx, do we not? If
> capitalists are maximizing the RRI and not the rate of profit,
> why there would be any tendency for the rates of profit to
> equalize is unclear. Again, Marx like the political
> economists of the 19th Century was clearly mistaken.
Ajit wrote in OPE-L 942

John, the rate of profit for the whole system is embedded in the
system itself. It is a non-price phenomenon. It has nothing to do
with an individual capitalist's desire to maximize or minimize
his/her rate of return etc. As long as the technology of
production, real wages and total output are given, there is no
where else for the rate of profit to go then the Sraffian rate of
profit. The point is that the physical surplus is already embedded
in the system, and the rate of profit is nothing but the ratio of
surplus to means of production (including wages, if you like) used
up in production. If the surplus is not distributed to the
capitalists on the basis of equal return on investment, then some
argument must be produced why its distribution should not be equal.
However, no amount of unequal distribution of the surplus can
change the rate of profit for the whole system. I think one needs
to be clear that the question a capitalist may be interested in is
entirely different from the question a political economist may be
interested in. Imposition the problems and concerns of individual
capitalists on to the theory of political economy, in my opinion,
creates a lot of confusion.


Given your perspective, I would have put things differently. Let me
give it a try.

As Fred pointed out to me a while ago, fixed capital is present as
Marx proceeds with the transformation of values to prices of production
in Ch. 9 of V3. Given that, would you not use Sraffa's notion of
joint production to compute the rate of profit? This rate of profit
is, for me, the RRI and not the simple rate of profit Marx and Fred
compute. That said, we can confront the question of how the relative
sizes of the various sectors effect the RRI.

Now we travel to a region you don't like -- absolute rent. Given that
we use all production processes to determine the rate of profit and
that some of those sectors earn an absolute rent, we quickly see that
its inclusion means that the rate of profit or RRI computed with the
inclusion of this type of rent makes the Sraffian procedure of determining
the rate of profit impossible. That is, Sraffa is forced to assume that
all sectors earn or can earn equal rates of return as he finds the overall
rate of return. Given the existence of private property and the
consequent concept of absolute rent, unequal rates of return prevail.

Had I been responding to Fred's idea that prices of production represent
some sort of long run equilibrium prices, I would also say that absolute
rent means that the prices of production in Ch. 9 are not equilibrium
prices. Why? Simply, by including those sectors that earn this type
of rent we have no idea how much of the surplus profit they produce
is represented in the prices of the competitive sectors. That is, since
the amount of absolute rent is, at most, the difference between the value
and price of production of the commodity produced, we have no information
to determine whether or not that rent is at a maximum. Clearly, to
transform Marx's prices of production into equilibrium prices as I think
Fred attempts, we would need to know something about the demand for
commodities that earn absolute rent.

I had written:

>But let's deal with another issue here and now. What is
the "long-run"? Is there technical change in this "long-
run"? If not, why not? Given the use of the term
"long-run" -- in modern economics its unclear what the term
means in the Marxian context.

Ajit wrote:

Sraffians usually use the term "long term" rather than "long run"
to distinguish their concept from Marshallian "long run". "long
term" is long enough time to allow for capital movements across
industries in response to differential rates of profit. But these
"long term" prices can be determined independently of the
adjustment process, that is why the properties of the system can be
analyzed independently of the process that brings the system to

Comment: 2 questions

1. As capital shifts from one sector to another, do techniques change?

2. Are the rate of profit and "long term" prices the same as those
seen when the system reaches equilibrium?

I had written:

>3. I'm as confused by "long-run 'center of gravity' prices" as I
am by "long-run average prices." Are these average prices
computed using prices of production in various periods? As
we compute this average is technical change taking place?
Ajit wrote:

I think "average" is a poor choice of word in this context (I
myself have used 'average profit' on one occasion in print I think,
and I regret that) Prices of production is not some kind of
statistical average derived from a bunch of observed 'market
prices'. The gravitational point is determined independently of
'market prices', as in the case of pendulum--its gravitational
point is determined independently of the position of the pendulum at any
given time.

Comment: But given your perspective would not the price of production
be the expected value of the market price?