[OPE-L:7515] [OPE-L:1052] Re: Marx's Concept of Prices of Production

John Ernst (ernst@PIPELINE.COM)
Tue, 06 Jul 1999 13:27:03

RE: OPE-L 1049
Welcome back,

Fred, let me begin with your questions at the end of your last
post (OPE-L 1049).

You wrote:

1. Are Marx's prices of production long-run equilibrium prices?

2. Are long-run equilibrium prices vacuous?

Whether or not long-run equilibrium prices are vacuous is A SEPARATE
QUESTION from whether or not Marx's prices of production long-run
equilibrium prices. It seems to me that the textual evidence provides a
fairly clear and unambiguous answer to the first question (unusually so
for textual evidence): that Marx's prices of production change are "center
of gravity" prices that change if and only if productivity or the real
wage changes, which logically implies that Marx's prices of production are
indeed long-run equilibrium prices. If long-run equilibrium prices do
indeed turn out to be vacuous, as John argues, then this will indeed be a
blow to Marx. I do not think this will turn out to be the case. But
whatever the answer to the second question turns out to be, I think the
answer to the first question is clear.

My comment: The textual evidence used to answer the 1st question is,
at best, unclear. Let me say why.

In rereading our last couple of posts I realized that we
need to clear up the notion of long-run equilibrium.
I'm not sure that both of us are talking about the same thing.
Obviously, this is crucial in any discussion of whether or
not Marx's prices of production are long-run equilibrium prices.
It is also essential to our dialog concerning the usefulnes
of long-run equilibrium prices.

When you speak of long-run equilibrium prices in the context
of prices of production, I have assumed that you mean a general
equilibrium. In that equilibrium, the unit input price of each
and every commodity is equal to its unit output price. The rate of
profit is uniform. I'd sure like to know if we agree this. For now,
I'll assume we do.

In your next to last post, you cited the following passage from

"Market prices rise above these governing production prices
or fall below them, but these fluctuations balance each other
out. If one compiles price lists OVER A PROLONGED PERIOD,
and ignores those cases in which the actual value of a commodity
alters as a result of changes in labor productivity, as well as cases
in which the production process is disturbed by natural or
social disasters, it is surprising both how narrow the limits of
these divergences are and how regularly they are balanced out."
(p. 1000; Vol. 3 emphasis added by FM)

Now, as I've said, I'm willing to accept that Marx indeed saw
stable prices for some commodities. But are those stable prices
long-run equilibrium prices? I think not -- in the sense of
long-run equilibrium described above. The prices of commodities
with changing prices in "the prolonged period" cannot be allowed
to change for us to characterize the entire period as a long-run

Nowhere does Marx say that prices of production are long-run
equilibrium prices. Nowhere. On this, I think we can agree.
What you seem to do is compare aspects of long-run equilibrium
prices with those of prices of production. For example, like
a long-run equilibrium price, the price of production can
be viewed as a center of gravity around which market prices
oscillate. (We need to discuss Marx's concept of market values
at some point.) But again turning to the above passage when Marx
speaks of stable prices, no one would claim that the entire economy
was in a long-run equilibrium over the enitire "prolonged period."

Given the literature surrounding the transformation problem, it's
difficult to see how a stable price that is more or less a price
of production could exist without all prices in all sectors having
stable prices as well. For example, in Ted and Andrew's case
prices of production change rather dramatically from period to
period. They start from values and with the assumption of simple
reproduction in material terms end up with what you might call
a general equilibrium rather quickly. But if we could either come
up with prices of production in something at least resembling
real time by examining data or by developing a simulation model
of the economy , it is not difficult to imagine that many of prices
would be fairly stable -- that is market prices would oscillate
about that stable price. But clearly we could either see or
generate stable prices in some sectors as other prices are changing.
No price would be an equilibrium price as not all prices are equilibrium

Now let's turn to another part of your argument that Marx's prices of
prodution are equilibrium prices. You describe Marx's method as
"logical" in his development of prices of production. Let's look at
the logic a bit.

In Part 1 of V3, prior to the transformation in Part 2, Marx
develops the notion of the general rate of profit. It is this
general rate of profit that you use in the transformation procedure.
Yet toward the end of Part 1, in Chapter 6, we discover that price
flucations can and do change that general rate of profit. It is, at
best, unclear to me how one can confine Marx's prices of production
to an equilibrium state if the general rate of profit that prevails
in that state is computed using non-equilibrium prices.

The general rate of profit you use in interpreting Chapter 9 thus bears
little relation to that of Part I. Marx's uses the prices as he finds
them to compute a general rate of profit; you abstract from the idea
that price fluctuations exist as you transform values into prices of
production. This, again, save for exceptional cases, your general rate
of profit differs from the one Marx describes in Part 1.

Now let's turn to your 2nd question. Again, it was

You wrote:

2. Are long-run equilibrium prices vacuous?

My comment: I'd be willing to be wrong on this one if you can
show me how to avoid the following 2 dilemmas.

A. The Traverse. Given any two equilibrium points, how does the
economy move from one to the next? Generally, there's a bit of
hocus pocus involved. That is, the output prices at one point
in time have little to do with next unless we make some rather
strong assumpition like no technical change. Instead each period of
production becomes totally separate from all others. If one
were to compute prices of production ala Sraffa, then this
is understandable since his point is a critique of another
static system -- that of neoclassical economics. However, if we
are to even begin the task of examining a capitalist economy in
real time and in motion, our inability to connect one production
with any other is fatal to that endeavor.

B. If, for the sake of our discussion, we accept your idea that prices
of prodduction are long-run equilibrium prices and that those prices
are the ones that form centers of gravity about which market prices
fluctuate, then Marx's falling rate of profit becomes the falling
equilibrium rate of profit. This makes the law of the tendency of
the rate of profit to fall border on the absurd.

1. As Okishio has shown, the rate of profit will only fall if
real wages increase. He does so within an equilibrium framework.
To answer Okishio one either has to allow the real wage to
increase or to drop the notion that Marx's law applies to an
equilibrium rate of profit.

2. For the equilibrium rate of profit to fall, one has to impute
to Marx a rather strange notion of technical change. That is,
the ratio of constant capital to output must increase for this rate
of profit to fall due to the rising organic composition of capital.
This may not seem probematic if one machine replaces "n" workers;
however, it becomes something else if we allow "x" machines to
replace 1 machine. In the latter case, Marx quite rightly should be
placed within the Rube Goldberg school of technical change.


Again, your first question was

1. Are Marx's prices of production long-run equilibrium prices?

If we answer this question with a "yes", then we all but admit that
Marx made major and obvious mistakes in Vol. 3. First, he never
explicitly transformed the inputs as he carries out the transformation
of values into prices of production. Second, Marx failed to link his
falling rate of profit to a theory of rising real wages. Without that
link the falling rate of profit is, at best, a dubious assertaion.

Your second question was

2. Are long-run equilibrium prices vacuous?

I'm not sure "vacuous" is the right word. For me, "deceptive" would be
better. That is, as more than a few of us of the TSS persuasion have
shown, it's relatively easy to show that the value or money rate of profit
can fall as the equilibrium rate of profit rises. In an economy with
a falling rate of profit and deflating prices, an increasing equilibrium
rate of profit is indeed deceptive.