[OPE-L] Jurriann on the notion of equilibrium

From: glevy@PRATT.EDU
Date: Fri Nov 11 2005 - 17:12:12 EST

---------------------------- Original Message -------------------------
Subject: The notion of equilibrium
From:    "Jurriaan Bendien" <adsl675281@tiscali.nl>
Date:    Fri, November 11, 2005 4:49 pm

While I think of it, just a few points to round off what I started to
write in reply to Andrew Trigg about equilibrium, but left unfinished.
What I really meant to say is, that in economics you have a number of
different notions of equilibrium, and they are often mixed up. Simply
put, in six main notions:

1) Equilibrium price - if prices are too low, supply reduces, if prices
are too high, consumers won't buy; thus, it is argued, markets left to
themselves (the "price mechanism") will, or could reach, an equilibrium
price. In this case, disequilibrium consists in a price level which is
too high or too low. The problem here is that of monopoly, monopsony and
oligopolistic phenomena in markets, and credit creation.

2) Equilibrium as price stability - if prices remain relatively constant,
being neither inflated or deflated, then there is price stability and
that means that equilibrium exists. The problem here is that price
stability might be achieved at the expense of high unemployment, unmet
needs or excess credit etc.

3) Equilibrium of demand and supply - reached when supply is sufficient
to meet all demand, and when demand is sufficient to purchase all supply.
In this case, disequilibrium consists in too much or too little supply or
demand, relatively speaking. The problem here is that we're dealing only
with monetarily effective demand, not with what could technically be
supplied or with real needs which cannot be met, because of lack of
buying power.

4) Dynamic equilibrium - this really refers to the relative growth rates
of the demand and supply of goods, capital resources and services,
necessary to sustain a balance over time, however we might specify that
balance. Here we could make some probabilistic model using key variables
throught to be involved, based on some idea of the interconnections
between causes and effects in the economy. One problem here is, that
causes may become effects, and vice versa, and that the real interactions
of the variables may over time change from the way the model depicts
them, or assumes them.

5) Equilibrium of the economy as a whole - already a more vague notion
(what is "the economy"?), but the idea is that there is somehow a balance
in the total flow of transactions that occur, theorised in terms of 1),
2), 3), and 4). This begins to raise an epistemic problem though, because
how can we assess the existence of this equilibrium? Often, a "ledger"
approach is taken, namely, the balance of income and expenditure, profits
and losses, assets and liabilities, output and consumption and so on (the
ledger theory of equilibrium). If you're in the red, there's imbalance,
and if you are in the black, there's balance. We can also get more
sophisticated, and frame the problem in terms of a balanced income
distribution or expenditure pattern.

6) Equilibrium of society - the suggestion here is, that if the economy is
in equilibrium, the society is also in equilibrium, and conversely, if the
economy is in disequilibrium (an imbalance of some sort), then society is
in disequilibrium as well, i.e. social order breaks down. This is an
economistic, or economic-reductionist interpretation of social
equilibrium. On the one hand, even although the economy may be doing
relatively well in some sense, there might be a lot of social conflict
and disorder, and on the other hand, even although the economy is
substantially a mess, the social order may be perfectly intact.

All of these six notions, frequently conflated with each other in
different ways, might have some uses (also ideological uses), but my
argument is really that as regards 5) and 6), Marx implies that the
problem of economic equilibria and social order are wrongly conflated -
in reality, the social relations of production form the basic structure
upon which the whole social edifice is founded. Provided workers perform
surplus labour, and produce more capital (the net value added), then
ceteris paribus the whole financial system based on this, with all its
unequal exchanges, can continue, i.e. capital can accumulate - and this,
despite even great market fluctuations and all sorts of disequilibria.

Yet, capitalist production is generalised (universalised) commodity
production, the "unity of production and circulation", so, the
reproduction of the social relations of production in part depends not
just on the enforcement and security of ownership relations by the state,
and the social organisation of work, but also on whether commodities do
circulate among producers and consumers. But, Marx implies, they will
circulate, precisely because people have no choice about that, they have
both to produce to consume, and consume to produce, they will enter into
these relations necessarily, whether they happen to like it or not. If
the cash economy breaks down, they will barter instead, until a stable
currency reappears (cf. the Weimar Republic or Eastern Europe in recent
years; although this is often overlooked, the "transitional economies"
provide brilliant proofs of Marx's economic insights).

If people therefore ask, "why does Marx simply assume value=price in Cap.
Vol. 1 & 2", one reason seems to be that the social structure, continuity,
cohesion and equilibrium of the capitalist economy has little to do with
price fluctuations or market fluctuations as such, but rather with
maintaining the social relations of production which permit capital
accumulation to occur and the circulation of capital to continue (after
all, circulating commodities, money and capital IS work also);
principally, the legal enforcement of ownership rights of all kinds, but
also the social organisation of work itself. This is the rational kernel
of the "Regulation School" theories.

Precisely because demand and supply factors in developed capitalism
acquire in reality ever greater flexibility and elasticity (people
survive, even if many of their needs and requirements are not met), these
factors cannot explain the maintenance of social order, i.e. you cannot
easily specify any realistic, specific supply or demand threshold at
which the social order breaks down. In New Zealand, my mate used to joke
that "if unemployment goes beyond 25-30% you get a revolution", but
nowadays you also have to take into account that if unemployment rises,
people migrate. Certainly, in New Zealand they did that in 1985-1991,
gross outward migration was proportionally similar to the exodus from
East Germany from 1989; without that utward migration, unemployment would
have reached about 20% or so.

It is true, there really is a tendency of the rate of profit to decline,
due, I personally think, globally speaking to the declining labour-values
of commodities, but what is much more significant from the point of view
of the way the system really functions, is precisely ALL the methods by
which the owning classes go about reducing costs and increasing sales
revenue, *counteracting* that tendency. In this regard, as Ernest Mandel
implied, Marx draft notes in Cap. 3 simply do not constitute a complete
specification of everything that happens. If you were to write an "anatomy
of real capitalism today", you would have to discuss all that.
Overaccumulation/overproduction crises have no specific political
implication though, other than an intensification of social conflict and
social competition, which is why the "orthodox Marxist" obsession with
"economic breakdown" is so odd from a political point of view. Realworld
workingclass politics revolves - for better or worse - around the defence
of "a way of life" and a set of (shared) norms and values.


This archive was generated by hypermail 2.1.5 : Sat Nov 12 2005 - 00:00:02 EST