Re: [OPE] Linear transformation between equilibrium prices and labour values

From: Alejandro Agafonow <>
Date: Sun Dec 05 2010 - 20:32:36 EST

According to Alejandro…? Do you mean A. Ramos, Jurriaan? I never made such a claim. The idea of equilibrium sees market failures as an exception, but they are the rule indeed. Behind these failures lies the creative nature of human societies. Otherwise technological progress would be inconceivable or as a rare exception to an ever steady economy. This is preposterous.   A. Agafonow ________________________________ De: Jurriaan Bendien <> Para: Outline on Political Economy mailing list <> Enviado: lun,6 diciembre, 2010 01:54 Asunto: [OPE] Linear transformation between equilibrium prices and labour values According to Alejandro, "There is very strong empirical evidence that economic reality approximates a state of statistical equilibrium (an equilibrium in which change constantly occurs but some distributions are constant)." But in reality no such evidence exists, and it has never existed. It is merely that, if we abstract out certain economic characteristics, we can show these characteristics remain relatively constant across time. Even then, the alleged constancy is largely a statistical artifact, produced by assumptions which ignore change. The concept of equilibrium is only an abstraction, which economists habitually confuse with reality, not unlike Hegel's objective idealism. The analytical relevance of Ian Wright's insight is just that the analysis of capitalist dynamics requires both constants and variables - and the assumption of equilibrium is a valid analytical starting point for investigating deviations from disequilibrium, and how those deviations can be resolved i.e. the real process of a self-adjusting production system. *I think that is also how Marx understood it - he intended to demonstrate that in the simplest pure cases, it would be logically possible to reconcile the regulative force of the law of value with the laws of price competition and the competition for profits. He seemed not to care about the fact that he included price quantities and value quantities in the same equations, presumably because he felt that he had already demonstrated the validity of his value theory without any reference to the redistribution of capitals. *I think Ian is correct that Marxist theory has been crippled by a poor understanding of what production prices are (most Marxists still confuse production prices with Smithian "natural prices", suggesting a "natural" physical equilibrium). But I would rather follow Marx who indicated himself in passim furtheron in his manuscripts for Capital Vol. 3 (particularly in the context of the analysis of ground rent) that there is not just one type of production price, but several types - and those prices can be pitched at various "levels of abstraction" to use Jerry's term. *I think Marxists in the transformation controversy have often confused the concept of the capital outlay with the value of output. This leads them to think that the cost-price is something given and fixed in advance of production (equal to constant and variable capital advanced). Marx himself could be regarded as paving the way for this error, since his simple models often conflate capital advanced with capital consumed. He was concerned not with a physical input-output system, with how a sum of capital was transformed into a larger sum of capital. That is, he assumed in his models, for theoretical purposes, that a given sum of capital was reproduced (conserved) in its entirety within production, together with the production of a surplus-value. But in reality or in theory, this interpretation is a gross simplification. *First and foremost, what the true cost-price (or the production price) of outputs is, can become apparent only aposteriori when production has occurred, it is derived when production costs are deducted from sales to obtain the net income. Thus, there is not necessarily any exact quantitative correspondence between the unit cost-price of new output and the capital advanced, such an identity is merely a simplifying assumption. For the same capital advanced, a enterprise may produce and sell more, or less, new output, depending on how favourable business conditions are. Its product cost-prices and its capital advanced may therefore diverge. *Second, the value of capital invested may itself be revalued or devalued in the course of production, whether because of changed market or production conditions, or because of monetary phenomena. Marx's primary concern, and how he defines production prices, was that production prices are the prices at which new output would have to sell, to obtain a rate of profit on the capital invested into them which corresponds to the average rate of profit - a sectoral average, or a grand average. But that is just to say that the enterprise production price, the average sectoral production price and the grand average production price may, and do, typically diverge. It is precisely that sort of divergence which, Marx argues, ultimately prompts the entry and exit of capital into particular industries (the motion of capital), with the effect that differentials in profit rates tend to level out. Once a general rate of interest on capital is established, this also establishes a minimum acceptable profit rate on capital invested, the "general profit rate". This industrial profit rate is usually to the order of 10-16% on capital invested. Marx was not really making an argument about equilibrium conditions, but about the dimensions of capitalist competition. You canot really build a theory of capitalist dynamics out of a theory of capitalist equilibrium, you have to build it out of a theory of competition - competition between capitalists and capitalist states, competition between capital and labour (class conflict), and competition between workers. Marx aimed to show that the fulcrum of this competition is the production of extra surplus-value. When Marx wrote that "the doctrine that the net product is the final and highest goal of production is only a brutal, but correct expression of the fact that the valorisation of capital, and therefore the creation of surplus value, without any concern for the worker, is the driving force and the essence of capitalist production", this maps almost literally onto the modern obsession with the growth of real GDP, a "value-added" statistic. The obsession with productivity is merely a euphemism for the thirst for extra surplus-value. As Ernest Mandel (I think correctly) pointed out, capitalist dynamics really have nothing to do with convergence on an average profit rate that meets the requirements of equilibrium. To think that this is so, confuses a theoretical issue with economic reality. Instead, capitalist dynamics are spearheaded by the quest for surplus-profits, i.e. profits higher than the social average, and that is the central insight for a theory of capitalist dynamics, not equilibrium. Capitalism grows precisely through disequilibrium, because capitalists can make profits from arbitrage. This was frankly admitted by David Lange, a prime minister of New Zealand overseeing the most extreme liberalisation policy thusfar attempted in OECD countries. He remarked to the effect that "Inequality is the motor of the market economy" (cf. Bruce Jesson, "Inequality Is the Motor of the Market Economy." The Republican (Auckland), no. 59, 1986). If so, depicting capitalist dynamics as gravitating toward an equilibrium state would not only do no justice to Marx's idea, but also fail to make sense of economic history - why capital concentrated in particular sectors, why some sectors grew and others declined, and why precisely the representatives of the most lucrative industries always play a dominant role in the bourgeois polity. Our understanding of capitalist dynamics is warped by the fact, that we live mostly in "fully developed" capitalist countries - we are much less exposed to the sheer magnitudes and severity of uneven development. Needless to say, very few economists in developing countries are concerned with "equilibrium economics" since what stares them in the face is mainly profound and stark disequilibrium at every level. For balance, Mike Davis's "Planet of slums" book provides a useful corrective. As I have myself mentioned numerous times, the basic problem of a lot of Marxist analysis is that in one way or another it still clings to the old idea of the political economists, not only of the self-balancing market, but also that market activity via the price system balances out the economy. This is diametrically opposed to Marx's own idea, since for Marx "what held society together" was not the market, but the physical and socio-economic necessity of people to work for a livelihood. That was his historical materialism. It is a pseudoscientific sleight of hand, to extrapolate from the observable, rather haphazard process whereby supply and demand adjust to each other, that the market balances itself, or that the price system will ensure that economic balance is achieved. That confuses the perpetual adjustment process of supply and demand with an idealized state of balance. Of course, the confusion serves an ideological purpose: the more that market trade grows in scope, the more people are forced to produce and sell things they cannot use themselves, and the more others are able to appropriate those things to make a profit out of them - and ultimately get something in exchange for nothing. Jurriaan _______________________________________________ ope mailing list

ope mailing list
Received on Sun Dec 5 20:34:35 2010

This archive was generated by hypermail 2.1.8 : Fri Dec 31 2010 - 00:00:02 EST