Re: [OPE] classical macrodynamics and the labor theory of value

From: D. Göçmen <>
Date: Wed Feb 02 2011 - 13:27:51 EST

This is what A. Smith has to say about natural and market prices:

"When the price of any commodity is neither more nor less than what is
sufficient to pay the rent of the land, the wages of the labour, and the
profits of the stock employed in raising, preparing, and bringing it to market,
according to their natural rates, the commodity is then sold for what
may be called its natural price.
The commodity is then sold precisely for what it is worth, or for what it
really costs the person who brings it to market..."

"The actual price at which any commodity is commonly sold is called
its market price. It may either be above, or below, or exactly the same with
its natural price."

 Wealth of Nations, Liberty Fund, Indianapolis, pp. 72/73


It would take me too long to go into what the crucial differences between Marx and Smith are. The most important difference concerns probabily how Smith defines the rent, profit and wages as natural components of the price. This idea is justly attacked by Marx by showing where surplus-value comes from. However, though that what Smith says about market and natural prices is not the same as in Marx. But Marx uses a similar idea to explain the extra profits arising from technical advantages and so on. This seems to be also the main point of Smith.




-----Original Message-----
From: Jurriaan Bendien <>
To: Outline on Political Economy mailing list <>
Sent: Wed, Feb 2, 2011 6:42 pm
Subject: [OPE] classical macrodynamics and the labor theory of value


Thanks for your comment, but I dissent from the opinion that the concept of

production prices is "well-defined" in post-Sraffian economics (which

diverges from Marx's view). Neither Smith or Ricardo was able - as Marx

points out - to arrive at a coherent concept of "natural prices" and that is

exactly WHY those prices were called natural prices. The idea was that

natural prices reflected a "natural" equilibrium and that society gravitates

towards that natural equilibrium, without any explanation being given of how

exactly that works. Smith and Ricardo were aware to some extent I think, as

you say, that natural prices vary from labour-values, and this presented a

problem for the LTV, but the whole point is that they were unable to explain

why. For Marx, the divergence is not an abberation, but precisely the pivot

of competition in the production system, which drives it forward. The

"dyamic" is captured by the continual shifts of product-values, production-

prices and market prices relative to each other, according to the vagaries

of competition.

Whether we talk of a static equilibrium or a dynamic equilibrium, it is all

based on the simple idea that supply and demand adjust to each other, and

that there exists a "structure" of prices and price levels that

the exchange process will converge on. But the equilibrium of branches of

production is then determined by circulation - this is presumably exactly

what Marx at least denied. The prices are not causes, but effects of the

real process: the changing value proportions which express variations in

labour-time, productivity and power relationships.

The dispute is not really that equilibrium notions are necessarily

inapposite for analytical purposes (we need constants in order to study the

change and variability of a process), nor that an "attractor" cannot not

exist. The question is rather what the "constant" and the "attractor" itself

are, and I think for Marx at least they are not to be found in the

marketplace (in circulation) itself, but in the relations of production

which he terms the "economic structure", which result from the

compulsion to produce for a living and the enforcement of property


We can of course invent an equilibrium system of prices and show that, faced

with a disturbance of relative prices, the price system compensates for the

disturbance to the point that the equilibrium is restored, as indicated by

the constancy of price distributions across time. But all that really says

is that supply and demand will adjust to each other, and that some price

levels are explained by other price levels, effectively that prices are

explained by other prices. The intrinsic "dynamic" of the price system is...

to move towards equilibrium and constancy. But I think that is what Marx

denied and with good reason, since there is no evidence for it.

Certainly supply and demand do adjust to each other, but the

"system" is fundamentally not a system of prices, and the "attractor" is

fundamentally not a price structure.

Even in your "hot air" example, it isn't even clear to me how we should

exactly define what the "attractor" actually is. You argue there is a

mechanism which works to drive the temperature to 60 degrees, but in fact it

will never reach 60 degrees, and there is no evidence that it ever reaches

60 degrees. But in that case there is no "mechanism" which works to drive


temperature to 60 degrees, only a mechanism which causes the temperature to

rise, even although the temperature fluctuates constantly. To explain this,


do not even need to assume that the temperature would rise to 60 degrees.

If we define "natural prices" as those prices that obtain when there is no

profit incentive to reallocate capital given constant technique and constant

final demand, we have provided a description of a theoretical price which is

never realized. At best we have provided a description of conditions which

would apply, if the production system was in equilibrium. The theory of

dynamics then consists of saying that the production system has, other

things being equal, the tendency to converge on this equilibrium state, or,

if there is a disturbance, that there is a tendency to return to the

equilbrium state. The theoretical price is then the "attractor" of real

prices. But I don't think Marx was concerned with that really. Equilibrium

plays almost no role in his theory, except in defining what the limits of

price movements contingently are. Provided workers go back to work, and

property rights are protected, it's business as usual and the production

system reproduces itself, however haphazardly it may do so, whatever the

scope of price fluctuations. Obviously if the price fluctuations go beyond a

certain magnitude, this will cause a big disturbance in the reproduction

process, yes. But the real point is that equilibrium is not a requirement

for economic reproduction, and price movements merely mediate that process,

they do not fully determine it. If we discover a big price disturbance, we

have not explained thereby what caused it.

What Marx was concerned with I think was the forces and parameters of

competition, which will determine the trajectory in which the production

system will develop. That is what the theory of dynamics is about; we aim to

explain why the production system empirically develops in the way that it

does, and why it is likely to develop in a certain way in the future. Marx

implies that the production system could in principle develop in all sorts

of ways, but it doesn't, and, it doesn't because there is a logic to the

capital accumulation process which drives the accumulation process in a

certain direction. It rules out certain developmental paths, and it makes

some developmental paths more likely than others.



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