From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Thu Jun 29 2006 - 17:25:32 EDT
Thanks for the ref, Ajit. I wrote about govt macroeconomic models: "It is a largely pragmatic exercise, strongly empirically oriented, and most of the references to "equilibrium" in it are rhetorical flourishes. What they mean is that if you have an imbalance here, you get an imbalance there, and if you have a balance here, you get a balance there, but at any time there are really both balances and imbalances." Of course I could add another variant, i.e. that a balance here implies an imbalance there, and an imbalance here implies a balance there, i.e. the quest for equilibrium is riddled with contradictions. So really, the capitalist equilibrium only exists as a sort of "modus vivendi". I find the problem with concepts of economic "equilibrium" is, that it is epistemically difficult to know when you actually have one. In theory, of course, you can say that there exists a set of ideal prices at which demand and supply would match. But in reality, practically, at most a businessman can estimate stuff like "this is how much we can possibly sell at a given price over a given interval" (which economists can dress up with the concepts like the marginal propensity to consume, opportunity costs, and the like), which however really implies the concept of equilibrium is tautological - a given price structure means there is a supply-demand balance, and at the same time, a supply-demand balance means a given price structure. It is just a sort of faith that a price can be found at which supply and demand will balance. This may be reasonable to suppose in particular cases, but I could equally well argue that there exists actual demand and potential demand, and actual supply and potential supply, *dependent* on price. So then the next step in the argument, is that if prices empirically remain stable, this MEANS that there is a supply-demand balance, the proof is, that prices remain stable. But the reason that prices remain stable could be almost anything, e.g. just that sellers cannot afford or do not want to sell below that price, and that a portion of buyers cannot afford the price at all, and therefore do not buy it. In other words, price stability may not tell us anything about real or potential demand or real or potential supply; it is merely that market-allocation is thought to be more desirable than any other form of allocation. So really I think the concept of "economic" equilibrium is best seen as the self-justification of the market, i.e. it is an ideological, not a scientific notion. I think Karl Marx knew this very well, and that is why he never bothered much about prices and concentrated on value-relations in order to reveal the real motive forces impelling economic actors, who were caught up in a market situation which none of them could control. One had to rise above the hustle and bustle of the marketplace, in order to understand its overall dynamics. Thomas Sekine argues in the article I mentioned that "Marx's theory of surplus value which defines the fundamental capital-labour relation in Volume 1 of 'Capital' holds true only in an equilibrium situation. We can talk neither of value nor of surplus-value rigorously, when the economy is out of equilibrium" (loc. cit. p. 9). Already here he is mistaken, because Marx does not assume any equilibrium, he assumes only equal exchange here. We could of course argue that the two mean the same, but they don't - you can have equal exchanges without supply-demand balance. Marx just assumes for the sake of argument in Cap. Vol. 1 that commodities will be sold (at their value), but this does not imply equilibrium ipso facto. Then Sekine goes on to say, "a state of economic equilibrium in the capitalist economy tends to be approached only in the phase of average activity in the course of a business cycle (...) Bourgeois (or neoclassical) economics is not to be criticised for elaborating the concept of equilibrium, but for universalizing it without questioning its ontological base (...) if the tendency towards a general equilibrium could not be identified at any moment of its dynamics, such an economy could not be regarded as 'capitalist' in any meaningful sense" (p. 10). I don't see how this follows either. What he means by equilibrium here is, that given the prevailing technological conditions, demand and supply for labour are in balance, and "average profits" (?) are earnt in all sectors of production. But how do we know that this balance exists, and what does it mean? It seems to me like like Sekine's equilibrium has become a statistical artifact. How do we know the labour market is "in balance"? Presumably the labour market would be in balance if there was full employment? What are these "average profits"? The very notion of average profits statistically means, that there exist above-average and below-average profits, which, if we average them, yields an average. But there is always an average possible, what now is the "equilibrium" average? I think what we have to conclude is that Thomas Sekine is apologising for "the market" here, he's happy to join in the faith that the market tends to reach equilibrium on its own. That is a faith, because there is no evidence for it, and plenty evidence to the contrary. His faith is the obverse of his claim that there is "no evidence" of the law of value operating. Actually, what he is really arguing is, that there *cannot* be any evidence for the law of value operating by definition, it's just an abstract concept. Well if economics was that easy, we'd be away laughing. We could just solve economics problems pondering at our writing desks. In reality, we do actually have to look at the evidence. The question that remains is, why you would believe in the concept of the law of value, even although there is no evidence for it whatsoever? Is it, perhaps, a sentimental attachment to the prose of Karl Marx and Kozo Uno? Why would Marx have adopted the concept of the law of value, if there was no evidence for it? This is actually what Marx says about it: "Every child knows that any nation that stopped working, not for a year, but let us say, just for a few weeks, would perish. And every child knows, too, that the amounts of products corresponding to the differing amounts of needs demand differing and quantitatively determined amounts of society's aggregate labour. It is self-evident that this necessity of the distribution of social labour in specific proportions is certainly not abolished by the specific form of social production; it can only change its form of manifestation. Natural laws cannot be abolished at all. The only thing that can change, under historically differing conditions, is the form in which those laws assert themselves. And the form in which this proportional distribution of labour asserts itself in a state of society in which the interconnection of social labour expresses itself as the private exchange of the individual products of labour, is precisely the exchange value of these products. Where science comes in is to show how the law of value asserts itself." And here we really get to the crux of the issue - Marx is talking about a social and physical necessity for matching society's needs with the products of human labour, through economic exchange. That is the "ontological basis" for talking about a "law"; somehow, this necessity has to be reflected in trading ratios and relative prices. The question then was how specifically this law would assert itself, but if there cannot be any evidence for the law, as Thomas Sekine argues, we cannot even answer this question. At most we could agree with Sekine that neoclassical economics overextends the concept of equilibrium. But not because a tendency to equilibrium applies to a specific phase of the business "cycle" only, but instead because it happens to be the self-justification of the market, the faith that demand and supply will match. Behind this ideology, is the rational thought that in markets, an equilibration (or calibration) process occurs whereby supply and demand tend to adjust to each other. Marx regarded this as a rather obvious insight requiring no great erudition. But this continual adjustment process itself does not imply that any equilibrium exists at any time, and theorising it does not require any reference to any hypothetical necessary equilibrium. At most Marx says that for the expanded reproduction process to occur, there are certain proportions of supply and demand which are necessary, and that the growth path of capitalism will occur through continual adjustments which approximate these proportions. But since there is competition among private enterprises, and no overall coordination of economic resources, that adjustment process occurs haphazardly and unevenly. Unfortunately, Sekine doesn't seem to understand that Marx's concept of economic reproduction and the market concept of economic equilibrium have nothing in common. The first condition for economic reproduction is not supply-demand balance, but the ability to reproduce the initial conditions of the process through the process (and reproduce them on an increasing scale). Jurriaan
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