RE: [OPE] Reply to Paul Cockshott on neo-Smithian Marxism andequilibrium

wpc@dcs.gla.ac.uk

Jurrian your sketch of what Smith and Marx said about equilibrium is probably fair enough 
but when you go on to say:

"This is just a very brief sketch, but my aim is to show you that if your neo-Smithian Marxism tries to prove that a system of prices will perpetuate and conserve an unequal distribution of income and wealth, so that this distribution remains constant, then this seemingly radical idea is wrongheaded. It is wrongheaded because

a) Factually, the distribution does not remain constant
b) Theoretically, because price movements do not ensure equilibrium other than incidentally in some sense (see above)
c) Ideologically, because it buys into a false ideology about markets"

I think you off the mark a bit.

You have to distinguish two different distributions

1. The distribution of prices relative to values and prices of production
2. The share of income between labour and capital

The key points in Farjoun and Machovers work is that distribution 1 is non-degenerate, and that it does
not tend to degeneracy. Thus it denies the existence of a stable state with prices equal either
to values or prices of production, and denies that the system evolves towards this. What is likely
to be stable is the spread of actual prices around values and prices of production.

In Farjoun and Machover's argument, the issue of the relative shares of labour and capital in net
turnover is rather different. They are concerned with the observation that the ratio of profits
to wages seems roughly 50/50 over long periods of time. This is not to say that it does not change,
but the changes, when plotted on a log scale, are modest. We do not see countries with 95% of income
going as wages and 5% as profits or vice versa. Why is this? Why does the share of wages/profit not tend
towards zero?

They then construct a highly abstract argument relating to the properties of Gamma distributions,
to the effect that the distribution of income  between wages and profits will be related to the
spread of wage rates relative to value added. A narrow spread of wage rates exerts a constraint
on the wage/profit share bringing it towards 50/50. 

I must say, that I find this part of their theory the hardest to get my head round, and since
I have not re-read it for 3 or 4 years, it is quite possible that there are some mistakes in
my presentation above.

But none of their arguments seem to tend towards the points you are objecting to.

Paul Cockshott
Dept of Computing Science
University of Glasgow
+44 141 330 1629
www.dcs.gla.ac.uk/~wpc/reports/

-----Original Message-----
From: ope-bounces@lists.csuchico.edu on behalf of Jurriaan Bendien
Sent: Tue 4/22/2008 10:52 PM
To: Outline on Political Economy mailing list
Subject: [OPE] Reply to Paul Cockshott on neo-Smithian Marxism andequilibrium

Paul, 

You wrote:

"It is hard to see if Marx would have agreed with this, since it is a formulation that bourgeois economics arrived at well after his time. I think that arguements for or against it have to stand on their own
merits rather than refering back to a writer who never had to confront the problem."

I do agree that the arguments have to stand on their own merits. But, with due respect, you are wrong from a scholarly point of view. The economic thought of the 18th century was in fact already very sophisticated, and therefore we can find e.g. Adam Smith clearly articulating a notion of price equilibrium of the type I mentioned:

"The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this center of repose and continuance, they are constantly tending towards it. The whole quantity of industry annually employed in order to bring any commodity to market, naturally suits itself in this manner to the effectual demand. It naturally aims at bringing always the precise quantity thither which may be sufficient to supply, and no more than supply, that demand" (Smith, An Enquiry into the Nature and Causes of the Wealth of Nations (1776), ed. Edwin Cannan. The University of Chicago Press, Chicago, 1976, Vol. 1 p. 65). http://www.adamsmith.org/smith/won-b1-c7.htm

Smith adds explicitly that:

"The whole of advantages and disadvantages of the different employments of labour and stock must, in the same neighbourhood, be either perfectly equal or continually tending to equality. If in the same neighbourhood, there was any employment evidently either more or less advantageous than the rest, so many people would crowd into it in the one case, and so many would desert it in the other, that its advantages would soon return to the levels of other employments (ibid, I, p. 111).

The stationary end state of complete economic development, says Smith, would be "a country which had acquired that full complement of riches which the nature of its soil and climate, and its situation with respect to other countries, allowed it to acquire; which could, therefore advance no further, and which was not going backwards." (Ibid., 107). In Smith's opinion, "perhaps no country has ever yet arrived at this degree of opulence" (Ibid., 107). 

All this is discussed more in a paper by Ramesh Chandra, from the University of Strathclyde http://www.strath.ac.uk/media/media_34455_en.pdf (it is theoretically a bit weak I think, but nevertheless very interesting and suggestive).

As it happens, Marx discusses the notion of equilibrium ("Gleichgewicht", literally equal weight, or balance) quite a few times in Das Kapital, and I have discussed this before already on OPE-L. The difference between Marx's and Smith's notion of equilibrium can be sketched (I cannot do complete justice to it in one post) in six points:

1) The foundation of the social order for Marx consists of the physical necessity for people to produce and reproduce their material conditions of life, which compels them to enter into social relations of production (of labour cooperation and ownership rights pertaining to the means of labour) which exist independently of their will. This is true for any type of human society, and it defines the essential economic structure. It is therefore not trade or prices which are the "glue" which constitutes the social order (a reification, or instance of commodity fetishism) but it is rather that trade and prices mediate a pre-existing social order. The surprising regularities of market behaviour are rooted in this physical and social necessity, and to regard them as an intrinsic characteristic of markets is wrong. If markets provided equilibrium, there never would have been any economic crises, and that is precisely why bourgeois ideology imputes the causes of economic crises always to non-market phenomena.

2) In capitalist society, said material reproduction process is mediated by the movements of capital, so that this process is effectively subordinated to capital movements, or must (be made to) conform to its requirements. However, because this subordination is actually riddled with contradictory tendencies - some things are physically or technically necessary, although this hinders, negates or prevents capital accumulation - the adaptation of the material process to the requirements of capital accumulation is never perfect (often a contingent adaptation to given conditions which appears to work well for the moment). More importantly, an equilibrium balance is not an absolute requirement for economic reproduction, which permits all kinds of variations within certain broad limits.

3) A capitalist market economy cannot exist without a political state, which secures and enforces the rights of persons & property, and regulates market transactions within a common legal framework. The state itself is an acknowledgement that society is caught in an insoluble contradiction with itself (Engels's formula): its political existence is essentially due to the existence of a hierarchy of social classes and groups with many conflicting interests, which the state seeks to mediate and keep within bounds with the threat of force and the rule of law. Just as soon as a state disintegrates, it is reconstituted in one or another form.

4) A "market equilibrium" therefore never exists in reality, and is never reached either, at best approximated as a relative balance that could be defined in all sorts of ways. What spurs economic actors into action, is precisely the imbalances of supply and demand, which, through their trading, they aim to satisfy. Nevertheless, a process of "equilibration" (balancing) constantly occurs for that very reason, Marx does not deny that at all. This takes the form of a more or less haphazard, or more or less ordered series of successive adjustments and approximations, in response to perceived needs, wants, requirements etc. What matters here is the process of "market adjustment" and price stability - there must be sufficient predictability and regularity to permit effective economic organisation to occur and continue.  

5) Although the notion of "market equilibrium" is perfectly acceptable as a theoretical extrapolation in economic theory, its confusion with human relations, such that it is thought to guarantee or constitute the social order, is in fact just bourgeois propaganda, bourgeois ideology (a reified language). Thus, for example, Marx is scathing about Bastiat's "Economic Harmonies" and Say's law etc. Capitalist markets must forever expand, and to eliminate all obstructions to this expansion requires a justifying ideology, according to which it will bring freedom, happiness, democracy, justice etc. Like any ideology, this has a certain truth content, without which it would not be believed at all, but the conceptual distinctions are always contrived in such a way, that they mask the essence of what is really involved. The fact is that what is a cost to one person or group is a benefit to another, there are winners and losers, and so nothing is easier than to say we are all winners "in some sense" even if we incur losses from markets.

6) In the last instance, equilibrium theory in economics is based on a radical confusion about what prices and markets really are, what that means. This confusion can exist because, for the purpose of acting and interacting in markets, it is not a necessary requirement to understand how they function in their totality. It persists, because it performs an ideological justifying function. In fact, we find even the highest financial authorities mouthing outright mystical notions about markets. The root cause of this confusion is the absence of any profound, historically validated concept of economic exchange in all its modalities - as if, inter alia, markets could exist at all without at least an equal amount of non-market social cooperation and reciprocation. Perhaps most importantly, as Bowles & Gintis show, market ideology mystifies the processes of human cooperation as such to the point where it becomes difficult to understand how anything can be organised at all.

This is just a very brief sketch, but my aim is to show you that if your neo-Smithian Marxism tries to prove that a system of prices will perpetuate and conserve an unequal distribution of income and wealth, so that this distribution remains constant, then this seemingly radical idea is wrongheaded. It is wrongheaded because

a) Factually, the distribution does not remain constant
b) Theoretically, because price movements do not ensure equilibrium other than incidentally in some sense (see above)
c) Ideologically, because it buys into a false ideology about markets

If I side with Marx against the Marxists on this issue, it is not because I think Marx is God or anything like that. Much of Marx's messy life and work don't fit with me personally at all. But I think he was on to something important, and that through critically thinking through the meaning of social and economic experience, he discovered very important insights, which are essential to a much better, deeper, more profound understanding of social reality. All sorts of "socialisms" will waft through the world as people grapple (often a bit nihilistically) with the contradictions of modern society, and those socialisms may indeed be very oppressive rather than liberating - in part because of very serious misunderstandings about market economies. But we cannot "think" a better future for humanity without concepts truly adequate to achieving it, and we cannot achieve that future, if we do not know what we are aiming at. To articulate these concepts clearly, and base them firmly in real human experience, is precisely the leading edge of human progress.

Jurriaan

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