In reply to Patrick:
Thomas Sekine, a noted representative of the influential Uno school in
Japan, explicitly says that the law of value is an equilibrium principle
(e.g. T T Sekine, "Marxian theory of value, what we might learn from it",
Korean Journal of Political Economy, Vol 2, 2004, pp. 1-35). He also argues
that "we cannot observe the slightest sign of the working of the law of
value in the contemporary economy" (op. cit., p. 33). He refers explicitly
to "the state of general equilibrium, to which the capitalist economy really
tends" (p. 14) and emphasizes the importance of general equilibrium
analysis.
Here on OPE-L, Paul Cockshott has argued - similar to the mathematicians
Farjoun & Machover - that the capitalist economy features a "dynamic
equilibrium" and tends to that equilibrium, such that disturbances to the
system are compensated for and levelled out. Cockshott, as I pointed out, is
much vaguer about what the equilibrium actually consists of, i.e. what is
actually equilibrated, but the argument seems to be that price fluctuations
are the "transmission belt" for correcting imbalances between supply and
demand.
Question then arises how do we know that an equilibrium actually exists, and
this can only be inferred from the observation that aggregate price levels
remain relatively constant. For example, it is argued that somehow - in a
random process (!) - price movements accomplish that the distribution
pattern of incomes remains relatively constant. Cockshott admittedly
vacillates between many different concepts of equilibrium which are never
defined in detail - at one point the equilibrium is a stochastic effect of
random price distributions, while at another point the equilibrium describes
an actual systemic balance.
Numerous other contemporary Marxists could be cited who explicitly or
implicitly accept general equilibrium theory according to which markets
spontaneously tend to, or converge to a state of balance. The "classical"
discussions of economic reproduction by Luxemburg, Bukharin, Bauer,
Grossmann etc. and their modern exponents all assume that crises are a
disturbance of market equilbrium, caused by disproportions developing in the
capital structure of different sectors, so that market equilibrium leads to
market disequilibrium, which, through the crisis, is then "restored" to
market equilibrium.
The flaw in all these arguments, sometimes advanced with great theoretical
sophistication, is that from the fact that supply and demand, mediated by
prices, "adjust" to each other, that they tend spontaneously to, or even
reach, an equilibrium state (a balance) which is expressed by equilibrium
prices. But as said the only evidence that we have that those equilibrium
prices have any reality whatever, is that prices would stay constant across
time, which, precisely, they do not; at best we can say that sometimes the
fluctuations occur only within narrow margins, at other times they are very
large.
The bourgeois ideology is that markets, via price movements, converge on
equilibrium, but in reality equilibrium theories play quite a different role
in business than many economists, Marxist or non-Marxist - imagine. The real
utility of equilibrium theory is to establish the size of the market and its
stability, i.e. "how much product can I sell at a given price in a given
setting" and "what size of price fluctuation would upset the applecart".
That is the real point of the famous supply and demand curves, it is just
that economists then generalize this idea to the economy as a whole. But
that is precisely the abstraction we should resist.
In reply to Ian Wright:
The passage you quote from Marx, Cap. 3 chapter 22 says:
On the other hand, the general rate of profit is never anything more than a
tendency, a movement to equalise specific rates of profit. The competition
between capitalists - which is itself this movement toward equilibrium -
consists here of their gradually withdrawing capital from spheres in which
profit is for an appreciable length of time below average, and gradually
investing capital into spheres in which profit is above average.
http://www.marxists.org/archive/marx/works/1894-c3/ch22.htm
The German original reads:
Dagegen existiert die allgemeine Profitrate beständig nur als Tendenz, als
Bewegung der Ausgleichung der besondren Profitraten. Die Konkurrenz der
Kapitalisten - die selbst diese Bewegung der Ausgleichung ist - besteht hier
darin, daß sie den Sphären, wo der Profit auf längre Zeit unter dem
Durchschnitt, allmählich Kapital entziehn und den Sphären, wo er darüber,
ebenso allmählich Kapital zuführen.
http://www.mlwerke.de/me/me25/me25_370.htm
A more literal translation is:
As against this, the general profit rate exists at any time only as a
tendency, as movement of equalisation of particular profit rates. The
competition of capitalists - which is itself this movement of equalization -
consists here in this, that the spheres, in which profit is for a longer
time below the average, are gradually deprived of capital and that the
spheres, where it is above this, just as gradually gain capital.
Marx means that whereas the interest rate is a fixed general magnitude for
all, the general profit rate is not because there are only a variety of
different profit rates at any time.
Now as you can see, Marx himself DOES NOT REFER TO EQUILIBRIUM at all in
this passage, but rather to a tendency towards the EQUALIZATION of profit
rates through COMPETITION. The "movement towards equilibrium" is an
imaginative invention of the translators that DOES NOT EXIST in the original
text, and if you scrutinize the translations, this "movement towards
equilibrium" in fact pops up repeatedly even although Marx himself NEVER
said it himself. I just looked this up, because from experience I can
predict the translation faults with a high degree of accuracy even before
consulting the original.
In defence of David Fernbach, who produced a much more reliable translation,
he did actually correct the old translations in the Penguin edition of
Capital Vol. 3 (see for yourself, p. 488).
It may seem a trivial linguistic point of nuance, a sort of philological
quibble, but in reality Marx rejected the bourgeois ideology that markets,
via price movements, spontaneously converged on an equilibrium state, and
the best proof of that is, that the Marxian production prices exist even if
there is no equilibrium. All that Marx argues is that supply and demand will
"adjust" to each other, and that these successive adjustments exhibit a
determinate pattern, which corresponds to the imperatives which the
different economic actors have. He does not say, that the adjustments result
in an equilibrium state, or that if they result in an equilibrium state,
that this is simply the result of price movements.
In bourgeois Marxism, Marx's production prices are simply equated with the
"natural prices" of classical political economy (see e.g. Fred Moseley's
literalism). But this idea can be sustained only if you put your brain out
of gear, since Marx explicitly argues that market prices, production prices
and labour-values not only can durably diverge from each other, but also
fluctuate semi-autonomously from each other in the competitive process.
The truth is, that what Marx meant, is that the concept of "natural prices"
is ONLY HOW PRODUCTION PRICES APPEARED TO THE CLASSICAL POLITICAL
ECONOMISTS, and that the natural prices seemed "natural", because they
denoted a "normal cost structure" of production that would be achieved in a
state of equilibrium. The hidden premiss is that prices will "gravitate"
towards these natural prices, and therefore equilibrium, BECAUSE they are
the natural prices, and that it is "natural" for prices to converge on
equilibrium because it is in the nature of prices to do so, but this merely
shows that the classical economists were unable to explain the "price
mechanism" involved, and therefore resorted to analogies with Newtonian
mechanics! Marx also explains very clearly why this is the case: the reason
is not just "the method of abstraction" of the political economists, but
that their theory of value and their theory of prices were in truth not
integrated with each other. The vulgar Marxists then say that "Marx never
had any theory of prices" as if that would solve the problem... but that is
obviously just a red herring which misunderstands Marx's argument.
In reality, as I have pointed out in my simplified wikipedia article on this
topic http://en.wikipedia.org/wiki/Prices_of_production , the concept of
production prices is much more complex than the bourgeois Marxists with
their equilibrium theories say it is, and in his draft manuscripts, Marx
does not really do himself a favour either, by attaching several, logically
different meanings to production prices, namely:
1 - a theoretical equilibrium price, that would exist if supply and demand
on some definition were balanced
2 - a regulating price, which constrains price fluctuations within upper and
lower bounds
3 - an empirical price average, which can be statistically observed when
price trends are aggregated across an interval of time
I have pointed this out on OPE-L many times before. A non-metaphysical
(testable) theory of production prices must somehow prove how these
different meanings are related, such that production prices are a testable
concept (which Willi Semmler tried to do, although he makes some mistakes).
So anyway, to get beyond the bourgeois Marxism, according to which markets
create equilibrium via price movements, and return to Marx's own concerns,
we have to do four things:
(1) We have to stop reading Marx through the prism of the metaphysical
theory of equilibrium (metaphysical, because it cannot be scientifically
proved, only reasoned)
(2) We have to pay attention to conceptual inconsistencies and problems
occurring as Marx tries to work out the concept of production price and its
implications, in his draft manuscript.
(3) We have to get much clearer about the concept of prices and their
phenomenology, distinguishing between different price forms and types, and
different price regimes.
(4) We have to stop thinking of value simply as an objective reality, but
consider it an "objectified" reality that results out of subject-subject,
subject-object and object-object relationships involved in the competitive
and cooperative process involved creating and distributing wealth.
To my knowledge, this has never been done systematically, and in that sense
I agree with Kliman/Freeman that equilibrium ideology has severely
handicapped the development of Marxian theory, if not cut it off at the
knees altogether. For Marx, the "hidden order" resided in the stability of
enforcible property rights which enabled the propertied classes to claim
wealth, labour and income created by the propertyless, and accumulate it.
All the angst about the modern credit system is at root exactly about that,
i.e. that you lose your ability to control property claims if, on a very
large scale, people are using assets to extract income when they do not
actually own those assets, under the condition that the value of these
assets themselves cannot be securitized adequately (the "risk" factor). But
in that case, the "hidden order" is not primarily an economic one, but a
socio-political one, since there is no "economic" mechanism which guarantees
the power to claim and extract labour, income and resources from others.
In the old days, most newspapers had an "economy" section in which economic
issues were discussed. That has largely disappeared although some still
carry "business" features. Point is that the old ideology of the "economic
machine" has largely disappeared among the public, and that most people now
know that economic questions are decided simply by the power to command
resources. Since that very power has become rather uncertain - the fact that
you own a claim to wealth doesn't necessarily mean you control it or can be
sure of its value - the rentier class aims to instill respect for property
with military might ("if you don't toe the line, we will bomb you"). This is
of course also a mystification, since you cannot instill a positive morality
with violence, and people will do what is in their interest to do anyway.
But it nicely brings out what the basis of the "hidden order" really is.
Jurriaan
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Received on Wed Sep 16 07:42:44 2009
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