[OPE] Reply to Bendien on equilibrium and disequilibrium theory with reference to capitalism

Jerry,

The "natural prices" of the political economists like Ricardo, Mill and
Smith are average cost prices of commodities assumed to be equal to, or
approximately equal to, labour-values, and their theory of equilibrium
consists in saying that market prices naturally gravitate to these cost
prices, viewed as equilibrium prices. In this way, an equilibrium balance is
achieved according to the political economists between supply and demand,
via the price system, and as a corollary, labour expenditures are balanced
against the intermediate and final demand for commodities. "Therefore",
product markets spontaneously tend to converge on an equilibrium state, and
"therefore" the production system as a whole can attain equilibrium through
market trade.

This tendency is interpreted by Ian Wright as the "homeostatic tendency" of
the market production system, its intrinsic ability to achieve stability and
constancy by itself, via price fluctuations. But in fact, at any time, there
exists no equilibrium and homeostasis, among other things because in reality
the equilibrium price is never reached, there is no evidence for it, it
never obtains except as a momentary coincidence. The whole thing is
therefore a counterfactual abstraction.

In fact, using this counterfactual abstraction, the political economists
were unable to demonstrate that cost prices equate to values, because they
failed to integrate their theories of value and their theory of prices in
any consistent way. Ricardo, who believed that distribution was the proper
object of economics, does actually note that "value" is not identical with
"production cost" but he is unable to explain consistently how exactly they
are related. Effectively his theory of value is merely a sort of "add-on" to
a theory of equilibrium cost prices, and it is therefore unsurprising that
the neo-Ricardians drop the value theory altogether, regarding it as
irrelevant and redundant. They are left with the idea that the stability of
the price system is created by... the price system itself, and in fact this
is the centrepiece of bourgeois economics.

Marx in contrast argues that the idea that homeostasis or equilibrium is
achieved by prices and market trade is an ideology, and that if a relative
stability of the production system as a whole is achieved, we ought be
looking for the causes of it somewhere else. He also demonstrates that it is
precisely the divergence of market prices, production prices and
labour-values that is the pivot of competition in product markets.
Capitalists aim to buy below value and sell above value if they can, or at
least sell below value, but at a profit, under the condition that all
competitors have the same objective. The capitalist system is therefore
propelled forward by the imperative to reduce costs, increase sales and
increase profits, without being able to escape from the constraints of the
labour-time required for it.

Marxists however adopt the ideology of market equilibrium, equate it with
the homeostasis of the production system, and therefore are unable to
extract themselves from the intellectual framework of bourgeois economics.
They are consequently unable to explain the interaction of the law of value
and the law of competition for extra profits, in such a way that a theory of
capitalist dynamics is achieved. The crippling assumption is, that prices
and markets create systemic equilibrium, the very premiss contested by Marx
and Engels!

In this sense Andrew Kliman and Alan Freeman are quite correct, but their
problem is that they want to be inside and outside the equilibrium framework
at the same time. That is what "disequilibrium economics" is all about. You
are quite right in that sense, i.e. that disequilibrium assumes equilibrium.

On the one hand, Kliman/Freeman aim to prove with a model that a
distribution of prices can exist such that total values and total prices of
all capitalistically produced commodities bought and sold balance out
exactly (for every lot of commodities sold above value, another lot of
commodities is sold below value in the same proportion). On the other hand
they deny that any market equilibrium exists. And this is a rather quixotic
quest, among other things then it just depends on whether you accept the
assumptions of the model as reasonable or whether you think they are
arbitrary - to sustain the model, you are driven to explicate more and more
auxiliary assumptions, each one of which is contestable. A stack of papers
is then produced to contest the assumptions and rebut the criticisms. The
real theory however consists in explaining how the capitalist production
system actually adjusts to constant disproportions, and why it cannot adjust
to certain critical disproportions. The whole thing has to be theorized in
motion. For Marx at least, that wasn't simply a matter of price
fluctuations.

Your eclectic approach consists of saying that equilibrium could be defined
in all kinds of ways according to what you happen to prefer, but anyhow
equilibrium is a useful analytical notion. But this is shallow and sidesteps
the whole issue which I have briefly indicated in the above, and in previous
mails, because the central question is whether an equilibrium really exists
or can exist, or whether it is simply a counterfactual theoretical
assumption. If it is a counterfactual assumption, as Marx argued, the
question then is, whether we can explain the regulation of the whole of
capitalist production on the strength of that counterfactual assumption. The
edifice of Capital Vol. 3 is erected on the basis that you cannot; the
theory of capitalist regulation has nothing to do with market equilibrium,
except that attempts are made by the property owners to estimate market
potential, and what size of price fluctuation is, or is not, conducive to
doing business.

This means admitting that the spontaneous tendency of markets to converge on
equilbrium does not exist, what exists is only the spontaneous tendency of
supply and demand for commodities to adjust to each other, without however
reaching any market equilibrium in the production system as a whole. Instead
of prattle about "equilibrium" and "disequilibrium", we are therefore
motivated to investigate the forms which this adjustment process actually
takes, and why the production system itself generates obstacles to this
adjustment process which ultimately it is unable to overcome, causing a
crisis. The system is stable so long as property rights and income
entitlements are secure, but if the value of assets and their earning
potential suddenly deteriorates or disappears, the conditions of economic
reproduction begin to collapse. You thought you owned something, even if it
was only your own labour power, but it is suddenly worthless.

The reference to "levels of abstraction" is a red herring, because that just
says something is meaningful, coherent and valid if we make certain
assumptions, if we assume certain conditions. The whole point of Marx's
critique of political economy however was, precisely, to demonstrate that
because the political economists made certain assumptions, and because they
abstracted in a certain way, they were not just unable to explain the
capitalist economy, but fell from one inconsistency into another. But, as a
matter of fact, this result, ideologically, was not mere accident, because
it performed an apologetic function, simultaneously mystifying the real
nature of the production system and justifying the market economy.
Obviously, you are at liberty to abstract in any which way you like, but
this does not necessarily say anything for your ability as economist, or for
your awareness of the antecedents and effects of your own preferred theory.

Jurriaan

_______________________________________________
ope mailing list
ope@lists.csuchico.edu
https://lists.csuchico.edu/mailman/listinfo/ope
Received on Sun Sep 20 10:22:41 2009