[OPE] Reply to Ian Wright on counterfactual equilibrium

Ian,

I don't find this discussion very useful either, since you present no
evidence that the successive adjustments of supply and demand via the
exchange process (the trading process in markets) in line with price signals
create any real and lasting balance between supply and demand, nor do you
provide evidence that this exchange process itself can create balance in the
economic system as a whole.

As I have stated ad nauseam over and over again, Marx never believed that
markets by themselves could accomplish such a balance. Market equilibrium
does not exist in reality, it is a theoretical construct, an interpretation,
and market equilibrium does not create the social order. In any society, the
physical necessity exists to produce, reproduce and consume the conditions
for material and social life, and for Marx THIS is the basis for the social
order and social stability. In capitalist society, the mentioned processes
are mediated by markets, creating the illusion that the price system itself
accomplishes the social order by balancing out human requirements, but in
reality this is not so, at least not according to Marx, who regards this
illusion as a reification. The "hidden order" is the structure of production
relations encoded in enforced and enforcible property rights, which, within
certain limits, is compatible with all kinds of market fluctuations. If
there is a homeostatic tendency, this refers not to markets or prices, but
to the social system which markets mediate.

My own interest in your computational approach is not because I have some
kind of unprovable equilibrium philosophy, but only because I think that
with such an approach it might be possible to describe quantitatively how
the "adjustment process" of supply and demand for products is regulated by
labour-time. In other words, this is not about "describing the theoretical
conditions for balance", but dynamically "the balancing act itself", the
rather imperfect and haphazard equilibration proces itself, via the dynamics
of competition, a process which takes the form of successive adjustments of
labour-time and human needs expressed via effective demand, but which in
fact never results in market equilibrium.

The passage from Das Kapital I referred to before reads (in the inadequate
old official translation):

"It requires a fully developed production of commodities before, from
accumulated experience alone, the scientific conviction springs up, that all
the different kinds of private labour, which are carried on independently of
each other, and yet as spontaneously developed branches of the social
division of labour, are continually being reduced to the quantitative
proportions in which society requires them. And why? Because, in the midst
of all the accidental and ever fluctuating exchange relations between the
products, the labour time socially necessary for their production forcibly
asserts itself like an over-riding law of Nature. The law of gravity thus
asserts itself when a house falls about our ears. The determination of the
magnitude of value by labour time is therefore a secret, hidden under the
apparent fluctuations in the relative values of commodities. Its discovery,
while removing all appearance of mere accidentality from the determination
of the magnitude of the values of products, yet in no way alters the mode in
which that determination takes place."
http://www.marxists.org/archive/marx/works/1867-c1/ch01.htm

This is the core idea of Marx's theory of value, and his criticism of the
political economists was not only that they failed to explain consistently
how labour-time could regulate exchange, but also that they fell victim to
the illusion that "markets" for products regulated exchange. This leads
directly to abandonment of a value theory linking production and exchange,
in favour of a theory of equilibrium prices, and to the ideology of general
equilibrium created by market trade, since it boils down to the idea that
prices are regulated by... other prices, and it explains why official
economics becomes rather uncertain and eclectic when it has to explain how
markets are formed when there are none. The reality is that people must be
compelled to meet their needs via the market, by changing the property
system, so that they have no alternative. A striking illustration of all
this is provided when we study the American reconstruction of Iraq, which in
a dictatorial way imposed a system of private property and state property on
the people as the precondition for a new system of market trade.

Jurriaan

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Received on Thu Sep 24 11:00:17 2009