[OPE] classical macrodynamics and the labor theory of value

Ian,

Thanks for your comment, but I dissent from the opinion that the concept of
production prices is "well-defined" in post-Sraffian economics (which
diverges from Marx's view). Neither Smith or Ricardo was able - as Marx
points out - to arrive at a coherent concept of "natural prices" and that is
exactly WHY those prices were called natural prices. The idea was that
natural prices reflected a "natural" equilibrium and that society gravitates
towards that natural equilibrium, without any explanation being given of how
exactly that works. Smith and Ricardo were aware to some extent I think, as
you say, that natural prices vary from labour-values, and this presented a
problem for the LTV, but the whole point is that they were unable to explain
why. For Marx, the divergence is not an abberation, but precisely the pivot
of competition in the production system, which drives it forward. The
"dyamic" is captured by the continual shifts of product-values, production-
prices and market prices relative to each other, according to the vagaries
of competition.

Whether we talk of a static equilibrium or a dynamic equilibrium, it is all
based on the simple idea that supply and demand adjust to each other, and
that there exists a "structure" of prices and price levels that
the exchange process will converge on. But the equilibrium of branches of
production is then determined by circulation - this is presumably exactly
what Marx at least denied. The prices are not causes, but effects of the
real process: the changing value proportions which express variations in
labour-time, productivity and power relationships.

The dispute is not really that equilibrium notions are necessarily
inapposite for analytical purposes (we need constants in order to study the
change and variability of a process), nor that an "attractor" cannot not
exist. The question is rather what the "constant" and the "attractor" itself
are, and I think for Marx at least they are not to be found in the
marketplace (in circulation) itself, but in the relations of production
which he terms the "economic structure", which result from the
compulsion to produce for a living and the enforcement of property
rights.

We can of course invent an equilibrium system of prices and show that, faced
with a disturbance of relative prices, the price system compensates for the
disturbance to the point that the equilibrium is restored, as indicated by
the constancy of price distributions across time. But all that really says
is that supply and demand will adjust to each other, and that some price
levels are explained by other price levels, effectively that prices are
explained by other prices. The intrinsic "dynamic" of the price system is...
to move towards equilibrium and constancy. But I think that is what Marx
denied and with good reason, since there is no evidence for it.
Certainly supply and demand do adjust to each other, but the
"system" is fundamentally not a system of prices, and the "attractor" is
fundamentally not a price structure.

Even in your "hot air" example, it isn't even clear to me how we should
exactly define what the "attractor" actually is. You argue there is a
mechanism which works to drive the temperature to 60 degrees, but in fact it
will never reach 60 degrees, and there is no evidence that it ever reaches
60 degrees. But in that case there is no "mechanism" which works to drive
the
temperature to 60 degrees, only a mechanism which causes the temperature to
rise, even although the temperature fluctuates constantly. To explain this,
we
do not even need to assume that the temperature would rise to 60 degrees.

If we define "natural prices" as those prices that obtain when there is no
profit incentive to reallocate capital given constant technique and constant
final demand, we have provided a description of a theoretical price which is
never realized. At best we have provided a description of conditions which
would apply, if the production system was in equilibrium. The theory of
dynamics then consists of saying that the production system has, other
things being equal, the tendency to converge on this equilibrium state, or,
if there is a disturbance, that there is a tendency to return to the
equilbrium state. The theoretical price is then the "attractor" of real
prices. But I don't think Marx was concerned with that really. Equilibrium
plays almost no role in his theory, except in defining what the limits of
price movements contingently are. Provided workers go back to work, and
property rights are protected, it's business as usual and the production
system reproduces itself, however haphazardly it may do so, whatever the
scope of price fluctuations. Obviously if the price fluctuations go beyond a
certain magnitude, this will cause a big disturbance in the reproduction
process, yes. But the real point is that equilibrium is not a requirement
for economic reproduction, and price movements merely mediate that process,
they do not fully determine it. If we discover a big price disturbance, we
have not explained thereby what caused it.

What Marx was concerned with I think was the forces and parameters of
competition, which will determine the trajectory in which the production
system will develop. That is what the theory of dynamics is about; we aim to
explain why the production system empirically develops in the way that it
does, and why it is likely to develop in a certain way in the future. Marx
implies that the production system could in principle develop in all sorts
of ways, but it doesn't, and, it doesn't because there is a logic to the
capital accumulation process which drives the accumulation process in a
certain direction. It rules out certain developmental paths, and it makes
some developmental paths more likely than others.

Jurriaan

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Received on Wed Feb 2 12:46:06 2011