Let me ask you a question. Do you have a theory of price? If yes,
then what is it?
Below you say that the process of profit rate equalization itself
changes the equal rate of profit. Could you give us your reasons
for this? Cheers, ajit sinha
________
>
> I think the modern view isn't so extreme, but in many senses it
> is worse.
> Ricardo just says well, there's a contradiction here, because
> according to my
> definition of value, goods ought to exchange at their values but
> according to
> my Law of one price, they must exchange at EPRP. Modern
> comparative statics
> says, actually they don;t do either but EPRP prices can be
> treated *as if*
> they were actual prices. That's what I take the concept of 'long
> run' to mean.
>
> The problem is that empirical actual prices *can't* be treated as
> if they were
> long-run prices, and if one does this, it produces catastrophic
> errors.
>
> Not least, it yields a rising profit rate where Marx's treatment
> (as I
> interpret it) yields a falling profit rate. You can't get much
> more
> catastrophic than that, if you are interested in the validity of
> Marx's
> theory, not to mention the behaviour of actual markets.
>
> To the extent that prices did empirically diverge from EPRP the
> 'Ricardian'
> (comparative static) view treats this divergence as an accidental
> deviation
> from a long-run trend, which seems to be your position
> though I'm not clear. That's my understanding of the term
> 'long-run price' in
> any case.
>
> My point is a very straightforward and standard non-equilibrium
> criticism; the
> long-run never happens. The process of so-called 'adjustment' (I
> think Marx
> would speak of this as the tendency for profit rates to equalise)
> begets
> forces that move the target, that alter the general profit rate,
> alter
> sectoral capital compositions, and drive apart that which the
> equalisation
> process drives together. The process is path-dependent. Moreover,
> the path-
> dependent effects modify all fundamental variables (eg the rate
> of profits)
> If, therefore, one eliminates the dynamic effects of the
> adjustment process
> itself, one ends up with completely different results: false
> results, I
> would say.
>
> Moreover the processes of adjustment make capitalism what it is:
> the drive
> for superprofits (which Marx discusses extensively) which in
> turn drives the
> movement of capital. Paradoxically *unless* profits diverge
> from each other, the market has no dynamics and there cannot even
> be a
> tendency towards equalisation. By its very nature, the market is
> in a constant
> state of failure. This failure is not an exception to the market;
> it is what
> the market consists of. 'Perfect competition' is an utter
> oxymoron; if it's
> perfect, then there's no competition.
>
> I think that is one of the reasons that Marx himself doesn't use
> the word
> 'natural price'; that's why he doesn't say "I'm doing natural
> prices, better
> than Ricardo"; he says "I'm doing something else, superior to
> Ricardo". Of
> course in so doing he is entitled to say, and does say, "this is
> what Ricardo
> was actually trying to get at, and couldn't", just as Einstein is
> entitled to
> say "The curvature of space-time is what has hitherto been called
> gravity."
> Whenever science invents a superior concept, it sublates the
> preceding
> concepts; the new concept explains everything the old concept was
> intended to
> explain but also overcomes the contradictions of the preceding
> concept.
>
> One of the most important ways in which price of production
> sublates Ricardo's
> "natural price" is that it abandons the supposition that Ricardo
> always makes,
> of the equalisation of supply to demand. "Natural price" cannot
> then be
> defined, as Ricardo would have liked, and as Ricardo actually
> defined value,
> as the price which the market "would" obtain "if" supply equalled
> demand. No
> such hypothesis is neeeded. Instead we take the actually observed
> prices of
> capital advanced, divide this into the actually observed time
> worked less the
> actually observed price of labour-power, and derive the rate of
> profit. This
> rate has empirical reality; it isn't something that prices 'tend
> to' or 'might
> become'; it's what exists. It is nevertheless not the same as the
> price rate
> of profit because it is measured in labour-time; as Andrew's
> paper
> demonstrates and I have in the past also shown, the rate of
> profit is not the
> same in labour-time as it is in money or 'physical units'.
>
> That's my definition, and I think it's Marx's too, and I don't
> think it's
> Ricardo's. The tremendous advantage of it is that it applies
> under actual
> market conditions, so that it allows us to study non-equilibrium
> behaviour in
> its full complexity. We may therefore study all manifestations of
> the law
> of value and all variants of capitalist motion. We are not
> confined to use
> a concept that is valid only when the market is in stasis, that
> is, valid
> only under conditions that cannot happen and which contradict the
> very
> nature of the market.
>
> It is perfectly possible with this definition to demonstrate
> dynamic
> processes through which this non-equilibrium general profit rate
> and the
> resulting non-equilibrium production prices, 'regulate' observed
> prices. I
> think that what actually happens is more or less what Marx says,
> that this
> regulation takes place over the period of the whole business
> cycle; I think an
> empirical study would show (and this is what Marx himself
> reports) that the
> *moving average* of market prices over the period of a cycle,
> tracks the
> movement of these non-equilibrium production prices. I think it
> is quite easy
> to show the processes that lead to this phenomenon; if a
> superprofit is
> realised in a given sector (price higher than the EPRP price)
> then capital
> migrates into this sector and brings the price down. However in
> general, it
> does not bring it *closer* to the EPRP price but to the *other
> side* of the
> EPRP price so that the EPRP price appears as regulator only in
> the average,
> not as an approximation.
>
> We don't need any notion that the EPRP price is a long-run
> tendency, in order
> to express this idea.
>
> Now let's look at the alternative, the idea that EPRP 'regulate'
> actual prices
> by serving as long-run prices, a concept which in the literature
> means that
> that actual prices are merely an accidental deviation from EPRP;
> that in some
> sense EPRP 'approximate' actual prices.
>
> The two ideas really are different. If the sun were to serve as
> the 'long-run'
> position of the earth, this would mean that either the earth was
> actually in
> the sun, or that it was on average so close to the sun that its
> distance from
> the sun doesn't matter. This is not so; nevertheless the sun's
> position both
> 'regulates' the position of the earth, and serves as its average.
>
>
> My fundamental point is that under technical change it is
> *impossible* for
> market prices to approximate to EPRP prices.
>
> *If* the economy is static, that is, if technology isn't
> changing, it turns
> out that nevertheless EPRP prices have an important property; we
> can show that
> there is a possible process of adjustment which over time could
> be conceived
> of as allowing goods to exchange at non-equilibrium prices, and
> nevertheless
> converging on EPRP prices. I think that this property is the
> *main*
> justification for treating them as an aspect of reality. As long
> as we
> hypothesise a static economy, we (or at least, equilibrium
> economists) can
> wave their hands in the air and say 'OK, prices don't equal EPRP
> prices. But
> they move around them, and they get closer to them.'
>
> But this property vanishes when we introduce technical change;
> that's what I
> demonstrate. With secular technical change, it is impossible to
> devise an
> adjustment process such that profit rates are equal or converge,
> *and* market
> prices approximate to EPRP prices.
>
> In my paper I demonstrate this: I show that one or other of the
> fundamental
> Sraffian propositions must be violated in any actual process of
> exchange;
> either profit rates diverge, and goods exchange at prices of
> production, or
> market prices diverge indefinitely from prices of production.
> EPRP *cannot* be
> the basis of any actual exchange.
>
> I think this is a pretty severe hole: what justification is there
> for using
> the word 'price' for something that cannot function as the basis
> of exchange?
> What meaning can we give to the concept of 'long-run' prices if
> it is actually
> impossible for market prices to approximate them? What is left,
> that they
> actually explain?
>
> Therefore, 'long-run' prices *cannot* act as a determinant of
> actual prices.
> The two don't have any necessary relation.
>
> I hope this offers some clarification.
>
> Alan
>