[OPE-L:7122] [OPE-L:624] equilibrium and non-equilibrium

Alan Freeman (a.freeman@greenwich.ac.uk)
Mon, 08 Mar 1999 08:57:37 +0000

Gerald Levy wrote:

> A simpler explanation might be that Marx didn't view (any type of) price
> (or anything else associated with capitalist relations of production) as
> "natural". Indeed wasn't it one of Marx's criticisms of Ricardo that
> for Ricardo social relations were held to be natural and eternal rather
> than socially and historically constituted?
>
I think there's definitely something in this. I also think the meaning of the
word 'natural' has, I'm convinced, changed in economic discourse since Ricardo
and Smith, and in a very retrograde direction even in comparison with the
intentions of these writers.

I think the early concept of 'natural wage' had a least some rational
foundation, in that it had a kind of biological content; it was the value
necessary, in some sense, to maintain the human organism to a level where it
could function as labour. This squares with the idea that 'nature' is what
happens when humans don't intervene: 'natural disaster', 'state of nature',
'natural sciences', etc.

What, then, is the 'natural' rate of unemployment or the 'natural' rate of
inflation? Taken literally, they would have to be what happens when humans
don't interfere with themselves. But this is a literal nonsense, an oxymoron:
employment and money are entirely human institutions. The word 'natural'
smuggles in an entirely different meaning; it presents the market as if it
were beyond human control. It reifies the market, giving it effectively divine
status.

I think the notion of 'natural price' is an intermediate stage in the
retrograde evolution of this concept. Smith writes:

"There is in every society or neighbourhood an ordinary or average rate both
of wages and profit in every different employment of labour and stock. This
rate is naturally regulated, as I shall show hereafter, partly by the general
circumstances of society, their riches or poverty, their advancing,
stationary, or declining condition; and partly by the particular nature of
each employment.

"There is likewise in every society or neighbourhood an ordinary or average
rate of rent, which is regulated too, as I shall show hereafter, partly by the
general circumstances of the society or neighbourhood in which the land is
situated, and partly by the natural or improved fertility of the land.

"These ordinary or average rates may be called the natural rates of wages,
profit and rent, at the time and place in which they commonly prevail.

"When the price of any commodity is neither more nor less than what is
sufficient to pay the rent of the land, the wages of the labour, and the
profits of the stock employed in raising, preparing, and bringing it to
market, according to their natural rates, the commodity is then sold for what
may be called its natural price.

"The commodity is then sold precisely for what it is worth, or for what it
really costs the person who brings it to market...The actual price at which
any commodity is commonly sold is called its market price. It may be either
above, or below, or exactly the same with its natural price...

"The natural price, therefore, is, as it were, the central price to which the
prices of all commodities are continually gravitating. Different accidents may
sometimes keep them suspended a good deal above it, and sometimes force them
down even somewhat below it. But whatever may be the obstacles which hinder
them from settling in this centre of repose and continuance, they are
constantly tending towards it."

One of the things I like about reading what people actually write, instead of
what others attribute to them, is that one may observe at war in their
writings all the influences of thought and circumstance that correspond to the
conditions of their existence, and see to what extent their intellect
superseded these circumstances. I think the past and future development of the
concept of 'natural price' is almost all present in this passage from Smith.
On the one hand the natural rate of wages, and of the land, is determined by
'genuinely' natural circumstances, circumstances outside of human intervention
or only indirectly susceptible to human intervention. The natural biological
capacities of labourers and the natural fertility of the land. On the other,
seeking universality, Smith seeks to bring stock into the same general
framework, but actually provides no natural basis for the 'natural' rate of
return on stock that I can see. The process thus begins of attempting to
explain a social phenomenon as if it were a natural one. I don't find this
altogether unreasonable for a society in which land and labour were a much
larger element of the forces of production than socially-produced ones.

I think the subsequent evolution of economic theory has reversed this (with
the exception of Marx) In the developed (ideological) form of this concept, as
capital becomes the organising principle of all social production and as the
forces of production are, increasingly, produced by humans and not nature, the
word 'natural' itself is redefined as an offshoot of the action of capital.

It is odd that very few people see the contradiction that arises. Nature in
all other uses of the word, stands *opposite* to 'human' or 'artificial'; but
in economics it has come to describe things that are entirely human and
despoil nature.

It's also worth noting that Smith introduces the notion of gravitation to
justify and glue together the whole clanjamfrie; the empirical proof that
natural prices have meaning, for Smith, is that actual prices 'tend' towards
natural prices. This idea also not, it seems to me, have its current meaning;
for example, Smith considers that market prices are higher than natural prices
much more generally than below them; elsewhere he states that the market
prices of some products may be higher than natural prices for 'centuries'.
Natural prices therefore neither approximate market prices, nor are they the
time average of market prices.

Since Smith is considered a progenitor of the 'labour theory of value' and
since a close correlation between price and value is considered a proof of
this theory, one wonders what exactly would be proved by such correlations,
did they exist...

Alan