In my Boston paper (and summarized in recent OPEL posts), I reviewed
all of Marx's published writings on his concept of price of production,
and concluded that Marx consistently defined his concept of price of
production as a long-run equilibrium price, in the precise sense that prices
of production have the following four characteristics:
1. RATES OF PROFIT ARE ASSUMED TO BE EQUAL
as a long-run tendency, not as an actual fact in every period
2. SUPPLY AND DEMAND ARE ASSUMED TO BE EQUAL
again, as a long-run tendency
3. FUNCTION AS LONG-RUN "CENTER OF GRAVITY" PRICES,
around which actual market prices fluctuate from period to period,
due to supply and demand. In other words, prices of production
are long-run average prices, not the actual prices of any given period.
4. CHANGE IF AND ONLY IF:
a. the productivity of labor changes
b. the real wage changes.
There seemed to be general agreement in Boston that this is a correct
interpretation of Marx's concept of price of production. In any case, no
one has presented any critique of my textual evidence, nor any contrary
textual evidence in which Marx explicitly defined prices of production in a
different way. Over and over again, when Marx discussed his concept of
price of production, the above is what he said.
John has argued that the interpretation of Marx's prices of production as
equilibrium prices is "simply mistaken." However, John has not considered
any of the textual evidence I have presented in which Marx actually
discussed his concept of price of production. Instead, John makes the
following arguments (with my responses below):
a. Because market prices move around the price of production does not
mean that prices of production do not change as this movement takes place.
b. Given that Marx himself stated that not all sectors are included in the
transformation procedure, it's hard to see how one can even imagine that
prices of production are equilibrium prices.
c. To assert that the rate of profit that Marx says has a tendency to fall is
an equilibrium rate of profit forces one either to agree with Okishio's
criticism of Marx or to assert that rising real wages are necessary for the rate
of profit to fall.
d. Much as we'd like to abstract from technical change as we move from
one period to the next, we cannot do so without a full understanding of what
we are abstracting from. To simply claim that the transformation procedure
in Marx abstracts from technical change ..., one is forced to either:
i. ignore the traverse from one period to the next as technical change
takes place
ii. hold fast to the notion that Marx's falling rate of profit differs
only
slightly from that of Ricardo.
MY RESPONSE
a. I do not argue that prices of production cannot change as market prices
fluctuate around them. Rather, I say that, according to Marx, prices of
production change IF AND ONLY IF productivity or the real wage changes
(#4 above). This is very different from Andrew and Ted's "prices of
production" which change every period, even when productivity and the
real wage remain constant.
b. I presume that John means the agricultural sector, whose long-run
average prices are not prices of production, but instead are higher than
prices of production, because of absolute rent. However, this changes
nothing fundamental. The agricultural long-run average prices are still long-
run equilibrium prices, in the sense of the same four characteristics above,
(including equal rates of profit), and prices of production in other sectors
continue to have the same four characteristics and hence continue to be
long-run equilibrium prices in this sense. The existence of absolute rent
does not mean that the nature of prices of production changes from long-run
equilibrium prices to something else. Marx never said anything like this.
Rather he said the opposite (see e.g. pp. 894-96 of the Penguin edition of
Vol. 3 in the chapter on absolute rent). Hence it is NOT "hard to see how
one can even imagine that prices of production are equilibrium prices"
when absolute rent is considered. One does not need to "imagine" this.
Marx said it.
c. I am not sure that this conclusion necessarily follows. The Okishio
Theorem assumes the Sraffian interpretation of the determination of the rate
of profit, which I do not accept. But even if this conclusion does follow,
this does not change how Marx defined his concept of price of production.
Even if this conclusion is logically implied by Marx's definition of
prices of production. The four characteristics above is nonetheless how
Marx defined his concept of price of production every time he discussed it.
d. I do not say that "Marx's transformation procedure abstracts from
technical change". Rather, I say that Marx¹s logical procedure in Part 2
of Volume 3 is very clear: First he determines prices of production on
the basis of given productivity and a given real wage. Then he examines
the effects of changes in productivity and/or changes in the real wage.
Productivity may change, and when it does, it changes prices of
production. But prices of production do not change as long as
productivity (or the real wage) remain constant.
So it seems clear that the interpretation of Marx's concept of prices of
production as long-run equilibrium prices in the sense of the above four
characteristics is not "simply mistaken." None of John's arguments are
valid arguments against this interpretation. Rather, this interpretation is
strongly supported by all the textual evidence whenever Marx discussed
prices of production. What is mistaken is the interpretation that Marx's
concept of price of production is something other than long-run equilibrium
prices.
Looking forward to further discussion,
Fred