[OPE-L:7421] [OPE-L:953] Re: Marx's concept of prices of production

John R. Ernst (ernst@PIPELINE.COM)
Thu, 06 May 1999 05:57:57

RE: Ajit's OPE-L 951

In responding to my comments concerning Sraffa and the inability
of his system to deal with absolute rent, Ajit wrote:

"John, this is simply wrong! Have you read Sraffa's chapter on Land
in *PCMC*? The position of land is equivalent to the position of
non-basics in Sraffa's system. So it has no impact on the rate of
profit. The question of absolute rent has also been taken care by
Sraffa. On this issue, again, there is very little difference
between Sraffa and Marx if one looks at the two thinkers closely.
But you must read his chapter on Land."

Comment: You find "absolute rent" in that chapter?
Consider the following system with 2 commodities and
two processes.

(1) 100 iron + 25 Corn ----> 130 Iron
(2) 20 iron + 20 Corn ----> 60 Corn

Granted we could find the relative prices ala Sraffa if we assume
that both (1) and (2) have the same rate of return on their investments.
But if (2) earns some absolute rent, what are we to do? If
1 corn = 1 iron, we would have

(1) 100 iron + 25 iron ----> 130 iron
(2) 20 corn + 20 corn ----> 60 corn

(1) has a rate of return of (130-125)/125 or 4 %. (2)
has a rate of return of (60-40)/40 or 50%. To be sure,
our assumption that 1 corn exchanges for 1 iron is
arbitrary. Yet given absolute rent entirely
possible. Corn may fetch a bit less iron and we could
still have the corn sector earning absolute rent albeit
a bit less than that in our example.

If you find a way around this problem using Sraffian tools,
I'd be interested.

I had written:
> Had I been responding to Fred's idea that prices of production
> represent some sort of long run equilibrium prices, I would
also say that absolute rent means that the prices of production
in Ch. 9 are not equilibrium prices. Why? Simply, by including
those sectors that earn this type of rent we have no idea how much
of the surplus profit they produce is represented in the prices of
the competitive sectors. That is, since the amount of absolute
rent is, at most, the difference between the value and price of
production of the commodity produced, we have no information
to determine whether or not that rent is at a maximum. Clearly,
to transform Marx's prices of production into equilibrium prices as
I think Fred attempts, we would need to know something about the demand
for commodities that earn absolute rent.

Ajit responded:

As above, see Sraffa. Your concerns seem to be misplaced.


My concerns can be quickly put to rest by showing me how with no
reference to demand one can deal with that corn sector(2) above.

> I had written:
> >But let's deal with another issue here and now. What is
> the "long-run"? Is there technical change in this "long-
> run"? If not, why not? Given the use of the term
> "long-run" -- in modern economics its unclear what the term
> means in the Marxian context.
> Ajit wrote:
> Sraffians usually use the term "long term" rather than "long run"
> to distinguish their concept from Marshallian "long run". "long
> term" is long enough time to allow for capital movements across
> industries in response to differential rates of profit. But these
> "long term" prices can be determined independently of the
> adjustment process, that is why the properties of the system can
> be
> analyzed independently of the process that brings the system to
> equilibrium.
Comment: In my example, that long term adjustment simply cannot
occur. We cannot assume away the owners of that land on which
the corn is produced and insist that all rent be differential.

I wrote:
> 1. As capital shifts from one sector to another, do techniques
> change?
The real question for you is that whether the capital movement
itself brings about technical change or not. As long as capital
movement which takes place in order to bring about the uniform rate
of profits is not a cause for technical change, then there is no
logical problem with the concept of long term prices. If you
introduce technical change from outside, while the capital
movements to bring about uniform rate of profits is going on, then
all you do is that you change the long term prices for that
particular time. The long term prices are defined independently of
the historical time that is supposed to bring about the
equilibrium. it is defined for a given point in time, given
technology, real wages, and total output.

But points in time do not exist. Indeed, if they did the apple
would never fall since at every point in time it is stationary.
That said let's consider long

I wrote:

> 2. Are the rate of profit and "long term" prices the same as
> those seen when the system reaches equilibrium?

Ajit wrote:

They are compatible with the equilibrium position. But there is no
requirement that the system must be in equilibrium for the analysis
of the system based on long term prices.

Comment: The long term prices are valid for only a point in time
and may never actually exist? I think the term "long term" in
this context leads to confusion. It implies the passage of time
which is actually frozen at a given point.

John had written:
> >3. I'm as confused by "long-run 'center of gravity' prices" as
> I
> am by "long-run average prices." Are these average prices
> computed using prices of production in various periods? As
> we compute this average is technical change taking place?
> ____________
> Ajit wrote:
> I think "average" is a poor choice of word in this context (I
> myself have used 'average profit' on one occasion in print I
> think, and I regret that) Prices of production is not some kind of
> statistical average derived from a bunch of observed 'market
> prices'. The gravitational point is determined independently of
> 'market prices', as in the case of pendulum--its gravitational
> point is determined independently of the position of the pendulum
> at any given time.
> Comment: But given your perspective would not the price of
> production be the expected value of the market price?

Ajit wrote:

Not really. It's not a statistical concept at all.

Comment: OK. Price of production is not a statistical concept for
you. But what are to make of the computed "gravitational point"
or your price of production? Do market prices gravitate to the
price of production?