In previous posts, I have argued (summarizing my Boston paper) that
Marx's concept of price of production is a long-run equilibrium price, in
the precise sense that it has the following four characteristics:
1. RATES OF PROFIT ARE EQUAL ACROSS INDUSTRIES
as a long-run tendency, not as an actual fact in every period
2. SUPPLY AND DEMAND EQUAL FOR ALL INDUSTRIES
again, as a long-run tendency
3. FUNCTIONS 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. CHANGES IF AND ONLY IF there is:
a. a change in the productivity of labor
b. a change in the real wage
These two are the fundamental structural features that determine the prices
of production of commodities, according to Marx's theory. Prices of
production do not normally change every period. Rather, prices of
production change only from time to time, and only when there is a change
in one of these fundamental structural features, not as a result of superficial
features, such as supply and demand. Marx's major emphasis was on
changes in the productivity of labor as the main cause of changes in prices of
production.
I have also argued that Andrew and Ted's definition of "prices of
production" does not have these characteristics, and in particular does
not have the fourth characteristic. Andrew and Ted's "prices of
production" change every period, even though productivity and the real
wage remain constant. Therefore, their interpretation is a
misinterpretation of Marx's concept of price of production. John has said
that he accepts this fourth characteristic as one aspect of Marx's
concept of price of production. Therefore, John must implicitly agree
that Andrew and Ted's interpretation is a misinterpretation.
I will argue below that none of John's arguments casts any doubt on any of
these four characteristics of Marx's concept of price of production. In
other words, these four characteristics are what Marx meant by price of
production.
WHAT IS THE LONG-RUN?
The main issue that John raises is what exactly do I mean by the "long
run", and in particular is there technological change in the long run?
In a sense, what I mean by the "long-run" is simply the 4th characteristic
above of Marx's concept of price of production - that prices of production
change if and only if productivity or the real wage change. "Long run
prices" are prices that change only due to changes in the fundamental
determinants of prices (productivity and the real wage). Marx emphasized
the distinction between these fundamental determinants of prices of
production and the superficial determinants of market prices (supply and
demand). The fundamental determinants change more slowly than the
superficial determinants. In this sense, the distinction between the long-run
and the short-run is just another way of expressing the distinction between
the fundamental causes of prices of production and the superficial causes of
market prices.
The long-run can also be given a more precise temporal meaning - as the
period of time during which the fundamental determinants of prices of
production (productivity and the real wage) in a given industry remain more
or less constant, and hence during which the price of production of this
industry also remains more or less constant. The long-run will be different
for different industries. In some industries, the long-run will be a relatively
short period of time and in other industries longer periods of time.
In the 18th and 19th centuries, during which Smith and Ricardo and Marx
were writing, the fundamental productivity of many industries remained
more or less constant over longer periods of time. Therefore, the
"long-run" in many industries was a longer period of time. I think this
is how Marx (and Smith and Ricardo) conceived of prices of production (or
"natural prices") - that they would change only slowly and that actual
market prices would fluctuate much more rapidly around these relatively
stable "centers of gravity"
In the 20th century, the pace of productivity change has probably increased
in most industries, so that the "long-run" is now a shorter period of time
in most industries.
However, nothing crucial hinges on this shortening of the actual period that
is the "long-run". This shortening does not alter the distinction between
fundamental determinants of prices of production and the superficial
determinants of market prices. Even though prices of production change
more frequently than they used to, they still change less frequently (and
with smaller magnitude) than actual market prices. The shortening of the
long-run also does not alter the fact that Marx never once said that prices of
production may change even though productivity and the real wage remain
constant, as in Andrew and Ted's interpretation.
Please note that this interpretation does not assume that technology never
changes, but only that, within a given industry, technology does not change
every period and instead sometimes remains constant for longer periods of
time. Furthermore, this interpretation also does not does not imply that
Marx's analysis of the "laws of motion" of capitalism must assume that
technology remains constant. For the economy as a whole, technological
change is more continuous, and Marx's analysis of the laws of motion of
capitalism focuses on the effects of this technological change. But Marx¹s
theory of prices of production is still based on the distinction between the
fundamental causes of prices of production and the superficial causes of
market prices.
Marx's theory of prices of production in Part 2 of Volume 3 is not about
the long-run trends in prices of production or the rate of profit.
Rather, it is about how prices of production are determined at a given
point in time, on the basis of a given technology or productivity. The
primary purpose is simply to show how the equalization of profit rates
can be explained on the basis of the labor theory of value and thus to
overcome Ricardo's "stumbling block." This by itself was a huge
accomplishment. The long-run trends is a separate question, which Marx
did not address in Part 2.
Marx also discussed several times in Part 2 that changes in productivity or
the real wage will cause prices of production to change, but the purpose of
these comments was not to analyze the long-run trends of prices of
production, but rather to emphasize the distinction between the
fundamental determinants of prices of production (productivity and the real
wage) and the superficial determinants of market prices (supply and
demand).
OTHER ISSUES
There are other issues in John's posts that I would also like to respond
to, but I think I will stop for now and see what John and others have to say
about the above. The main remaining issues are:
How can there be absolute rent with equilibrium prices? The short answer
is - no problem in my macro prior determination of the rate of profit, but I
think John is right that it is a problem in Sraffian theory.
Do I assume that the devaluation of capital actaully happens immediately as
a result of technological change? The short answer is - no; the devaluation
of capital affects immediately the long-run equilibrium price (i.e. the price of
production), but it takes a while for the actual market prices to catch
up to the change in the long-run equilibrium price.
I look forward to further discussion.
Comradely,
Fred