[OPE-L:7501] [OPE-L:1038] Re: Marx's Concept of Prices of Production

John R. Ernst (ernst@PIPELINE.COM)
Tue, 15 Jun 1999 02:48:25

RE: Fred's OPE-L 1036

Fred,

I think your post (1036) was sent prior to my response to your previous
post. Your post was 1035 and mine 1037. Hence our exchange is a bit
out of sync. That said, let me address the points you raiseon 1036
here while perhaps making reference to my 1037.

You wrote:

In this post, I would like to clarify just one important issue in our
recent discussion. John has commented several times that according to my
interpretation, prices of production "DO NOT EXIST" or exist only in a
fleeting moment (only when the economy is actually in equilibrium). John,
would you please clarify what you mean by "EXIST"? Do you mean exist as
ACTUAL, OBSERVABLE PRICES in each period?

My response: NO. Prices of production could be computed for any period
of production. Indeed, they could be computed for periods in which
input prices do not equal output prices. But prices of production as
equilibrium prices do not exist in each and every period.

You wrote:

1. I have presented considerable textual evidence that (1) Marx's prices
of production are "CENTER OF GRAVITY" prices for actual market prices (2)
that change if and ONLY IF productivity or the real wage changes. There
seems to be general agreement on these two points. This means that prices
of production ARE NOT THE ACTUAL PRICES in any given period. They are
instead the "center" price toward which actual market prices gravitate as
a result of the equalization of profit rates. They do not exist as
actual observable prices in any given period, but they NONETHELESS EXIST,
and exist in every period, as the hidden unobservable "center of gravity"
of actual market prices.

A change of productivity or the real wage will change this "center of
gravity" price. Although the new center of gravity price is not
immediately observable in the market prices of the next period (just like
prices of production are in general not observable in actual market
prices), it nonetheless exists as the new "center" price toward which the
market prices will gravitate in future periods.

My comment: This is more complex than it seems. For me, prices of
production exist in each and every period. And, with more than a
few assumptions we could establish new ones at the end of a period
should the real wage or the value of labor power change or should
there be an increase in productivity. So far this almost sounds
like you. But I see no reason why all changes in prices of production
due to, say, the money wage and the real wage must take place within
a single period of production. This is one of the most concise ways of
expressing out differences on the matter.

For you, at the end of each and every period in which changes in the
wage or changes in productivity occurs a set of equilibrium prices
is established. Somehow these new prices of production of the
outputs are equal to those of inputs. I do not think this is
true in Marx's efforts for at least 2 reasons:

1. In Chapter 11, we saw that for Marx only the prices of the
means of subsistence are constant as the wage change takes place.
They are constant, as you pointed out, only by assumption. Given
that Marx had to make this assumption to hold those prices constant
it stands to reason that the prices of all other commodities
involved as inputs may have different prices of production as
outputs.

In Chapter 11, Marx shows how a change in the wage leads to
a change in prices of production. He's dealing only with one period
of production. There's no reason why that same wage change may not
mean further changes in prices of production in subsequent periods.
Those changes like the initial changes could and should be viewed as
a result of that initial wage change.

2. If you are going to claim that the prices of production within a
period are equilibrium prices, then somehow you have to deal with
rent. In Chapter 11, we saw Marx suddenly mentioning ground rent as
he dealt with change in value of labor power. I think that an initial
attempt to look at this aspect of the matter is contained in TSV, Part II
as I mentioned in my previous post. (Ch 15, Sec 5) In that post, once
again, I made note of Marx's letter to Engels of 04/30/1868 in which
he clearly states that natural monopolies are not depicted in the
transformation process. I have no clue how you deal with this issue
as you maintain that prices of production are equilibrium prices.

You wrote:

2. I think John would agree that prices of production are NOT ACTUAL
market prices (John, please correct me if I am wrong). But then, John, in
what sense do your prices of production "EXIST", in a way that my prices
of production do not exist?

My response: Agreed. Prices of production need not be actual market
prices.

But your prices of production exist if and only if the system
is in equilibrium. For me, you can compute prices of production in any
period. To be sure, this means that, say, a wage change in one period
may change the prices of production is subsequent periods.

You wrote:
3. And how do your prices of production function as "centers of gravity"
of market prices, since they themselves are changing every period, even
though productivity and the real wage remain constant?

My comment: I do not see the problem here. It would be nice if
the centers of gravity were constant as market prices fluctuated
about them. This would make an understanding of economic life
a lot easier to understand. The center of gravity of one period
need equal that of the prior period in order to be a center of
gravity.

You wrote:

Are there more than one "center of gravity" price for each commodity?

My comment: If we are talking about different periods of production,
the answer is yes, unless we assume that there are no changes in
wages or productivity from period to period. Again, a change in any
one period may bring about changes in prices of production for more
than one period.

You wrote:

(1) one which is more "long-run" in the sense that it changes if and
only if productivity or the real changes, and hence does not change
every period;

My comment: I think your "hence" is mistaken or, at least, unclear.
If we are talking about productivity or wage changes in one period and
if we assume that the system will move to some sort of equilibrium on
the basis of those changes, then we could speak of what I think you
mean by long-run prices of production.

You wrote:

(2) and a second one which is more "short-run" in the sense that it
changes every period, even if productivity and the real wage remain
constant.

My comment: But with assumptions about what happens after that first
period any subsequent changes in prices of production could be traced
back to changes in that first period.

You wrote:

Which of these concepts of "center of gravity" price makes the most sense?
Which of these concepts was Marx talking about? Marx was certainly
talking about (1). I don't think there can be any doubt about that.

My comment: Why not claim both if you want. That is, if, with more
than a few additional assumptions, you could show how the system moves from
one equilibrium to another in a fashion much like Shaikh's iterative
solution to the transformation problem. After so many periods
the system is in what you might call a long-run equilibrium. But at the
end of each and every period, there are prices of production. (Here,
of course, I assume Shaikh's effort represents a real process that
occurs over time. Others clearly see it as a mathematical technique
to solve the set of equations for prices and the rate of profit.)

You wrote:

So the only question is: did Marx also define and employ a second concept of
"center of gravity", like (2) above? I do not know of any explicit
textual evidence to support this interpretation. Marx's discussions are
all about THE - singular - center of gravity price for each commodity at
any one period of time. THE center of gravity price changes if and only
if productivity or the real wage changes. There is never a hint that
there could be a second center of gravity price for each commodity in each
period like (2) above.

My comment: Let's look at that "singular -- center of gravity price for
each commodity at any one period of time."

In Chapter 11, with the wage change, the prices of all commodities save
the means of subsistence can change from what they were at the beginning
of the period to what they become at the end of the period. At this
point, you could claim that they do solely due to that wage change.
However, what of the next period? If we assume that the physical inputs
and outputs of each period are the same, would not the prices of production
at the beginning of the second period (as inputs) differ from the prices
of production of outputs. Is not this change (a second one) traceable
to that initial change? What is your objection? Primarily, you take
Marx's examples which are confined to a single period to mean that
the only cause of a change in prices of production in a given period
must be due to a change in the wage or productivity *in that period.*

But Marx himself never attempts to move from period to period as prices
of production change. To do so, he'd have to make many more assumptions
about where the economy is going. Further, he'd have to assume that
after the initial change no further changes take place in either the
wage or in productivity. Given the restrictive nature of these
assumptions, it's hardly surprising he choose not to move from period
to period in such a fashion. Indeed, the only reason for doing so
stems from works that criticize Marx on transformation.


You wrote:

Thanks for the clarification and the stimulating discussion.
I will return to Chapter 11 and other issues, as time permits.

My comment: Ditto

I remain,

moving from period to period,

John