MARX’S CONCEPT OF PRICES OF PRODUCTION:
LONG-RUN CENTER-OF-GRAVITY PRICES
by Fred Moseley
Mount Holyoke College
fmoseley@mtholyoke.edu
In recent years, I and others have engaged in a lengthy debate about the
“transformation problem” and Marx’s theory of prices of production with Andrew
Kliman and Alan Freeman and others who follow the “temporal single system”
(TSS) interpretation of Marx’s theory. I think that many interesting
issues have been discussed and clarified, which I will not try to summarize
here. In the course of the discussions, it has become increasingly
clear to me, and I think also to other participants in this debate, that
a fundamental issue is whether or not Marx’s concept of prices of production
are “long-run equilibrium prices,” in the classical sense of “centers of
gravity” around which actual market prices fluctuate over some period of
time.
I argue that Marx’s concept of prices of production are indeed long-run center-of-gravity
prices in the classical sense. This paper will examine the textual
evidence in Marx’s manuscripts to support this interpretation. The
paper begins with a brief summary of Smith’s and Ricardo’s concept of “natural
price,” since it will be argued that Marx’s concept of prices of production
was essentially the same as Smith’s and Ricardo’s concept of “natural price.”
The paper ends with a brief consideration of Freeman’s and Kliman and McGlone’s
interpretations of Marx’s concept of prices of production and argues that
thesed interpretations are fundamentally mistaken.
1. SMITH and RICARDO
Smith’s and Ricardo’s concept of “natural price” may be briefly and schematically
summarized as follows:
Capitalist economies are characterized by a tendency toward equal rates of
profit across different industries. This equality of profit rates is
never actually achieved, but there is at least a tendency toward equalization,
in the sense that the existence of unequal rates of profit would in general
activate capital flows that would tend to reduce the inequalities.
Smith and Ricardo also recognized that there are factors (such as monopolies,
greater risk, etc,) that lead to more permanent inequalities of profit rates.
But after noting these factors, they based their theories on the assumption
of equal profit rates.
This restless drive on the part of all employers of stock to quit a less
profitable for a more advantageous business has a strong tendency to equalise
the rate of profits of all, or to fix them in such proportions as may, in
the estimation of the parties, compensate for any advantage which one may
have, or appear to have, over the other. (Ricardo, p. 48)
It is then the desire, which every capitalist has, of diverting his funds
from a less to a more profitable employment that prevents the market price
of commodities from continuing any length of time either much above or much
below the natural price. It is this competition which so adjusts the
changeable value of commodities that ... the remaining value or overplus
will in each trade be in proportion to the value of the capital employed.
(Ricardo, p. 50)
The prices that result when all profit rates are equal were called “natural”
prices.
Let us suppose that all commodities are at their natural prices and consequently
that the profits of capital in all employments are exactly at the same rate,
or differ only so much as, in the estimation of the parties, is equivalent
to any real or fancied advantage which they possess of forego. (Ricardo,
p. 50)
Actual or “market” prices are seldom are equal to natural prices, because
of inequalities between supply and demand. However, these market prices
fluctuate around the natural prices due to the migration of capitals in search
of a higher rate of profit. In this sense, the natural prices are “centers
of gravity” for the fluctuations of actual market prices.
The actual price at which any commodity is commonly sold is called its market
price. It may be 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. (Smith,
pp. 158, 160)
Natural prices as “centers of gravity” are necessarily long-run concepts.
In order for there to be sufficient time for capital to flow from one industry
to another and to increase supply in the latter, and thus for market prices
to fluctuate around the natural price, at least some passage of time is required.
The long-run nature of the concept of natural price does not mean that Smith
and Ricardo assumed that natural prices never change. Instead, they
assumed that changes in natural prices would be less frequent than changes
in market prices. The “centers of gravity” can change occassionally
and still serve as centers of gravity. Natural prices change due to
changes in their fundamental causes (for Ricardo: the values of commodities,
or the labor-time required to produce commodities). It is assumed that
these fundamental causes of natural prices change less frequently than the
fluctuations of supply and demand, which continue from period to period.
In Garegnani’s words, natural prices are more “persistent” than market prices
(Garegani 1990).
It is the cost of production which must ultimately regulate the price of
commodities, and not, as has been often said, the proportion between the
supply and demand ...
Diminish the cost of production of hats, and their price will ultimately
fall to their new natural price, although the demand should be doubled, trebled,
or quadrupled.
(Ricardo, p. 260)
There is another sense in which Smith’s and Ricardo’s concept of natural
price is a long-run concept: that changes in the determinants of natural
prices have permanent effects on the prices of commodities, whereas the causes
of variations of market prices from natural prices have only temporary effects.
On the other hand, variations in the market price, due to supply and demand,
will be (more or less) automatically offset by compensating flows of capital
across industries in subsequent periods.
It is the cost of production which must ultimately regulate the price of
commodities, and not, as has been often said, the proportion between the
supply and demand: the proportion between supply and demand may,
indeed, for a time, affect the market value of a commodity, until it is supplied
in greater or less abundance, according as the demand may have increased
or diminished; but this effect will be of only temporary duration.
(p. 260)
Smith and Ricardo were primarily interested in natural prices and how natural
prices change over time (i.e. the long-run trends of natural prices and the
distribution of income). They were not interested in the short-run
fluctuations of market prices around the natural prices. Hence, their
theories were about these long-run natural prices (i.e. prices that yield
equal rates of profit), not about short-run (and short lived) market prices.
In other words, their theories attempted to explain the centers of gravity
of transitory movements.
In the seventh chapter of the Wealth of Nations, all that concerns this question
is most ably treated. Having fully acknowledged the temporary effects
which, in particular employments of capital, may be produced on the prices
of commodities, as well as on the wages of labor, and the profits of stock,
by accidental causes, without influencing the general price of commodities,
wages, or profit, since these effects are equally operative in all stages
of society, we will leave them entirely out of our consideration whilst we
are treating of the laws which regulate natural prices, natural wages, and
natural profits, effects totally independent of these accidental causes.
(Ricardo, pp. 50-51; emphasis added)
2. MARX
Marx essentially agreed with Smith and Ricardo on all these points, except
that he substituted the terms “average price” or “cost-price” and finally
“price of production” for Smith’s and Ricardo’s concept of natural price.
Marx’s general agreement with Smith and Ricardo on these points is made clear
from a review of Marx’s manuscripts in which he discussed these points.
There are two main manuscripts: the “1861-63 Manuscript” (Chapters
8 and 10 of Theories of Surplus-Value) and the 1864-65 manuscript of Volume
3 (especially of course Part 2). Marx’s decisive advance over Smith
and Ricardo is that he was able to present a theory of the determination
of of prices of production, whereas Smith and Ricardo were not able to do
so.
2.1 1861-63 MANUSCRIPT
Marx’s first extensive discussion of what eventually became his theory of
prices of production was in 1862, in the middle of his “1861-63 Manuscript”.
At this stage of Marx’s thinking, he had not yet hit upon the term “prices
of production” for prices that equalize profit rates across industries. At
the beginning of Marx’s discussion of Rodbertus (Chapter 8), he mostly used
the term “average price” to denote these profit-rate equalizing prices.
By Chapter 10 on Smith and Ricardo, Marx had mostly switched to the term
“cost-price” for this purpose. But these two terms are clearly synonymous
and are used interchangeably throughout by Marx. This change of terms
does not indicate a change of meaning. Both terms mean the same thing
- the prices that equalizes rates of profit across industries.
Early in Chapter 8 on Rodbertus, Marx began to emphasize (and perhaps to
realize for the first time) that the theory of rent must be understood in
connection with the equalization of profit rates across individual branches
of production. Marx discussed Rodbertus’ description of the equalization
of profit rates and expressed no disagreement (pp. 25-30). Marx’s criticism
of Robdbertus is that he assumed that the equalization of profit rates would
have the result that commodities would exchange at their values. Marx
explained, to the contrary, that the equalization of profit rates would result
in “average prices” that are in general not equal to the values of commodities.
Competition achieves this equalization [of profit rates] by regulating average
prices. These average prices themselves, however, are either above
or below the value of the commodity so that no commodity yields a higher
rate of profit than any other. It is therefore wrong to say that competition
among capitals brings about a general rate of profit by equalizing the prices
of commodities to their values. (pp. 29-30)
Marx made no criticism of Rodbertus’ assumption of equal rates of profit.
He did mention parenthetically “particular obstacles in certain spheres”
to the equalization of profit rates, but stated that “we shall not examine
here” these obstacles (p. 29). A little later in the manuscript, Marx
sketched (for the first time) the details of his theory of average prices,
with a numerical example, on the assumption that these average prices achieve
the equalization of profit rates across industries (pp. 64-71). He
summarized his theory as follows:
Competition brings about the equalization of profit, i.e. the reduction of
the values of commodities to average prices. (p. 69)
After Chapter 8 on Rodbertus and Chapter 9 on the history of the Ricardian
theory of rent, Marx wrote Chapter 10 on “Ricardo’s and Adam Smith’s Theory
of Cost-Price (Refutation)”. Section A (most of the chapter) is about
Ricardo and Section B is about Smith. This chapter provides substantial
and very clear evidence that Marx essentially agreed with Smith’s and Ricardo’s
assumption of the equalization of profit rates across industries and with
their focus on “natural prices” as long-run center-of-gravity prices as the
focus of his theory.
The first evidence that Marx agreed with Smith and Ricardo on these points
is that the entire discussion of Smith’s and Ricardo’s theories of natural
price in this chapter is in terms of Marx’s own concepts of average price
and cost price (e.g. the title of the chapter). Throughout this chapter,
Marx switched back and forth between his critical discussion of Smith and
Ricardo theories and the development of his own theory, using the same concepts
of average price and cost price for both purposes. Nowhere did Marx
state or even hint that what Smith and Ricardo meant by “natural prices”
was somehow different from what he meant by “average prices” or “cost-prices”.
All these concepts mean the same thing: long run center of gravity
prices that equalize rates of profit. Indeed, in a number of places,
Marx explicitly used the terms “cost-price or natural price” synonymously
(pp. 214, 215 (twice), 217, 220 (twice), and 235). For example:
As a result of this variation [of values], new cost-prices or, as Ricardo
says, following Smith, “new natural prices” take place of the old.
(p. 215)
More specific evidence that Marx essentially agreed with Smith’s and Ricardo’s
concept of “natural price” as long run center of gravity prices due to the
equalization of profit rates is found in Section A.5 of Chapter 10 (entitled
“Average or Cost-Prices and Market-Prices”), which is mainly about Ricardo’s
Chapter 4 on “Natural and Market Price.” In this section, Marx summarized
Ricardo’s discussion of the migration of capitals from industries with lower
rates of profit to industries with higher rates of profit, and the resulting
tendency toward the equalization of profit rates across industries, and the
consequent fluctuations of market prices around cost-prices or natural prices,
and expressed no disagreement with all this. Marx commented that, for
the most part, “all this is in Smith.” Ricardo’s advance over Smith,
according to Marx, was:
the more precise exposition of the migration of capital from one sphere to
another, or rather the manner in which this occurs. He was, however,
only able to do this because the credit system was more highly developed
in his time than in the time of Smith. (p. 210)
Marx’s praised Ricardo’s description as an “achievement” (p. 210).
There is not a hint of criticism or disagreement with Ricardo’s description
of the process through which capital migrates, rates of profit are equalized,
and market prices fluctuate around the natural price (or cost-price)
Marx’s main criticism of Ricardo in this section is that he failed to recognize
that competition not only equalizes rates of profit across industries, but
also equalizes prices within each industry, which in turn implies that producers
within a given industry with unequal productivities will have unequal rates
of profit. Marx emphasized that the “single price” effect of competition
within an industry is important in Ricardo’s theory of differential rent,
but it is not mentioned in Ricardo’s discussions in Chapters 4 and 30 of
the effects of competition. However, with respect to the other type
of competition - across industries - Marx expressed no criticism with Ricardo’s
discussion of the tendency of capitals to migrate from industries with lower
rates of profit to industries with higher rates of profit and the resulting
tendency toward the equalization of profit rates across industries.
By equalization through competition, Ricardo therefore understands only the
rotation of the actual prices or actual market-prices about the cost-prices
or the natural price as distinct from the value ...
Marx then quoted Ricardo:
It is then the desire, which every capitalist has, of diverting his funds
from a less to a more profitable employment that prevents the market-price
of commodities from continuing for any length of time either much above,
or much below their natural price. It is this competition which so
adjusts the changeable value of commodities that ... the remaining
value or overplus will in each trade be in proportion to the value of the
capital employed.
Marx then expressed his agreement with Ricardo:
This is exactly the case. Competition adjusts the prices in the different
trades so that “the remaining value or overplus”, the profit, corresponds
to the value of the capital employed, not to the real overplus which it contains
after the deduction of expenses. (p.212)
In general, Marx’s main criticism of Ricardo and Smith in this chapter is
that they did not explain how the cost-prices of commodities are determined.
Most importantly, that they did explain how the general rate of profit (the
key determinant of cost-prices) is itself determined. They simply took
this general rate of profit as given, without an explanation, and argued
that all individual rates of profit would tend to equal this general rate
of profit.
And the manner in which Ricardo carries out this investigation is the following:
He presupposes a general rate of profit or an average profit of equal magnitude
for different capital investments of equal magnitude ... Instead
of postulating this general rate of profit, Ricardo should rather have examined
in how far its existence is in fact consistent with the determination of
value by labor-time, and he would have found that instead of being consistent
with it, prima facie, it contradicts it, and that its existence would therefore
have to be explained through a number of intermediary stages, a procedure
which is very different from merely including it under the law of value.
(p. 174)
All Ricardo’s illustrations only serve him as a means to smuggle in the presupposition
of a general rate of profit... How from the mere determination
of the “value” of the commodities, their surplus-value, the profit and even
a general rate of profit are derived remains obscure with Ricardo. (p.190)
Having taken his stand in competition and assumed the rate of profit etc.
as given, Adam Smith for the rest interprets correctly natural price or cost-price,
namely, the cost-price as distinct from the market-price. (p.220)
Note in this last sentence Marx’s explicit agreement with Smith’s treatment
of the distinction between market-price and natural price (or cost-price).
Marx’s criticism is that Smith (and Ricardo) failed to explain how the natural
price is itself determined.
Another important criticism of Ricardo in particular in this chapter is that
he “identified” the cost-price (or the natural price) of commodities with
the value of commodities, i.e. he assumed that the cost-prices of commodities
that equalize rates of profit are equal to the values of commodities.
Ricardo did not adequately distinguish between values and “cost-prices”.
He implicitly assumed that the two concepts are identical.
At the beginning of Chapter IV, Ricardo says that by natural price he understands
the value of the commodities, that is, the price as determined by their relative
labor-time, and that by market-price he understands the accidental and temporary
deviations from this natural price of value. Throughout the further
course of the chapter - and he is quite explicit in this - he understands
something quite different by natural price, namely, cost-price which is different
from value. Thus, instead of showing how competition transforms values
into cost-prices, i.e. creates permanent deviations from values, he shows,
following Adam Smith, how competition reduces the market-prices in different
trades to cost-prices. (p.211)
Marx’s criticism of Smith and Ricardo in this chapter was not that rates
of profit rate are not equalized or that “cost-prices” should not be defined
as long-run, profit rate equalizing, center-of-gravity prices, but
should instead be defined as short-run market prices or some other prices.
As we have seen, Marx generally accepted Smith’s and Ricardo’s concept of
long-run center-of-gravity prices that equalize profit rates and around which
actual market prices fluctuate. But Marx emphasized that it has to
be explained how these long-run center-of-gravity prices are determined,
and determined in a way that they are not equal to the values of commodities
(even though they still ultimately depend on values). Smith and Ricardo’s
shortcoming, according to Marx, is that they did not explain the determination
of these long-run center-of-gravity prices, not that they should have instead
explained some other prices.
In other words, Marx accepted long-run, profit rate equalizing, center-of-gravity
prices as the question, and argued that Smith and Ricardo failed to provide
an answer to this key question. In the process, Marx also begin to
develop his own answer to this same question, i.e. to develop his own theory
of how these long-run center-of-gravity prices are determined. Marx
did not argue that the question itself should be changed from long-run center-of-gravity
prices to market prices or something else.
Marx also discussed Smith’s reasons for inequalities in the rates of profit
across industries, presented in Smith’s Chapter 10 (“Of Wages and Profit
in the different Employments of Labor and Stock”). Marx basically agreed
with what Smith had to say about these inequalities. He noted that,
although the chapter deals with superficial details, its treatment is “very
good.”
This [chapter] is only concerned with detail and therefore belongs to the
chapter on competition. In its way, it is very good. It is completely
exoteric. (p. 230)
In this section, Marx also commented on Ricardo’s chapter 30 (“On the Influence
of Supply and Demand on Prices”) and in the process discussed the following
important question:
assuming that cost-prices are the center of gravity of market prices, what
are the causes of changes in the cost-prices of commodities? (pp. 213-16).
(This is the first time, so far as I know, that Marx discussed this question
in his published works.) Marx discussed Ricardo’s specific example
of hat making, quoted above:
Diminish the cost of production of hats, and their price will ultimately
fall to their new natural price, although the demand should be doubled, trebled,
or quadrupled. (Ricardo, p. 260)
Marx explained that an increase in the productivity of labor in the production
of hats would reduce the value of the hats, which in turn would cause a reduction
in the cost-price (or the natural price) of the hats. Marx continued
that increases in the productivity of labor in industries that produce the
means of production for the hat industry would also reduce the value of the
hats, and hence also reduce the cost-price of the hats. Finally, increases
in the productivity of labor in other industries could also affect the general
rate of profit, which in turn would also affect the cost-prices of all commodities.
Hence, Marx concluded, all these possible causes of a change in the cost-price
of a commodity boil down to an increase in the productivity of labor, or
reduction in the value of a commodity, somewhere in the economy (in a given
final-goods industry, or in industries that produce means of production for
this final-goods industry, or in other industries which affect the rate of
profit).
Once the cost-prices of commodities in the various branches of production
are established, they rise or fall relatively to each other with any change
in the values of the commodities. If the productivity of labor rises,
the labor-time required for the production of a particular commodity decreases
and therefore its value falls; whether this change occurs in the labor used
in the final process or in the constant capital, the cost-price of this commodity
must also fall correspondingly. (p. 215; emphasis added)
Part of the title of the subsection in which Marx discussed this question
is: “Changes in Cost-Price Caused by Changes in the Productivity of Labor”
(emphasis added).
Later in the “1861-63 Manuscript” (in the chapter on Ricardo’s theory of
rent), Marx expressed very clearly the concept of natural price which was
synonymous with his concept of cost-price.
The natural price of the commodity is not the market-price but the average
market-price over a long period, or the central point towards which the market-price
gravitates. (TSV.II. 319)
During the time that Marx was working on these chapters in the “1861-63 Manuscript”,
he wrote a letter to Engels (August 2, 1862), in which Marx summarized for
Engels his theory of rent and, as a necessary preliminary, also his theory
of cost-price or average price. This letter provides a succinct and
valuable summary of the conclusions that Marx drew from his critical study
of Smith’s and Ricardo’s theories of the cost-price of commodities for his
own theory of cost-price.
Marx began by demonstrating, by means of a simple numerical example, that
if commodities exchanged at their values, then the individual rates of profit
would be unequal, because of unequal composition of capital (ratios of constant
capital and variable capital). This point, which seems trite to modern
readers, was very important for Marx to establish in 1862 because, as we
have seen, Ricardo (and his followers) assumed that, if commodities exchanged
at their values, then rates of profits in different industries would be equal
(i.e. they “identified” cost-prices and values). However, Marx argued
that these unequal rates of profit could not prevail. Competition among
capitals would equalize the individual rates of profit to the general rate
of profit determined by capital as a whole.
Competition (transfer of capital or withdrawl of capital from one trade to
another) brings it about that equal sums of capital in different trades,
despite their different organic compositions, yield the same average rate
of profit. (p. 122)
Then Marx commented that prices determined in this way - i.e. prices that
equalize rates of profit - are what Smith called “natural prices” or “cost
prices”.
Price regulated in this way = the expenses of capital + the average profit
(for instance 10 percent) is what Smith called the natural price, cost-price,
etc. It is to this average price that competition between the different
trades reduces the prices in different trades (by transfer or withdrawl of
capital). Competition therefore does not reduce commodities to their
values, but to their cost-prices, which are above, below or equal to their
values, according to the composition of the respective capitals. (p.
122)
Marx then repeated the criticism discussed above that “Ricardo confuses values
with cost-prices” (p. 122).
Therefore, this 1862 letter reinforces the conclusions we have already reached
from our review of Marx’s “1861-63 Manuscript”: that Marx agreed
with Smith and Ricardo that there is a tendency to equalize rates of profit
across industries (with obstacles that are ignored at this abstract level
of analysis) and that Marx called the prices which equalized rates of profit
“cost-prices” or “average price” which he equated with Smith’s and Ricardo’s
“natural prices.”
2.2. VOLUME 3 OF CAPITAL (1864-65)
The next manuscript in which there is an extensive discussion of Marx’s theory
of prices of production is the first and only draft of Volume 3 of Capital,
written in 1864-65. Evidently, Marx's work on his theory of the distribution
of surplus-value in the 1861 63 manuscript had clarified Marx's thinking
to such an extent that he was now ready to write Volume 3. In general,
it is important to emphasize there are no major changes in Marx’s thinking
on the issues discussed above in the Volume 3 manuscript compared to the
earlier 1861-63 manuscript. Marx continues to develop his theory along
the same lines as already sketched in the earlier manuscript: the tendency
toward the equalization of profit rates across industries and the average
prices that equalize profit rates as the long-run center-of-gravity around
which market prices fluctuate.
The main change is a purely terminological one: the prices that equalize
profit rates are now called “prices of production”, instead of “cost-prices”.
The term “price of production” replaces the term “cost-price” (or “average
price”) to mean the average prices that equalize rates of profit. The
term “cost price” (without the hyphen) now refers, not to profit rate equalizing
prices, but to the total capital cost, i.e. the sum of the constant capital
and variable capital consumed in a period of production. Marx appears
to have made this switch in terminology after having realized while working
on the 1861-63 manuscript the importance of the sum of capital costs (“cost
price”) for his explanation of profit-rate equalizing prices (now called
prices of production).
As is well known, Part 2 of Volume 3 begins with Chapter 8 which presents
the problem to be solved: if commodities are exchanged at their values,
then unequal compositions of capital across industries would cause the rates
of profit to be unequal across industries. However, Marx went on to
argue, “in actual fact” there are no such inequalities in rates of profit
across industries:
There is no doubt, however, that in actual fact, ignoring inessential, accidental
circumstances that cancel each other out, no such variation in the average
rate of profit exists between different branches of industry, and it could
not exist without abolishing the entire system of capitalist production.
The theory of value thus appears incompatible with the actual movement, incompatible
with the actual phenomena, and it might seem that we must abandon all hope
of understanding these phenomena. (p. 252; emphasis added)
Curiously, Ricardo’s “identification” of values and cost-prices is not mentioned.
But the main point of this chapter seems to be to highlight this theoretical
error by Ricardo, etc., and to highlight the problem of explaining the determination
of prices of production on the basis of the labor theory of value, which
Ricardo and his followers were not able to solve.
Marx’s theory of prices of production that equalize rates of profit based
on the labor theory of value is then presented in Chapter 9, as is well known.
Prices of production are defined as follows:
The prices that arise when the average of the different rates of profit is
drawn from the different spheres of production, and this average is added
to the cost prices of these different spheres of production are the prices
of production. Their prerequisite is the existence of a general rate
of profit, and this presupposes in turn that the profit rates in each particular
sphere of production, taken by itself, are already reduced to their average
rates... Thus the production price of a commodity equals
its cost price plus the percentage profit added to in accordance with
the general rate of profit, its cost price plus the average profit.
(p. 257)
I will not examine here Marx’s explanation of the determination of prices
of production (see Moseley 1993 for my interpretation). The main point
for the purposes of this paper is the precise nature of Marx’s concept of
prices of production which is being explained - long-run center-of-gravit
prices that equalize rates of profit across industries.
Later in Chapter 9, Marx discussed again the important question of the causes
of changes in prices of production. Marx stated:
The price of production of commodities in a particular sphere of production
may undergo changes of magnitude:
(1) while the value of the commodities remains the same (so that the same
quantity of dead and living labor goes into their production afterwards as
before), as the result of a change in the general rate of profit that is
independent of the particular sphere in question;
(2) while the general rate of profit remains the same, by a change in value
either in the particular sphere of production itself, as the result of a
technical change, or as the result of a change in the value of the commodities
that go into its constant capital as formative elements;
(3) finally, by the common action of these two circumstances.
(p. 265-66)
Marx then went on to discuss possible causes of changes in the general rate
of profit:
Assuming a constant level of exploitation of labor, ... a change in
the general rate of profit assumes a change in the value of the commodities
which enter as formative elements into the constant capital, the variable
capital, or both simultaneously.
Alternatively, the general rate of profit can change, with the value of commodities
remaining constant, if the level of exploitation of labor changes.
Or again, the level of exploitation of labor remaining the same, the general
rate of profit can change if the sum of labor applied changes in relation
to the constant capital, as a result of technical changes in the labor process.
But technical changes of this kind must always show themselves in, and thus
be accompanied by, a change in value of commodities whose production now
requires either more or less labor than it did before. (pp. 266-67;
emphasis added)
The one new element in this passage (compared to earlier passages on this
topic) is a change in prices of production due to a change in the “exploitation
of labor,” while the value of all commodities remains constant. Presumably,
this refers to a change in the real wages of workers. All other possible
causes of changes in prices of production discussed in this passage are,
in one form or another, changes in the values of commodities which result
from changes in the productivity of labor somewhere in the economy - in the
particular industry which produces this commodity, or in industries that
produce the means of production for this industry, or in other industries
that affect the general rate of profit. In sum: prices of production
change if and only if the productivity of labor (or the value of commodities)
changes or the real wages of workers changes.
In Chapter 10, Marx returned to the questions of the equalization of profit
rates and the relation between market prices and prices of production.
In this chapter, Marx presented essentially the same arguments as in the
earlier 1861-63 manuscript: that capitalism is characterized by a tendency
toward equal rates of profit across industries and that the prices of production
that equalize rates of profit serve as centers of gravity for market prices.
Marx acknowledged that there are obstacles to this equalization in some industries.
However, Marx’s concept of prices of production abstracts from these inequalities,
as did Smith’s and Ricardo’s concept of natural price.
Capital withdraws from a sphere with a low rate of profit and vends its way
to others that yield higher profit. This constant migration, the distribution
of capital between the different spheres according to where the profit rate
is rising and where it is falling is what produces a relationship between
supply and demand such that the average profit is the same in the various
different spheres, and values are therefore transformed into prices of production.
(p. 297; emphasis added)
[C]ompetition of capitals in different spheres brings forth the production
price that equalizes the rates of profit between those spheres. (p. 280;
emphasis added)
The constant equalization of ever-renewed inequalities is accomplished more
quickly, (1) the more mobile capital is, i.e. the more easily it can be transferred
from one sphere and one place to another; (2) the more rapidly labor-power
can be moved from one sphere and from one local point of production to another.
The first of these conditions implies completely free trade within the society
in question and the abolition of all monopolies other than natural ones,
i.e. those arising from the capitalist mode of production itself. It
also presupposes the development of the credit system, which concentrates
together the inorganic mass of available social capital vis-a-vis the individual
capitalist. (p. 298; emphasis added)
The assumption that commodities from different spheres of production are
sold at their values naturally means no more than that this value is the
center of gravity around which price turns and at which its constant rise
and fall is balanced out...
What we have said here of market value holds also for the price of production,
as soon as this takes the place of market value. The price of production
is regulated in each sphere, and regulated too according to particular circumstances.
But it is again the center around which the daily market prices revolve,
and at which they are balanced out in definite periods. (pp. 279-80;
emphasis added)
Marx also repeated again in this chapter the explicit statement that his
concept of price of production “is the same thing” as Smith’s and Ricardo’s
concept of natural price, and also repeated his criticism that they were
not able to explain the difference between price of production and value.
The price of production includes the average profit. And what we call
price of production is in fact the same thing that Adam Smith calls “natural
price”, Ricardo “price of production” or “cost or production”, and the Physiocrats
“prix necessaire”, though none of these people explained the difference between
price of production and value. (p.300; emphasis added)
This indicates once again that Marx accepted the assumptions on which Smith’s
and Ricardo’s concept of natural price is based: that rates of profit
tend to be equalized and that market prices fluctuate around the average
prices that equalize profit rates as centers of gravity.
Marx also briefly commented once again that changes in prices of production
are caused by changes in the value of commodities, or changes in the productivity
of labor.
In whatever way prices are determined, the following is the result:
(1) The law of value governs their movement in so far as reduction or increase
in the labor-time needed for their production makes the price of production
rise or fall...
(2) The average profit, which determines the prices of production, must always
be approximately equal to the amount of surplus-value that accrues to a given
capital as an aliquot part of the total social capital... Since
it is the total value of the commodities that governs the total surplus-value,
while this in turn governs the level of average profit and hence the general
rate of profit - as a general law or as governing the fluctuations - it follows
that the law of value regulates the prices of production. (pp.
280-81)
Marx also commented briefly in this chapter on the reason his theory and
the theories of the classical economists are focused on prices of production
and ignore the temporary fluctuations of market prices:
In actual fact, demand and supply never coincide, or, if they do so, it is
only by chance and not to be taken into account for scientific purposes;
it should be considered as not having happened. Why they does political
economy assume that they do coincide? In order to treat the phenomena
it deals with in their law-like form, the form that corresponds to their
concept, i.e. to consider them independently of the appearance produced by
the movement of demand and supply. And, in addition, in order to discover
the real tendency of their movement and define it to a certain extent...
Thus if there is no single individual case in which demand and supply actually
do coincide, their disproportions still work out in the following way - and
the result of a divergence in one direction is to call forth a divergence
in the opposite direction - that supply and demand always coincide if a greater
or lesser period of time is taken as a whole; but they coincide only as the
average of the movement that has taken place and through the constant movement
of their contradiction. (C.III. 291; emphasis added)
In Chapter 11, Marx considered the question of the effect of a general change
of wages on the prices of production of commodities. Marx’s conclusion
is well-known: that the effect of the change of wages on prices of production
of commodities depends on the composition of capital with which these commodities
were produced. For commodities produced with greater-than-average /
average / less-than-average composition of capital, a change of wages would
result in an increase / no change / decrease in the prices of production.
At the end of this chapter, Marx briefly noted that he is assuming in this
chapter that the prices of the means of subsistence remain constant.
Hence, his analysis of changing nominal wages implicitly assumes that real
wages are changing. Once again we see that changing real wages is another
possible cause of changes in prices of production, in addition to changes
in the productivity of labor.
Chapter 12 collects several “supplementary remarks”, the first of which is
another brief consideration of the possible causes of changes in prices of
production.
The price of production of a commodity can vary for only two reasons:
(1) A change in the general rate of profit. This is possible
only if the average rate of surplus-value itself alters, or, given an average
rate of surplus-value, the ratio between the sum of surplus-value appropriated
and the total social capital advanced.
In so far as the change in the rate of surplus-value does not rest on the
depression of wages below their normal level, or a rise above this - and
movements like this are never more than oscillations - it can occur only
because the value of labor-power has either fallen or risen; both of these
are impossible without a change in the productivity of labor of that labor
that produces the means of subsistence, i.e. without a change in value of
the commodities that are consumed by the worker.
Alternatively, there may be a change in the ratio between the sum of surplus-value
appropriated and the total social capital advanced... If the same labor
sets more constant capital in motion, it has become more productive, and
vice versa. Thus a change has taken place in the productivity of labor
and a change must have occurred in the value of certain commodities...
(2) The general rate of profit remains unaltered. In this case the
production price of a commodity can change only because its value has altered;
because more or less labor is required for its actual reproduction, whether
because of a change in the productivity of labor that produces the commodity
in its final form, or in that of the labor producing those commodities that
go towards producing it. The price of production of cotton yarn may
fall either because raw cotton is produced more cheaply, or because the work
of spinning has become more productive as a result of better machinery...
All changes in the price of production of a commodity can be ultimately reduced
to a change in value ... (pp. 307-08)
In this remark, Marx seems to be assuming that the real wage remains constant,
since he says that a change in the value of labor-power is impossible without
a change in the productivity of labor in the production of the workers’ means
of subsistence. On the basis of this assumption, all changes in the
price of production of a commodity can be ultimately reduced to a change
in the value of commodities due to a change in the productivity of labor
somewhere in the economy, as Marx emphasized in his previous writings on
this question.
In the remainder of the Volume 3 manuscript, Marx continued to assume that
commodities exchange at their prices of production. In Part 4, Marx
modified his theory of prices of production to take into account commercial
capital and commercial profit. Parts 5 and 6 explain how parts of the
prices of production of commodities become interest for lenders and rent
for landlords. Part 7 summarizes Marx’s theory of the distribution
of surplus-value presented in Volume 3, on the continued assumption that
commodities exchange at their prices of production.
In the remainder of Volume 3, Marx occasionally touched on the issues we
have been discussing. All these later statements are entirely consistent
with the passages we have examined above - that prices of production are
long-run prices that equalize profit rates and that are the centers of gravity
around which market prices fluctuate. To give a few examples:
If supply and demand coincide, the market price of the commodity corresponds
to its price of production, i.e. its price is then governed by the inner
laws of capitalist production, independent of competition, since fluctuations
in supply and demand explain nothing but divergences between market prices
and prices of production - divergences which are mutually compensatory, so
that over certain longer periods the average maket prices are equal to the
prices of production. (pp. 477-78; emphasis added)
If the prices of commodities in one sphere are below or above their prices
of production ... , an equalization takes place by the expansion or contraction
of production, i.e. an increase or decrease in the quantity of commodities
that those industrial capitals put on the market, mediated by the immigration
or emigration of capital with respect to these particular spheres of production.
It is this equalization brought about in this way, whereby the average market
prices of commodities are reduced to their prices of production, that corrects
divergences between the particular rates of profit and the general or average
profit rate.
(p. 489; emphasis added)
The general observation we have so far made on the credit system are as follows:
I. Its necessary formation to bring about the equalization of the profit
rate or the movement of this equalization, on which the whole of capitalist
production depends. (p. 566)
The prices of production arise from an adjustment of commodity values under
which ... the total surplus-value is distributed not in the proportion
in which it is produced in the individual spheres of production ... but rather
in proportion to the size of the capitals advanced. It is only in this
way that an average profit arises, and a production price for commodities
can be arrived at, the characteristic element of which is the average profit.
It is the constant tendency of capitals to bring about, by competition, this
adjustment in the distribution of surplus-value that the total capital
produces, and to overcome all obstacles towards it... This presupposition,
however, depends as already explained on the continuously changing proportionate
distribution of the total social capital between the various spheres of production;
on a continuous immigration and emigration of capitals; on their transferability
from one sphere to another; in short, on their free movement between these
various spheres of production ... It is assumed in this connection
that no barriers, or at least only accidental and temporary ones, prevent
the competition of capitals ... from reducing value to prices of production
...
(pp. 895-96; emphasis added)
The division of the social profit as measured by this [general rate of profit]
... produces prices of production which diverge from commodity values and
which are the actual averages governing market prices. But this divergence
from values abolishes neither the determination of prices by values nor the
limits imposed on profit by our laws... Market prices rise above
these governing production prices or fall below them, but these fluctuations
balance each other out. If one compares price lists over a prolonged
period, and ignores those cases in which the actual
value of a commodity alters as a result of a change in labor productivity,
as well as cases in which the production process is disturbed by natural
or social disasters, it is surprising both how narrow the limits of these
divergences are and how regularly they are balanced out. (pp.
999-1000; emphasis added)
Shortly after finishing the Volume 3 maunscript, Marx wrote an address entitled
“Wages, Price, and Profit” which he delivered to the General Council of the
First International in June 1865. Marx’s address touched briefly on
the points we have discussed above, and once again (and not surprisingly),
what Marx said about these points in this address is essentially the same
as in the manuscripts we have examined above. For the purpose of this
public lecture, Marx simplified and did not distinguish between value and
price of production. But other than that, Marx repeated our familiar
themes. Especially striking is the repeated use of value and natural
price as synonyms.
What would be the consequence of this difference in the rates of profit for
capitals employed in the different branches of industry? Why, the consequence
that generally obtains whenever, from whatever reason, the average rate of
profit comes to differ in different spheres of production. Capital
and labor would be transferred from the less remunerative to the more remunerative
branches; and this process of transfer would go on until the supply in the
one department of industry would have risen proportionally to the increased
demand. This change effected, the general rate of profit would again
be equalized in the different branches. As the whole derangement originally
arose from a mere change in the proportion of the demand for, and the supply
of, different commodities, the cause ceasing, the effect would cease, and
prices would return to their former level and equilibrium.
(p. 190)
Supply and demand regulate nothing but the temporary fluctuations of market
prices. They will explain to you why the market price of a commodity
rises above or sinks below its value, but they can never account for that
value itself...
At the moment when supply and demand equilibrate each other, and therefore
cease to act, the market price of a commodity coincides with its real value,
with the standard price round which its market prices oscillate.
(p. 200)
So far as it is but the monetary expression of value, price has been called
natural price by Adam Smith and “prix necessaire” by the French physiocrats.
What then is the relation between value and market prices, or between natural
prices and market prices? ... (T)he ossicilations of market prices,
rising now over, sinking now under the value or natural price, depend upon
the fluctuations of supply and demand. The deviations of market prices
from values are continual, but as Adam Smith says:
The natural price ... is the central price to which the prices of all
commodities are continually gravitating...
I cannot sift this matter. It suffices to say that if supply and demand
equilibrate each other, the market prices of commodities will correspond
with their natural prices, that is to say, with their values, as determined
by the respective quantities of labor required for their production.
But supply and demand must constantly tend to equilibrate each other, although
they do so only by compensating one
fluctuation by another, a rise by a fall, or vice versa... (A)ll descriptions
of commodities are, on the average, sold at their respective values or natural
prices. The average periods during which the fluctuations of market
prices compensate each other are different for different kinds of commodities,
because with one kind it is easier to adapt supply to demand than with the
other. (pp. 207-08)
Finally, in April 1968, Marx wrote another valuable letter to Engels in which
he summarized the overall contents of Volume 3. This summary is very
interesting and illuminating in many respects. Part 2 is summarized
succinctly and very clearly as follows:
But out of these different rates of profit a mean or general rate of profit
is formed by competition. This rate of profit, expressed in absolute
terms, can be nothing else than the surplus-value produced (annually) by
the capitalist class in relation to the total capital advanced by society
as a whole...
What competition between the various amounts of capital - which is invested
in different spheres of production and have a different composition - is
striving to produce is capitalist communism, namely the mass of capital belonging
to each sphere of production receives an aliquot part of the total surplus
value proportionate to the part of the total social capital which it constitutes.
This can only be achieved if in each sphere of production ... the yearly
output of commodities is sold as cost price plus 20 percent profit on the
capital value advanced ... But this means that the prices of
the commodities must deviate from their values...
The price thus equalized, which distributes the social surplus value equally
among the individual capitals in proportion to their size, is the price of
production of commodities, the center around which the market prices oscillate.
(pp. 193-94; emphasis added)
This is the last thing that Marx wrote about these issues of the equalization
of profit rates, prices of production, market prices, etc. (at least that
has been published, so far as I know). It seems clear that, to the
end, Marx’s thinking on these issues was essentially the same as that worked
out in the 1861-63 manuscript in his critical study of Smith’s and Ricardo’s
theory of natural price: rates of profit tend to be equalized across industries
(at least as an abstract assumption) and the prices of production that equalize
profit rates are the centers of gravity around which market prices fluctuate
over longer periods of time.
3. TSS INTERPRETATIONS
3.1 FREEMAN
Alan Freeman (1995) argues that Marx’s theory in Volume 3 of Capital is not
primarily about prices of production, but is instead about market prices.
Freeman states:
(Marx’s theory) is about general market prices. (p. 56; emphasis in
the original)
In a section entitled “Market price and value,” which is about the equalization
of profit rates and
the determination of prices, Freeman states that the prices being determined
are not equilibrium prices. They are market prices of period 1, in
general different
from the market prices of period 0. (p. 74; emphasis added)
Freeman’s main argument for this interpretation of Marx’s theory seems to
be that prices in the real world are disequilibrium market prices, not equilibrium
prices of production, and Marx’s theory is about real world prices.
Any analysis of a real market economy has to explain trade at disequilibrium
prices because they are the only prices anyone actually sees.
The prices for which commodities sell are neither values nor prices of production,
not in Marx nor in the real world. They are market prices, constantly
in motion, never actually supply to demand. (p. 54-55; emphasis
added)
Thus, Freeman appears to ignore all Marx had to say in the 1861-63 manuscript
and in the Volume 3 manuscript and elsewhere about the relation between prices
of production and market prices in his theory, that we have reviewed above.
These manuscripts clearly demonstrate, as we have seen, that Marx’s
theory in Volume 3 is about prices of production, which are long-run center-of-gravity
prices. Market prices are abstracted from in order to focus the analysis
on the long-run essential trends, rather then the temporary deviations.
For textual evidence for his interpretation of Marx’s theory, Freeman cites
the following passage from the Poverty of Philosophy (written much earlier
in 1847):
it is the variations of supply and demand that show the producer what amount
of a given commodity he must produce in order to receive in exchange at least
the cost of production. And as these variations are continually occurring,
there is also a continual movement of withdrawl and application of capital
in the different branches of industry...
If M. Proudhon admits that the value of products is determined by labor time,
he should equally admit that it is the fluctuating movement that alone makes
labor the measure of value. There is no ready-made constituted “proportional
relation” but only a constituting movement.
I do not see how this passage supports Freeman’s interpretation that the
prices which Marx theorized about in Volume 3 of Capital were market prices,
not prices of production. Marx is arguing in this passage that market
prices must indeed differ from values (or prices of production) because these
differences are the means by which social labor is unconsciously regulated
in a commodity-producing (market) economy. Without the possibility
of these differences, the regulation of social labor in a commodity economy
would break down. This was the main point of Marx’s critique of Proudhon’s
“labor-chit” theory, which in effect eliminated the possibility of differences
between market prices and values (or prices of production), even though there
was still no overall conscious regulation of social labor.
However, this point does not imply in any way that Marx’s theory in Volume
3 of Capital is about market prices, and not about prices of production.
This point in entirely consistent with the focus of Marx’s theory of prices
being on prices of production. Even though the deviations of market
prices from prices of production are necessary, they are also transitory
and give rise to offsetting tendencies. The long-run trends of prices
(and ultimately of the rate of profit) should be studied in terms of long-run
center-of-gravity prices (i.e. in terms of prices of production), not in
terms of market prices.
Even if this one passage from the Poverty of Philosophy, written early in
Marx’s theoretical development, were somehow interpreted as Freeman does,
we would still have the hundreds of pages in Marx’s later Capital manuscripts,
in which he developed his theory of prices of production and generally abstracted
from market prices (aside from a few comments here and there about their
necessary existence). Clearly, Marx’s theory in Volume 3 is about prices
of production, not market prices.
3.2 KLIMAN AND MCGLONE
Kliman and McGlone’s (1988 and 1996) interpretation is different from Freeman’s
in that they argue that Marx’s theory of prices in Volume 3 of Capital is
about prices of production, not market prices. The prices determined
at the end of each period in Kliman and McGlone’s numerical examples are
called “prices of production.” Kliman and McGlone (hereafter KM) explicitly
exclude market prices from their interpretation.
Abstracting from the process of competition, we will show no market price
oscillations. (p. 70)
However, I argue that KM’s concept of “prices of production” is not the same
as Marx’s concept of prices of production which we have examined above.
We have seen above that Marx’s concept of prices of production refers to
long-run center-of-gravity prices around which market prices fluctuate from
period to period. These long-run center-of-gravity prices may change
from time to time, but they change only due to changes in the productivity
of labor or changes in the real wage. KM’s concept of “prices of production,”
on the other hand, are not long-run center-of-gravity prices. Their
“prices of production” are short-run prices that change from period to period.
Most importantly, their “prices of production” change from period to period,
not due to changes in the productivity of labor or the real wage (the productivity
of labor and the real wage are assumed to remain constant), but rather due
solely to the continuation of the process of equalization of profit rates
from period to period. Therefore, KM’s “prices of production” are fundamentally
different from Marx’s prices of production.
In the numerical example presented in KM’s original article (Kliman and McGlone
1988), their “prices of production” continue to change for 13 periods, due
solely to the continuation of the equalization of profit rates (the productivity
of labor and the real wage are assumed constant). After the 13th period,
their “prices of production” remain constant, and will change thereafter
only if the productivity of labor or the real wage changes. In other
words, KM’s “prices of production” in their 13th period is what Marx meant
by prices of production - long-run center-of-gravity prices that change only
due to changes in the productivity of labor or the real wage. KM’s
“prices of production” in the first 12 periods, that continue to change from
period to period due solely to the continued equalization of profit rates,
have no counterpart in Marx’s theory. There is no hint or suggestion
in all of Marx’s manuscripts that prices of production may change as a result
of the ongoing process of the equalization of profit rates, without changes
in the productivity of labor or the real wage. Prices of production
are the prices that result when the equalization of profit rates is complete
and that change only due to changes in the productivity of labor or the real
wage.
In a later article (McGlone and Kliman 1996), KM present their numerical
example in only two periods. However, just as in the first article,
the “prices of production” determined in these two periods are not long-run
center-of-gravity prices that change only due to changes in the productivity
of labor or the real wage. Their “prices of production” change from
period 1 to period 2, and will continue to change in future periods, due
solely to the continued equalization of profit rates (with the productivity
of labor and the real wage assumed constant). KM argue that if their
“prices of production” were determined for future periods, they would eventually
converge to long-run equilibrium prices, as in the original article (p. 44).
David Laibman (1997) has continued KM’s numerical example for ten periods,
using their method of determination of “prices of production,” and has concluded
that their “prices of production” do not appear to be converging to long-run
center-of-gravity prices in the sense given above. However this may
be, KM’s “prices of production,” which continue to change from period to
period while the productivity of labor and the real wage remain constant,
are clearly not the same as Marx’s prices of production.
In their interpretation of “prices of production,” KM assume that the prices
of inputs are not equal to the prices of outputs, i.e. that the prices
of production of the means of production and the means of subsistence as
inputs are not equal to the prices of production of the means of production
and the means of subsistence as outputs. However, this assumption is
incompatible with prices of production as long-run center-of-gravity prices,
as defined above, i.e. that change only due to changes of productivity or
the real wage. Such long-run center-of-gravity prices require that
the prices of inputs are equal to the prices of outputs. If the prices
of inputs were not equal to prices of outputs (as KM assume), then “prices
of production” would necessarily continue to change in the next period, due
solely to the continuation of the equalization of profit rates, without changes
in the productivity of labor or the real wage. The inequality between
input prices and output prices implies that the prices of inputs in the next
period will be different from the prices of inputs of the current period.
If the prices of outputs in the next period were to remain the same as in
the current period, while the prices of inputs in the next period change,
then the rates of profit across industries would be unequal. Therefore,
in order to equalize profit rates, the “prices of production” of outputs
in the next period must continue to change, even though the productivity
of labor and the real wage remain constant. Therefore, we can see again
that KM’s “prices of production” cannot be long-run center-of-gravity prices,
as defined by Marx.
In KM’s first article, they assert that their “prices of production” are
“center of gravity” prices (p. 70). However, they do not explain how
their “prices of production,” which are changing from period to period as
a result of the ongoing equalization of profit rates, can be “center of gravity”
prices over longer periods of time. In essentially the same paragraph
in their later article (p. 39), the assertion that their “prices of production”
are “center of gravity” prices is dropped. In any case, their “prices
of production” are not the same as Marx’s prices of production which change
only due to changes in the productivity of labor and the real wage.
I conclude that KM’s interpretation of Marx’s theory of prices of production
is fundamentally mistaken because the “prices of production” which it attempts
to explain are not the same as Marx’s prices of production in Volume 3 of
Capital. Marx’s prices of production are long-run center-of gravity
prices that change only due to changes in the productivity of labor or the
real wage. KM’s “prices of production” are short-run prices that change
from period to period due to the ongoing equalization of profit rates, even
though the productivity of labor and the real wage remain constant.
4. CONCLUSION
This paper has argued that that the textual evidence is very substantial
and very consistent, from Marx’s first consideration of average prices or
cost prices in the 1861-63 Manuscript through Marx’s theory of prices of
production in the 1864-65 draft of Volume 3 of Capital and beyond, that Marx’s
concept of price of production is essentially the same as Smith’s and Ricardo’s
concept of natural price - long-run prices that equalize rates of profit
and that function as the center-of-gravity around which market prices fluctuate
from period to period. Prices of production my change from time to
time, but they change only due to changes in the productivity of labor or
the real wage. Marx’s theory in Volume 3 of Capital is about these
long-run prices in order to focus the analysis on the long-run trends on
the key variables in his theory. Short-run fluctuations around the
long-run center-of-gravity prices are generally ignored as inessential.
I have also argued that the two TSS interpretations that I have considered
- by Freeman and by Kliman and McGlone - are fundamental misinterpretations
of Marx’s theory. Freeman argues that Marx’s theory in Volume 3 of
Capital is not about prices of production, but is instead about market prices,
which is clearly wrong. Kliman and McGlone’s agree that Volume 3 is
about prices of production, but their “prices of production” are not same
as Marx’s prices of production, because the former are not long-run center-of-gravity
prices that change only due to changes in the productvity of labor or the
real wage, but are instead short-run prices that continue to change from
period to period solely as the result of a continuation of the equalization
of profit rates.
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ENDNOTES