Equilibrium price?

[Sympo]

I read a thread on Reddit about supply and demand. Someone wanted to know what determines the equilibrium price of a commodity.

Someone wrote that the equilibrium price is determined by taste, technology and endowments.

What's the Marxist objection to this argument?

[DJP]

Law of Value 10: Price and Value

[Sympo]

Thanks. I read that guys texts before but I tend to forget a lot of it.

[ALB]

In practice the price of a commodity oscillates due to short term changes in supply and demand not around its value but around its price of production I.e its cost of production plus the average rate of profit. It corresponds to what Adam Smith called it's "natural price", its longer run equilibrium price 

[Anonymous]

Those are conception coming from the founders of bourgoise Liberalism, and Liberalism does not exist and it never existed either. Equiliibrum in price in capitalism is only a dream, it will always fluctuate, and even more, on a very unstable economical system that is in constant crisis, and it is always struggling for markets.Nowdays peoples use the expression liberal and liberalism without knowing the meaning ( if the state intervene it is not liberalism ) They have a new conception known as Communist liberal, that is totally wrong, and it is a sign  of ignorance. Now the opposite of right winger is liberalism. Capitalism in its totally is a reactionary economical system, and right winger ( called Conservative, I call them  ractionary ) and left winger come from the same bird known as capitalism, and both are recalcitrant

[Sympo]

ALB wrote:

In practice the price of a commodity oscillates due to short term changes in supply and demand not around its value but around its price of production I.e its cost of production plus the average rate of profit. It corresponds to what Adam Smith called it's "natural price", its longer run equilibrium price 

Okay, so price oscillates around the price of production and not value, I'll try to remember that.How do we know that industries tend to have a similar rate of profit? Or have I misunderstood kapitalism101 when I intepret him as saying that the reason industries that produce more surplus value don't tend to make a much larger profit than those industries that percentually have less variable capital and more constant capital, is that the capitalists who own the factory filled with constant capital buy shares in the factory filled with variable capital?

[DJP]

Sympo wrote:

How do we know that industries tend to have a similar rate of profit?

I think you might have misunderstood.The claim isn't that at any single moment in time every industry is going to have the same rate of profit.But that over time profit rates will tend to converge due to the workings of the market.

[Sympo]

DJP wrote:

I think you might have misunderstood.The claim isn't that at any single moment in time every industry is going to have the same rate of profit.But that over time profit rates will tend to converge due to the workings of the market.

I get that Marx doesn't argue that every industry gets the same rate of profit at any single moment.But how do we know that (over time) profit rates tend to converge?Is my description of kapitalism101's explanation correct? If so, how do we know that capitalists from industry A (with a lot of cc) invest in industry B (that has less cc)?

[DJP]

Capitalists aren't 'from' any particular industry. What we are thinking about in this case is people investing money where ever they think they will get the most money back. They're not thinking about value or surplus value or constant capital etc, these are just terms that Marx used to explain how the whole thing operates, behind the backs of those operating it.An individual enterprise does not receive the value it produces. In effect all value that is produced in the economy goes into a pot, called the market, and this value is distributed amongst the individual capitals according to market competition.Profit rates are something that is eminently measurable, but there is some debate as how to measure the 'Marxian' rate of profit.But if one sector of industry continually had better returns to invested money, that is the only sector people would bother investing in.Makes sense?

[Sympo]

DJP wrote:

"An individual enterprise does not receive the value it produces. In effect all value that is produced in the economy goes into a pot, called the market, and this value is distributed amongst the individual capitals according to market competition."I have some difficulty in seeing how exactly the value created by specific enterprises find its way into the pot."But if one sector of industry continually had better returns to invested money, that is the only sector people would bother investing in."Is it actually possible for every capitalist to only invest in industries where the vc is much larger than the cc?

[DJP]

I'm a bit busy now, but it's all explained here. I'd gladly answer any more questions later..https://kapitalism101.wordpress.com/what-transformation-problem/I guess the key bit is this:"All capitalists contribute to the total amount of surplus value according to how much labor they employ.  So if coffee makers have more workers, they contribute more to the aggregate surplus value than car manufacturers. But capitalists withdraw their money profits from this total surplus value according to the average rate of profit- that is, in proportion to the total cost of their production. Regardless of how many workers they actually employ, they all receive the same rate of return on their investment, even if all of their investment goes into machines!Thus the price of a commodity is not the cost of inputs plus surplus value. It is the cost of inputs plus the average return on those investments. We call this price the “price of production”. The total prices of production equal the total amount of value. But individual commodities do not trade at their values. They trade at their prices of production. The price of production is still a function of value, but it is not necessarily directly equal to it."

[DJP]

Sympo wrote:

Is it actually possible for every capitalist to only invest in industries where the vc is much larger than the cc?

Industries with a higher labour element are not necessarily going to be more profitable than those with a lower one. See the above.

[ALB]

Each capitalist firm making the same rate of profit is also of course an "equilibrium" position, tending to be brought about as capital flows in search of higher profits flows out of one industry and into another,  but it's one which is never reached as things are changing all the time. Nevertheless it's  the tendency.

[Sympo]

DJP wrote:

"I'd gladly answer any more questions later.."Thanks"Industries with a higher labour element are not necessarily going to be more profitable than those with a lower one. See the above."You wrote that profit rates are measurable, but is there some statistics about the profit rate of different industries? For the moment, let's pretend that industries with a higher labour element are more profitable than those with a lower one.Wouldn't it be impossible for Capitalism to function if capitalists didn't invest in industries with a higher element of constant capital?If so, wouldn't it be reasonable for capitalists to "sacrifice" some potential profit in order to be able to make the continuation of Capitalism possible? After all, even if they get a lower rate of profit, they would still make a net profit. It would just be lower than of the industries with a higher element of variable capital.

[Young Master Smeet]

As Uncle Charlie noted: "Even a cursory examination of competition shows, furthermore, that under certain circumstances, when the greater capitalist wishes to make room for himself on the market, and to crowd out the smaller ones, as happens in times of crises, he makes practical use of this, i.e., he deliberately lowers his rate of profit in order to drive the smaller ones to the wall. "https://www.marxists.org/archive/marx/works/1894-c3/ch13.htm

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