First, a note of assurance – I am posting every day this week ONLY because I will go off line Friday (in 2 days) until the conference – so DON’T PANIC, I WILL NOT FLOOD THE DISCUSSION BLOG!
Second, again, very nice comments by Hassan.
I just want to say a number of things related to what he has said – I will write this in stream of consciousness format, just pretend I am James Joyce. First, as Hasan outlined, Marx’s theory of price fluctuating around prices of production rested on the movement of capital to expand or contract supply. That is also the basis, for the same reason, for his idea of equalized rates of profit (between branches, but not in branches – more on this below). Now what if there are barriers to entry? In fact, as is discussed all the time in the economic sub-field of Industrial Organization, one can get complete competition (that is, prices driven to the cost of production (with the standard profit build in, in the neoclassical approach, but that is a different issue, and can be adjusted for) with just two firms (ie, they can keep other firms out)). In a simple sense one can think of two stores or gas stations in a price war (they will keep undercutting each other until they hit cost), or one can get fancy and go to game theory and talk about Bertrand competition (in which one can get this result) versus Cournot competition. But what is involved is also the same issue that pops up in one form (one form from the 60s and 70s) of the conflict between the neoclassicals and the (bastardized) Keynesians. When firms adjust to disequilibrium, do they adjust prices (the neoclassical) or quantities (the “Keynesians – recall in this simplified and bastardized form of Keynes, one can have “sticky prices,” and so obviously quantities must adjust to disequilibrium)? Now Hasan made a nice point about this adjustment being most obvious in the long run. Just for interest, one can go to the Web page of Dumenil and Levy and see a very nice article (in my opinion, of course) that is involved with all this called “Marxist in the long run and Keynesian in the short run.”
OK, one more thing, a comment in regards to the first question Hasan wrote at the end – not a direct answer, but something related that I think is interesting to think about. I would claim that when Marx disclaimed it held for a single good but did hold for an industry, this was related to his ideas on competition that I started to refer to above. Capital moves between branches, and that equalizes the rate of profit between branches (we know this is not perfect because there are indeed some barriers between branches to capital movement, particularly in the short-run, less so in the medium-run, and one might say not so in the long-run). Equalizing rates of profit is of course putting the prices sold at in the same relation to costs (involved in tied up capital) in the various branches. What Marx did not argue was that profit rates were equalized within a branch through the movement of capital – or that they were equalized at all, for that matter. Like everyone, he held “the law of one price,” that competition meant that the same good from two producers would sell at the same price, and if one had higher costs that person then simply made lower profits. The branch had an average rate of profit, and that is what attracted capital to flow in or out (there is actually a significant unresolved problem in that, since it is not the average that attracts capital, but rather what the capital thinks it can get – maybe that means the return on the most modern capital while older capital gets lower rates, but even that is not the way it is in the real world because that assume uniform wages, and in fact older capital often pays lower wages ….. and so on … really interesting stuff when one goes to the real world!)
OK, enough. There is so much interesting stuff one could talk about in Hasan’s post, and some of it we will this summer, but of course in a day and a half we will not begin to cover all the issues that have already been brought up ….