me: > "I think it's useful to talk about equilibrium in a simple supply and > demand framework, but only with the warning that the real world is > often more complicated and dynamic. After all, Marx used supply and > demand (without the graphs), seeing transitory equilibria as moving > around the "centers of gravity" set by prices of production (which > represent longer-term equilibria)."
Lakshmi Rhone wrote: > May I have the page numbers for that? For the centers of gravity part, it appears over and over again in volume I when he refers to the workings of markets (which are not the subject of the book). > Marx argues that there is a tendency > for an equalization of the profit rate over the short, medium or long > term--he does not really specify. ... That's true. Usually, it's interpreted (by neo-Ricardians) as some kind of long-term equilibrium. The problem is (as Michael would point out) that the "technical coefficients" behind the prices of production regularly change due to technical and social changes, so it's possible that profit-rate equalization can't happen fast enough. On the other hand, he saw profit-rate equalization as happening very quickly via financial markets. That assumes, of course, that financial markets behave well. me: > "In general, the world of capitalism is dynamic and never attains > equilibrium (except for short-lived periods)." > Agree me: > "But it's useful to have > some sense of what equilibrium would be if it were attained, as with > Marx's volume II reproduction schemes." > That may be true but I am interested in how we teach what the actual common > responses to market disequilibrium actually are. And that's what I would > really > appreciate help with. Yeah, I was responding to Michael's point. Return to Lakshmi's original message: > Well I never did get the economists' vision that the economy is best > understood as making price and output adjustments to arrive at a given > equilibrium when there is over or underproduction. For example, the > consequence of being out of equilibrium as the economy always in fact is--for > example, supply exceeding demand as it so often does--is often enough a shift > of the aggregate supply curve such that a new equilibrium price is being set.< Why is it that aggregate supply is shifting here? (I can think of a story, but what's yours?) why _aggregate_? > The market does not work by adjusting supply to demand at the already > existing theoretical equilibrium price (oversupply may be dumped at below > equilibrium prices but this does not mean that the economy is adjusting by > reducing supply so that there is supply and demand equilibrium at the already > existing equilibrium price); in fact supply will not eventually be reduced. > It will be increased. That is the consequence of overproduction. < In the Walrasian mythos, the Auctioneer calls out a price. Suppliers then offer a quantity while the buyers offer a different quantity (in this case smaller). With a glut on the market, the price is cut -- but in the Walrasian imagination, no trades are made. The trades are made only when the quantity supplied equals that demanded. I think what you're referring to is what's called "false trading," i.e., the case where deals are made before the price attains equilibrium. This "false" trading happens a lot in the real world. After a leftward demand shift, suppliers can be desperate for cash-flow and thus sell before the price can equilibrate, i.e., sell at a sub-equilibrium price. This in turn can lowers their perceived net worth and can cause lay-offs (especially if the problem is general). This shifts demand and can cause a multiplier effect. It doesn't usually affect short-run supply as usually interpreted (i.e., the supply curve or schedule), which has input costs and the fixed capital held constant. A firm might sell below marginal cost (and thus below its supply curve) because the need to keep cash flowing and to pay debt service overrule decisions based simply on production. However, an actual supply shift may happen (e.g., if wages or raw material costs fall in response to the recession). > In other words, the responses of market actors to disequilibrium do not bring > about adjustment towards the already existing equilibrium but rather the > creation of a new equilibrium price, usually the result of jumps in the > supply curve in response to overproduction.< Right, but this problem seems more relevant to macroeconomics than to microeconomics. In any event, as a macro-man, I sneer at micro, especially those efforts to reduce macro to micro. > And those jumps are also brought about by bigger, more powerful firms at the expense of smaller ones. Bankruptcy and real competition (as most people, not economists, define it) is an essential part of the so-called "adjustment" process which is not really an adjustment process. It's a process of creative leaps and destruction. >The market is presented as a serene system of peaceful marginal adjustments to >arrive at equilibrium. But capitalism is actually a system of dynamic >disequilibrium. < Right. The fall in actual and perceived net worth referred to above can cause bankruptcies. However, it's usually the cash flow that's the problem. > But my question for the economists: how do you explain what the market > consequences are to disequilibrium? < If I had the time in teaching and the right textbook, I would look at disequilibrium following Marshall rather than Walras, emphasizing the difference between the supply price and the demand price at a given quantity. Even better, I would see differences for both quantity demanded/quantity supplied _and_ demand price/supply price. In the real world, I use the textbook by Goodwin, Nelson, Ackerman, and Weisskopf (MICROECONOMICS IN CONTEXT). Among other things, they see financial issues as playing a role in determining decisions by firms. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
