GRAVITATION OF MARKET PRICES TOWARDS NORMAL PRICES: SOME NEW RESULTS

Enrico Bellino and Franklin Serrano

Contributions to Political Economy, 2018, vol. 37, issue 1, 25-64

Abstract: The gravitation process of market prices towards production prices is here presented by means of an analytical framework where the classical capital mobility principle is coupled with a determination of the deviation of market from normal (natural) prices which closely follows the description provided by Adam Smith: each period the level of the market price of a commodity will be higher (lower) than its production price if the quantity brought to the market falls short (exceeds) the level of effectual demand. This approach simplifies the results with respect to those obtained in cross-dual literature. At the same time, anchoring market prices to effectual demands and quantities brought to the markets requires a careful study of the dynamics of the ‘dimensions’ along with that of the ‘proportions’ of the system. Three different versions of the model are thus proposed, to study the gravitation process: (i) assuming a given level of aggregate employment; (ii) assuming a sort of Say’s law; (iii) and on the basis of an explicit adjustment of actual outputs to effectual demands. All these cases describe dynamics in which market prices can converge asymptotically towards production prices.

Date: 2018
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Working Paper: Gravitation of market prices towards normal prices: some new results (2017)
Working Paper: Gravitation of Market Prices towards Normal Prices: Some New Results (2017)
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