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Gravitation of market prices towards normal prices: some new results

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  • Bellino, Enrico
  • Serrano, Franklin

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 also 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.

Suggested Citation

  • Bellino, Enrico & Serrano, Franklin, 2017. "Gravitation of market prices towards normal prices: some new results," MPRA Paper 79297, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79297
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    References listed on IDEAS

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    1. Nell,Edward J., 1998. "The General Theory of Transformational Growth," Cambridge Books, Cambridge University Press, number 9780521590068, January.
    2. Saverio M. Fratini & Alessia Naccarato, 2016. "The Gravitation of Market Prices as A Stochastic Process," Metroeconomica, Wiley Blackwell, vol. 67(4), pages 698-716, November.
    3. Salvadori, Neri & Signorino, Rodolfo, 2013. "The Malthus versus Ricardo 1815 Corn Laws Controversy: An appraisal," MPRA Paper 50534, University Library of Munich, Germany.
    4. Steedman, Ian, 1984. "Natural Prices, Differential Profit Rates and the Classical Competitive Process," The Manchester School of Economic & Social Studies, University of Manchester, vol. 52(2), pages 123-140, June.
    5. Boggio, Luciano, 1992. "Production Prices and Dynamic Stability: Results and Open Questions," The Manchester School of Economic & Social Studies, University of Manchester, vol. 60(3), pages 264-294, September.
    6. Enrico Bellino, 1997. "Full-cost pricing in the classical competitive process: A model of convergence to long-run equilibrium," Journal of Economics, Springer, vol. 65(1), pages 41-54, February.
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    Cited by:

    1. Stefano Zambelli, 2018. "Production of commodities by means of commodities and non‐uniform rates of profits," Metroeconomica, Wiley Blackwell, vol. 69(4), pages 791-819, November.

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    More about this item

    Keywords

    Market prices; normal prices; Classical competition; gravitation; effectual demand;
    All these keywords.

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • D20 - Microeconomics - - Production and Organizations - - - General
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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