Effective Demand and Prices of Production: An Evolutionary Approach

The paper develops a critique of and a (partial) solution to Say’s Law Marxism, defined as the employment of Say’s Law within the Marxist framework. The critique is based on the notion that expectations and effective demand are constitutive of labor values and prices of production. Socially necessary labor cannot be determined solely from the supply side. The (partial) solution to Say’s Law Marxism rests on the development of an evolutionary model that integrates the principle of effective demand in the short run and the formation of prices of production in the long run. The equalization of profit rates in the long run and the formation of prices of production as attractors of market prices depend upon the realization of profits in the short run and, therefore, are subject to the principle of effective demand. The model employs replicator dynamics from evolutionary game theory to formalize competition at the firm level. The replicator equations also formalize the adoption of new production techniques and the nonlinear feedback effects between individual decisions and unintended macroeconomic outcomes.