Production prices and dynamical processes of the gravitation of market prices

Since A. Smith classical economists have taken it for granted that production prices constitute «centers of gravity» towards which the market prices of commodities do converge, at least in the long run. Their reasoning, however, was not rigorous and in particular paid little attention to the interactions between industries. The present study - one among several recent approaches to the problem of economic stability from a classical perspective - undertakes to design well-defined dynamical processes of price adjustments and related capital movements between sectors. Special emphasis is laid on the introduction of inventories, which are an integral part of any disequilibrium analysis. Stability or instability of the proposed adjustment processes is considered in detail.