What is the “realization problem?
The realization problem is Marxist terminology arising in the analysis of differences between market prices and prices of production. If proportions between industries are inappropriate, some capitalists firms may find that they cannot sell all of their output at the corresponding prices of production. Or there may be a general overproduction in which all the commodities produced cannot be sold. (Marx, in contrast to some Classical economists, denied Say’s law. Say’s law implies that persistent general overproduction (depression) is impossible.) In either case, not all firms will receive the appropriate rate of profit for their cost structure. Consequently, capitalists will disinvest in some sectors and more heavily invest in others. This process will cease only if all firms can sell their output at prices of production. Adam Smith called this level of output the level of “effectual demand.” Notice that effectual demand is a specified quantity, not a schedule relating quantities and pr
