This is a continuation of a previous debate with RV, here and here.
RV claims that I say that “the average prices of commodities are directly proportionate to the labour time socially necessary to reproduce them.”. I don’t because that is a mathematically ill defined statement. There is no such thing as an average price of different commodities since the commodities are incomensurable. You can not average the price of size 9 socks, Volkswagen Up cars, and 20cm lampshades. To form an average you need numbers of a uniform sort, which can not be done with distinct commodities. What can be measured is the correlation between the labour content of the output of industries and the money value of the output of these industries.
What I do claim is :
“One can allow an element of noise, a percentage error induced by temporary fluctuations of supply or demand whilst still accepting that the attractor for relative money values (prices) is relative labour values. In modern language, not available to Marx, we would say that labour content is strongly correlated with sale value in terms of money.“
It is this assumption that is absolutely crucial to the arguments that Marx uses for the analysis of relative surplus value in volume I of Capital. The analysis of capitalist exploitation is the most politically controversial part of Capital.
RV has no difficulty in finding places in Vol 1 of Capital or in Theories of Surplus Value where Marx says, without elaborating much, that average prices do not correspond to values. This, as I say above, is a mathematically ill formulated claim, but let us read it charitably as indicating that Marx believed, as a follower of Ricardo, that profit rates equalised and that in consequence capital intensive commodities would sell at a premium relative to their labour content. He promises to explain all in a volume to be published later. But none the less his entire set of theoretical demonstrations rest on what he may perhaps have believed was a mere provisional assumption that relative prices are proportional to relative values.
RV claims that this assumption is made because Marx is deliberately setting himself a hard task. He implies that the assumption of price/value proportionality makes Marx’s task exceptionally hard:
He has to demonstrate that there is surplus-value even under the very restrictive assumption that average prices are proportionate to values. Marx singles out the most restricted, most difficult case, because he thinks it is only in this case that he can decisively make his point without there being any possible other explanation.
It is true that Marx is setting up this assumption to exclude certain superficially easy but false explanations of surplus value. The simplest explains profit by monopoly power. The capitalist as a monopolist, in this version, makes a profit by selling commodities above their true value.
Well there is little reason to doubt that individual monopolists do gain profit this way, but it fails as a general explanation for profits. If some capitalists are selling above relative values, others must be selling below them, so the gains of one would be cancelled by the losses of another. Although the monopoly theory is superficially attractive, it would therefore fail as an explanation for capitalist profit in general. In modern language, such deviations are a zero sum game.
The next theory that Marx wanted to exclude was that workers were being cheated by the price of labour being below the value of labour. One of his rival socialist theorists like Rodbertus advocated this sort of account. So the insistance that commodities sell at their value was also intended to stress that labour power too, sold at its value. This was to obviate reformist projects according to which exploitation would end if all commodities, including labour power, could be made to sell at value. He argues instead, that even if labour power does sell at its value, surplus value will still exist. He does not doubt that at times the price of labour power falls below its value – falls to a level at which workers familes can not reproduce themselves. But he is guarding his argument against the simple trades unionist demand for a a fair day’s wage for a fair day’s pay. Instead he constructs his analysis of capitalist exploitation to show that even if workers are paid the value of their labour power they are still exploited. The solution must be the ‘abolition of the wages system’. This point is made explicitly in the last lines of Wages Prices and Profit. The equivalent terminating phrase in Capital is ‘expropriation of the expropriators’.
The claims that profit arises from monopoly or under pricing of labour, whilst superficially plausible, are incapable of being integrated into a consisten overall system of social accounting – of the sort presented in Vol 2.
In fact, I will argue, that the system of accounting in Vol 2 necessarily implies that the law of value – in the sense of a close correlation between prices and labour values must hold if capitalism is to reproduce itself. Dave Zachariah and I give a formal mathematical demonstration of this in a recent paper. I will give a demonstration by numerical example later.
But for now, lets just ignore the reproduction models in Vol 2 and concentrate on the way that the coherence of Vol 1 depends absolutely on the law of value ( understood as necessary close correlation between prices and labour values ).
I will now simple quote what I said on this in my original article and we can see if RV has been able to make an adequate response.
Recall that Marx calls absolute surplus value, that surplus value produced by lengthening the working day. In his analysis of this he assumes that a proportional increase in the working day – say by 1/4 from 8 hours to 10 hours will result in a proportional proportional increase in the value added by labour during the day. He repeatedly switches between presentation in terms of money and equivalent proportional representations in terms of time.The same proportionality is involved in his discussion of the limitation of the working day.
If it were not the case that value added was proportional to labour time, this whole argument would be groundless. Were value added not proportional to labour time, were it proportional to the fixed capital employed, for example, then there would be no relationship between the length of the working day and the surplus value going to the employer. If you drop the assumption of proportionality of value added to labour time worked, then the whole analysis he gives falls appart.
Now look at relative surplus value. It is termed relative because it is produced when the relative proportions of value added going in wages and surplus change, the working day remaining constant. He says that the wage is equal to the money value of the necessities required to reproduce labour power under given cultural conditions of life. If the use of machinery reduces the labour required to make these necessities then there is a proportionate fall in their money value and, as a result, the share of surplus value rises since the labour force can now be reproduced with fewer hours of necessary labour. If necessary labour falls, surplus labour and surplus value rise.
Where the absolute surplus value analysis rests on a proportionality between labour time and the value added to the product. Relative surplus value rests on a proportionality between labour time and the money wage, via the mediation of the price of wage goods.
The detailed analysis of how machine weaving replaced hand loom weaving is based on the same assumption. The reduction in the time taken to produce a yard of cloth with machinery reduced its money value and in consequence forced the handloom weavers into penury. The same assumption comes up again and again – proportionality between socially necessary labour time and money value of commodities.
If RV thinks that this proportionality is not a foundational assumption of the analysis of absolute and relative surplus value, let us see him reconstruct the analysis without at any point being able to make that assumption.
How does RV respond to this challenge?
Is he able to derive an analysis of relative or absolute surplus value without assuming a strong positive correlation between labour content and price ?
No he completely flunks the challenge because it can not be done. Instead he avoids the issue :
It is indeed absolutely necessary for the analysis (“the process of breaking a concept down into more simple parts, so that its logical structure is displayed”) of how surplus-value arises in production to assume (= suppose) that commodities are exchanged at their values. Even if they actually don’t. In other words, when you abstract from value-price deviations, that doesn’t mean that you think they aren’t there. It just means that you think they’re not relevant to what you’re trying to demonstrate (of course maybe they are relevant, and in that case your demonstration will not stand the test of practice). It means that it renders the analysis unnecessarily complex and doesn’t allow you to conclusively demonstrate anything. At least, that’s how Marx sees it.
He makes two points
- that it is necessary for analysis to assume that prices are proportional to values even if in reality they ae not
- that you can abstract in the analysis from price value deviations
But this is not good enough. It is not a matter of abstracting from price value deviations. A strong positive correlation between prices involves the assumption that there are deviations. But that the deviations, the noise, is small compared to to the signal, this is literally what correlation measures. For him to rebut the point that Marx’s analysis depends on this positive correlation it is not enough to say Marx was ignoring deviations. He would have to show that Marx’s argument would still hold if prices and values were uncorrelated. If prices were not correlated to labour content, then the use of labour saving weaving machinery would not have depressed the price of woven cotten and impoverished the hand loom weavers in the way Marx describes in his anlysis of machinery. The whole argument would fall down.
On his first point. If the theory of surplus value mathematically rests on the assumption of labour value to price proportionality, and if in reality it turns out that prices are uncorrelated with values (as Kliman claims ) then Marx’s theory would be dead wrong and we should reject it outright – as the bourgeois economists have long claimed. But if Marx believed his theory of surplus value to be true, then he must have believed that the premises on which it rested were true premises.
Again, I repeat the challenge, RV and Kliman for that matter, have to show that Marx’s theory of surplus value can be reconstructed on the assumption that price and value are uncorrelated. Of course if RV can not reconstruct the theory of surplus value without assuming that the law of value holds, then the theory of the declining rate of profit – which depends on the theory of surplus value would also be unsound.
Impossible things
“Alice laughed. ‘There’s no use trying,’ she said. ‘One can’t believe impossible things.’
I daresay you haven’t had much practice,’ said the Queen. ‘When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast. There goes the shawl again!”
― Lewis Carroll
It is easy for RV to find passages where Marx supports the Ricardian theory that profit rates equalise, and that this will induce systematic deviations between price an value. Marx was, on this point a completely uncritical Ricardian. This is why, for a long period from the 1960s the neo-Ricardian school were able to make hay with their criticisms( for example Steedman, Ian. Marx after sraffa. London: NLB, 1977).
Marx may well have thought that “differences in the average rate of profit in the various branches of industry … could not exist without abolishing the entire system of capitalist production.” But as Dodgson points out, in the youth of a theory one can believe many impossible or contradictory things. Marx both believed that Ricardo was right about the equalisation of profit rates, and that Marx’s own theory of reproduction was right. But this, was a belief in the impossible.
They can not both be right.
This is why there is a ‘transformation problem’.
Marx seems not to have been aware of the problem, but it was pointed out after his death by Samuelson, the neo-Ricardians, etc. It is unfortunate that Kliman and some other older Marxist economists have gone to inordinate lengths to try to hold onto pre-prandial fantasy, doubly unfortunate if younger comrades like RV never get to eat.
Marxist economists have a choice, they can hold fast to the law of value, the theory of surplus value and the analysis of reproduction in Vol 2, or they can decide to go along with the Ricardian assumptions of the early part of Vol 3. If you hew to the Ricardian assuption as RV, Kliman, Harvey and Steedman do, then in one way or another you end up repudiating the law of value.
Vol 2 deals with reproduction and turnover time, but it does all this on the basis of exchange at labour values. What was not apparent to Marx when writing Vol 3 was that it is actually the assumption of profit equalisation that leads to the economic collapse. One can grasp this if one starts out from the reproduction shcemes of Vol 2. Dave Zachariah show this in our lectures on the Kliman price theory here, starting from slide 99. We also have a video. In what follows I will give a simple example of why this is.
What I will show is that if you allow for varying turnover times then and equal rate of profit disrupts the reproduction of the economy.
Let us start by assuming we have a country with 100 million workers. If they are all full time workers then the annual net product in terms of labour value must be 100 million person years.
We can divide the economy into three big sectors:
- The production of means of production
- The production of wage goods and services consumed by the working class
- The production of services and goods consumed by the capitalists. This includes not just luxuries, but a whole bunch of services like investment management, corporate law, advertising etc.
We will assume that the economy is in simple reproduction, neither growing nor shrinking, with no net capital accumulation. In that case the entire net product comes from sectors 2 and 3.
The whole of sector 2s output is consumed by workers, so the labour required to make its output is the necessary labour time of the economy. The ratio between the sizes of sectors 3 and 2 expressed in person year terms gives the rate of surplus value. We will assume the rate of surplus value is 100% – well within the bounds of plausibility.
That implies that the value of output of each of sectors 2 and 3 must be 50 million person years.
| wage goods | 50 million person years |
| Capitalist consumption | 50 million person years |
That does not mean that 50 million work directly in each of sectors 2 and 3. Each must use up means of production supplied by sector 1. Let us suppose that wage goods use 20 million person years of means of production, and capitalist consumption 10 million. So at the next level of detail our situation is ( all figures millions of person years).
| Sector | Direct labour | Means of production |
| 2. Wage goods | 30 | 20 |
| 3. Capitalist consumption | 40 | 10 |
You can view this as saying that 30 million workers are employed in sector 2 and 40 million in sector 3. That leaves 30 million workers out of the population who are employed in the means of production sector, 2/3 of whose net output goes to sector 2 and the rest to sector 3.
This description covers the deployment of labour between industries, the social division of labour. At the same time it represents flows of value, both between industries and to final consumption. It is one of the advantages of labour value andalysis that there is this one to one correspondence between value flows and deployment of people.
Production requires buildings, machines and vehicles, fixed capital that lasts several years. The flow from sector 1 to sector 2 is made up both of new machines and also of raw materials. We can go from a flow of value toa stock of capital if we know the turnover time. So if the turnover time of constant capital in sector 3 is 10 years, and the flow of new constant capital is 10 million person years, then the capital stock in sector 3 would be 100 million person years. This simply means that it will take 100 million person years at current technology to completely replace the capital stock as it wears out. This is the real meaning for the value of a capital stock – how long it would take people to rebuild it.
It is often easier to work with the inverse of turnover time, the depreciation rate. In what follows I am assuming the following depreciation rates for sectors.
| Sector | Constant capital depreciation rate |
| means of production | 0.05 |
| necessities | 0.07 |
| capitalist consumption | 0.1 |
This is based on the assumption that production of means of production will use longer lived capital equipment than the capitalist consumption sector. Steel rolling mills are longer lived than the computers and office supplies used by accountants etc. set an intermediate depreciation rate for the workers consumer goods industry.
We can then set up a snapshot of the distribution of labour and constant capital in this economy. That it is capable of reproduction can be seen by checking that the total surplus labour 50 matches the output of sector 3 and that the total flow of means of production 50 in red matches the output of sector 1.
| Million Workers employed | Stock of means of prod in M persyr | Flow of means of production in M persyr | Value of gross output in M persyr | Sectoral surplus labour M persyr | |
| 1 means of production | 30 | 400 | 20 | 50 | 15 |
| 2 necessities | 30 | 286 | 20 | 50 | 15 |
| 3 capitalist consumption | 40 | 100 | 10 | 50 | 20 |
| totals or social ratios | 100 | 786 | 50 | 150 | 50 |
These figures are all in million person years. But if we assume that there are 2160 working hours a year, each of which creates a value of £30 we can get the equivalent monetary table. Because the table is wide, you should use the scroll bar to see it all.
| Const capital flow £M | Wages £M | Money value of constant capital stock £M | Price of gross output £M | Surplus value £M | Profit rate | |
| means of production | £1,296,000 | £972,000 | £25,920,000 | £3,240,000 | £972,000 | 3.6% |
| necessities | £1,296,000 | £972,000 | £18,514,286 | £3,240,000 | £972,000 | 4.9% |
| capitalist consumption | £648,000 | £1,296,000 | £6,480,000 | £3,240,000 | £1,296,000 | 16% |
| totals or social ratios | £3,240,000 | £3,240,000 | £50,914,286 | £9,720,000 | £3,240,000 | 5.9% |
Again we can verify that the system can reproduce. Colour codes show matching counsumption demands on the bottom row matching sector outputs in the gross output column.
So if we assume prices are proportional to labour values, at £30 per hour then we would have a self reproducing capitalist economy. But if you look in the profit rate column you see that the rate of profit varies widely between industries. In fact this is just what we see if we look at a real capitalist economy – a wide dispersion of profit rates between sectors.
But Ricardo, Marx, Samuelson, Steedman, Kliman etc thought ( or still think ) that such a dispersion of profit rates is somehow wrong. Surely capitalism should be fairer to capitalists than this?
The law of value is unfair to capitalists! What a scandal!
Surely they should all be able to earn the same rate of profit?
Hence the ‘transformation problem’. How can we alter the law of value so that it is fair to all capitalists?
Let us apply the iterative procedure for solving the transformation problem advocated by Kliman. At each time step we adjust the price of the output of each sector to get an equal rate of profit, holding total wages constant. That is to say we award to each sector a uniform profit rate. We calculate the profit rate such that it is the original total surplus value divided by the latest money valuation of the capital employed. This is to be consistent with Marx’s belief that the total surplus value will be unchanged under the transformation.
Well lets see what happens after 5 iterative steps using the Google Slides iterative solver.
| Wages | New money value of capital stock | Flow of means of prod in PP cash terms | Money profit | Price of output at prices of production | Price adjustor | Profit rate | |
| means of production | £972,000 | £31,068,745 | £1,553,437 | £1,615,301 | £4,140,739 | 1.20 | 5.04% |
| necessities | £972,000 | £22,191,961 | £1,553,437 | £1,167,787 | £3,693,225 | 1.07 | 5.04% |
| capitalist consumption | £1,296,000 | £7,767,186 | £776,719 | £456,911 | £2,529,630 | 0.73 | 5.04% |
| totals or social ratios | £3,240,000 | £61,027,893 | £3,883,593 | £3,240,000 | £10,363,593 | 1.07 | 5.04% |
| demand shortfall | £453,225 | £257,145 | -£710,370 |
I have added a column to show the price adjustor arising from prices of production. It means that means of production that have a labour value expressed in money of £1 must sell at £1.20 to equalise profit rates, necessities with a labour value of £1 must sell for £1.07 etc.
As you can readily see, all sectors now have the same profit rate 5.17%. This is what the transformation procedure is intended to achieve – equal shares in surplus value for equal quantities of capital. Fairness and justice to all capitalists.
Unfortunately the result is an economy that is now incapable of reproducing since for each sector, supply and demand are now out of alignment.
Look at sector 1. Its output is priced at £4,140,739M, but the demand is only £3,883,593M. Clearly they do not match. The same applies to all the coloured figure pairs. Kliman has claimed that this kind of difference between purchased means of production and selling price does not matter; since means of production were purchased in the previous time period. There is, he claims, nothing to stop the capitalists in sector 1 selling their products at a higher price in the current period.
But this does not apply to wages. The total wages paid were £3,240,000M but the capitalists in sector 2 have to sell their output at £3,693,225M to earn the uniform profit rate. There is a shortfall of £453 billion pounds between what workers are able to spend and the price that the capitalists want to charge. Clearly they can not sell them for this elevated price.
If they sell them for £3,240,000M, which is all the workers have to spend, then their profit will be £714,562M not the £1,167,787 required by profit equalisation.
Now look at the capitalist consumption sector. It is attempting to sell its output at £710 billion less than the money that the capitalists have as profits to spend. This gives the firms in this sector the opportunity to hike their prices – which will mean that their sectoral profit will rise by £710 billion.
At that point the profit rate in sector 3 will run above the requisite average rate.
Conclusion
If the law of value holds, and commodities sell at prices proportional to their labour content, then any social division of labour required by current technology and the current rate of exploitation can be reproduced. You get a set of prices at which inter sector supply and demand match. Each sector can sell its full output, pay wages and make a profit.
The rate of profit will not be equal between sectors, but this inequality does not threaten the reproduction of the capitalist economy.
If, on the other hand, some external planning body were to calculate what equal profit rates should be, and instruct all capitalists to sell at prices which would equalise profit rates, then you would get severe inequalities in inter sector supply and demand. Of course, in a capitalist economy there is no such planning body able to impose the hypothetical prices of production. But in socialist economies this has been a live issue. There was a planning body. It could impose prices. Should it impose prices of production?
Samuelson famously proposed “A New Labor Theory of Value for Rational Planning Through Use of the Bourgeois Profit Rate“. Similar proposals came from some Soviet economists in the Khrushchev period.
Stalin had argued strongly against the idea that a socialist economy must adopt the criterion of equal profit rates:
If this were true, it would be incomprehensible why our
(Economic Problems of Socialism )
light industries, which are the most profitable, are not being
developed to the utmost, and why preference is given to our
heavy industries, which are often less profitable, and sometimes altogether unprofitable.
If this were true, it would be incomprehensible why a
number of our heavy industry plants which are still unprofitable and where the labour of the worker does not yield
the “proper returns,” are not closed down, and why new
light industry plants, which would certainly be profitable and
where the labour of the workers might yield “big returns,”
are not opened.
If this were true, it would be incomprehensible why workers are not transferred from plants that are less profitable,
but very necessary to our national economy, to plants which
are more profitable — in accordance with the law of value,
which supposedly regulates the “proportions” of labour
distributed among the branches of production.
He here shows a practical awareness that smooth reproduction requires accepting that the rate of return in sector I will be lower than in other sectors. He explicitly relies on Marx’s analysis of reproduction in Vol 2 to justify this:
As to Marx, he, as we know, did not like to digress from his investigation of the laws of capitalist production, and did not, in his Capital, discuss the applicability of his schemes of reproduction to socialism. However, in Chapter XX, Vol. II of Capital, in the section, “The Constant Capital of Department I,” where he examines the exchange of Department I products within this department, Marx, as though in passing, observes that under socialism the exchange of products within this department would proceed with the same regularity as under the capitalist mode of production. He says:
“If production were socialized, instead of capitalistic, it is evident that these products of Department I would just as regularly be redistributed as means of production to the various lines of production of this department, for purposes of reproduction, one portion remaining directly in that sphere of production which created it, another passing over to other lines of production of the same department, thereby entertaining a constant mutual exchange between the various lines of production of this department.”(Stalin is quoting Marx :Karl Marx, Capital, Eng. ed., Vol. 2, Chapter 20, Section 6.)
Consequently, Marx by no means considered that his theory of reproduction was valid only for the capitalist mode of production, although it was the laws of the capitalist mode of production he was investigating. We see, on the contrary, that he held that his theory of reproduction might be valid also for the socialist mode of production.
Volume 2 and the analysis of reproduction is not only a sound basis for an intial theory of socialist planning. It is the fundamental explanation of why the law of value must operate in a capitalist economy it that is to reproduce itself.
Volume 3 on the other hand, whilst it contains a lot of good stuff, has an incorrect Ricardian theory of price. Marx at times believed that he had made a breakthrough here. He was mistaken. The theory is empirically wrong, leads to inconsistent and non-reproducible social accounting. Marx wrongly believed that “differences in the average rate of profit in the various branches of industry … could not exist without abolishing the entire system of capitalist production.” whereas in reality, any attempt to impose an equal profit rate would render the capitalist economy unable to reproduce itself.
Paul Cockshott's Blog 
”As Marx points out TSV Vol.2 Pp204-206 , some category of capitalists produces with medium conditions, another category with better than average conditions, others under conditions below the average. ”Which of the categories has a decisive effect on the average value will in particular depend on the numerical ratio or the proportional size of the categories. If numerically the middle category greatly outweighs the others it will determine….the commodity produced under more favourable conditions contains less labour-time than that produced under less favourable conditions but it sells at the same price and has the SAME value, AS IF it contained the same labour-time, though this is not the case” (my emphasis).
Commodities sell at their values, but these do not necessarily express the labour embodied in them, as some commodities will embody more and others less labour time than is socially necessary.Therefore some commodities may sell at prices below their market value.
Second, why did Marx exclude the profit rate generated from capital invested in the railways from the equalisation of the rate of profit? Prima facie it would make no sense that capitalists would withdraw their capital from an enterprise that might produce huge profits to one where the rate of profit were higher but the mass of profit lower.
How would removing the assumption of simple reproduction affect your analysis?
If the reason the profit rate equalization assumption causes reproduction to break down due to insufficient demand by workers; “The total wages paid were £3,240,000M but the capitalists in sector 2 have to sell their output at £3,693,225M to earn the uniform profit rate”, could the problem be solved by imperialism, i.e. selling the goods unsellable within the system to a sphere of the world that is outside the system?
Well the problem is solved more easily by the law of value. Dont know about the expanded reproduction, would have to build more sophisticated computational models for that.
It’s been years since I read Luxemburg (and still haven’t gotten to Bukharin on Luxemburg.) But isn’t there an implicit kind of marginalism here, where the surplus (to the metropole, if not the empire, that is,) is the marginal change that drives the system?
Bukharin is trash.
Read Bauer on Luxemburg, and then read this
https://www.marxists.org/archive/grossman/1929/breakdown/index.htm
“Unfortunately the result is an economy that is now incapable of reproducing since for each sector, supply and demand are now out of alignment.” Isn’t it unfortunate if a model for capitalist reproduction shows that capitalist reproduction is natural, stable equilibrium process?
Looking at capitalist reproduction as a consumption process, the price adjustors suggest the capitalist class is habitually buying its goods at prices below value of production, while the working class is spending more than value of production. This seems nicely exploitative in an unequal exchange kind of way. But then, the notion that “capitalist” who produce means of production are the most exploited certainly doesn’t seem to match the widespread prevalence through capitalist economic history of investment in…the least remunerative branch of production? That seems to me to suggest this model is wrong (which is your point, after all.) The thing is, given how much of “capitalist” investment is by state entities (local or national,) the use of the state to try to equalize rates of profits, seems like it may be a real tendency.
The model has nothing about credit and interest. But if you do include interest, the de facto “interest” from lagging pay for wages should be included, shouldn’t it?
You are right, this is a simple model, corresponding to that used in Volume 2 of Capital, that is to say prior to the examination of interest etc in volume 3.
It is not based on an actual economy, though preparing one for an actual economy using I/O tables and aggregating them might be interesting.
Its purpose is to show that if you allow for fixed capital of varying intensities between sectors, then the attempt to equalise profit rates will tend to disrupt reproduction.
“The capitalist as a monopolist, in this version, makes a profit by selling commodities above their true value.”
“Well there is little reason to doubt that individual monopolists do gain profit this way, but it fails as a general explanation for profits.”
You have noticed the rise of idea rights, correct? Just a continuation of a long trend. Oligopoly makes for a perfectly valid explanation for most profits and even incomes entirely, no? How do you know true values? How could a capitalist know about true value of what they sell? Is true value not immensely complex and not derivable from prices themselves for that would be circular logic + missing the immense value we tend to get for free of charge?
“If some capitalists are selling above relative values, others must be selling below them, so the gains of one would be cancelled by the losses of another.”
Why? Capitalists in cooperation with banks produce money when they can think of a monopoly to create (among other things). That’s where they get their profits from nominally (which is important considering we don’t assess much of real values). That is from people (mostly investors/real estate developers) on the aggregate taking on more credit than paying off credit*. And there is no mechanism for cost of credit to balance this because there is no limited stock of credit to supply, and because there is an unknown amount of positive externalities and rent to collect and so on in terms of real value.
How do you know relative values? How do you know what could be produced if it was just being paid for? I’ve not yet heard of a good model for figuring out the extent to which we can produce stuff/copies of digital items/etc.. I do know of markups across all industries rising, although limited to high markup companies that “sharply rose” all across the economy ( https://www.nber.org/papers/w23687 ). These would be very profitable… Although the issue of funding is important, too. Can’t sell what has no buyer, even if you could produce 10x of current output at current (or lower) per item prices.
And of course this can feed into workers loosing out on negotiations, if they show up for em in the first place (which is a battle that starts in the heads). Now the question is how we fairly manage the legacy of our ancestors and the land (that includes ideas), as well. What kind of self-perception would we need to bargain well across all dimensions of the issue?
—
*Capitalists look at revenue and so on nominally, as the nominal figure is the relevant measure for figuring out if cost of credit can be profitably exceeded and so on. Nominal income that tends to be produced by other capitalists’ expansion of aggregate private credit (an observed reality for the most part in the first world). This creation of more nominal income ‘surprises’ other capitalists and forms the basis for discovering positive returns to scale, positive externalities and so on (be they owed to workers of generations past/technology and unpaid care work and the land being more bountiful than we initially assumed) among other things, that would lay unused if the nominal demand didn’t ‘surprisingly’ go up all the time.
The trouble is with the ‘surprising’ nominal demand increases becoming increasingly expected for the purpose of servicing private credit (capitalists naively assume that other people will just keep expanding their debts at a constant (exponential) rate. Even when it is already significantly greater than GDP growth itself), increasing instability and undermining profitability over time. As is further described in the following publication on the example of Japan with particular focus on how this breaks down since the 90s there. https://privatedebtproject.org/pdp/view-articles.php?Are-We-Facing-a-Global-Lost-Decade-14
“The capitalist as a monopolist, in this version, makes a profit by selling commodities above their true value.”
“Well there is little reason to doubt that individual monopolists do gain profit this way, but it fails as a general explanation for profits.”
You have noticed the rise of idea rights, correct? Just a continuation of a long trend. Oligopoly makes for a perfectly valid explanation for most profits and even incomes entirely, no? How do you know true values? How could a capitalist know about true value of what they sell? Is true value not immensely complex and not derivable from prices themselves for that would be circular logic + missing the immense value we tend to get for free of charge?
“If some capitalists are selling above relative values, others must be selling below them, so the gains of one would be cancelled by the losses of another.”
Why? Capitalists in cooperation with banks produce money when they can think of a monopoly to create (among other things). That’s where they get their profits from nominally (which is important considering we don’t assess much of real values). That is from people (mostly investors/real estate developers) on the aggregate taking on more credit than paying off credit*. And there is no mechanism for cost of credit to balance this because there is no limited stock of credit to supply, and because there is an unknown amount of positive externalities and rent to collect and so on in terms of real value.
How do you know relative values? How do you know what could be produced if it was just being paid for? I’ve not yet heard of a good model for figuring out the extent to which we can produce stuff/copies of digital items/etc.. I do know of markups across all industries rising, although limited to high markup companies that “sharply rose” all across the economy ( https://www.nber.org/papers/w23687 ). These would be very profitable… Although the issue of funding is important, too. Can’t sell what has no buyer, even if you could produce 10x of current output at current (or lower) per item prices.
And of course this can feed into workers loosing out on negotiations, if they show up for em in the first place (which is a battle that starts in the heads). Now the question is how we fairly manage the legacy of our ancestors and the land (that includes ideas), as well. What kind of self-perception would we need to bargain well across all dimensions of the issue?
(cont’)
*Capitalists look at revenue and so on nominally, as the nominal figure is the relevant measure for figuring out if cost of credit can be profitably exceeded and so on. Nominal income that tends to be produced by other capitalists’ expansion of aggregate private credit (an observed reality for the most part in the first world). This creation of more nominal income ‘surprises’ other capitalists and forms the basis for discovering positive returns to scale, positive externalities and so on (be they owed to workers of generations past/technology and unpaid care work and the land being more bountiful than we initially assumed) among other things, that would lay unused if the nominal demand didn’t ‘surprisingly’ go up all the time.
The trouble is with the ‘surprising’ nominal demand increases becoming increasingly expected for the purpose of servicing private credit (capitalists naively assume that other people will just keep expanding their debts at a constant (exponential) rate. Even when it is already significantly greater than GDP growth itself), increasing instability and undermining profitability over time. As is further described in the following publication on the example of Japan with particular focus on how this breaks down since the 90s there. https://privatedebtproject.org/pdp/view-articles.php?Are-We-Facing-a-Global-Lost-Decade-14
What are the Ricardian assumptions that lead to the equalisation of profit rates? Why do these assumptions not hold?
Hey this doesn’t really have to do with the post but I just had a question. I was in an Austrian economics discord server and I came across an objection to the LTV that I can’t quite seem to figure out why it’s wrong. Anyways here is the objection:
“In the first volume of Capital Marx describes the value of labour as the labour required to reproduce itself, labour time determines labour time. However, in the third volume of Capital, this changes to the extent one might assume given the differences between the volumes of Capital. In the third volume, the wage rate is not determined directly by the socially necessary labour time needed to reproduce it, but instead, the socially necessary labour time needed to reproduce labour is an equilibrium around which the wage rate fluctuates in disequilibrium. Under Marxism, labour is no different from any other commodity, wages are determined by the cost of reproducing it, the commodities required to sustain the labourer. For example, imagine that the worker only requires bread to survive, the wage would then depend on how much bread the worker requires, “how much” meaning the value of the quantity of bread (as opposed to the physical quantity.) If wages depend on the value of bread, then we obviously need to know that value. But bread, like all other commodities, is subject to the labour theory of value, in Marx’s view. To determine the value of bread, one needs to determine the value of the labour that produces bread. But the wages of bread-producers, like all other wages, depend on the value of labour-power. This is turn depends on the value of bread. The circularity here is apparent, before once can determine the value of labour-power one needs to determine value of labour-power, one needs to know the value of bread, a value that in turn depends on the value of labour-power. Unless one can break out of the circle, the labour theory’s explanation of wages and profits. Marxists (primarily Analytical) would later come to these conclusion themselves independently, unaware that Bohm-Bawerk had already done so the century before.”
It was exactly the need to break out of this circle that caused Marx to make a sharp distinction between labour and labour power. Labour is what creates value, with the amount thehe capitalist can extract. Labour power is the ability to work. The labourer sells this ability.
The ability to work depends on the bread the worker eats, so that the price of labour power is affected by the price of corn in the long run.
But that does not affect the value of the products produced by labour, since the amount of labour performed by the labourer is an independent variable. As the working day is longer than that necessary to buy the workers bread, the two things become separated. The food cost of the labourer does not affect the value of output he produces.
This distinction between labour and labour power was to get round the objection that you allude to. That objection applied to Ricardo’s labour theory of value which failed to make this distinction, but not the theory of Marx.
> “the result is an economy that is now incapable of reproducing since for each sector, supply and demand are now out of alignment.”
Perhaps that’s exactly what happened throughout the 19th century? Underdog capitalists tried to achieve “fair” profit margins, driving the system into overproduction crisis every now and then. Some went belly up, others carved out pieces of foreign markets or introduced labor saving tech. And it was not until the rise of monopolies and finance capital, that competition was reduced and differential profit rates stabilized. But that was the first step towards the “abolition of the entire system of capitalist production”, at least as Marx knew it.
I beg your pardon for writing this comment because it is a little off-topic. I’m no economist, thus I can’t judge precisely the merits of competing economic theories. Here are a criticism of marxist economy, for the blog : “Social democracy for the 21-st century: A realist alternative for the left”. Has somebody an answer for the criticisms expounded here?
What is the Case against Marxism in a Nutshell?
That is, what is the case against the actual theory presented by Karl Marx in volume 1 of Capital? This was the only volume of Capital that Marx published in his lifetime, and volume 3 contradicts volume 1 in important respects.
First, we need to know what Marx actually argued in volume 1 of Capital.
The essence of Marx’s theory and his conception of the historical tendency of capitalism is as follows:
(1) Marx had an elaborate labour theory of value on which he founded volume 1 of Capital (see here). Marx understood “value” in the following terms:
(1) the substance of value is abstract socially necessary labour time, which must be defined as a homogeneous unit capable of aggregating and measuring all heterogeneous types of human labour-power (Marx 1906: 45–46);
(2) so therefore value is abstract, socially necessary labour time embodied, crystallised, or materialised in commodities, and
(3) the magnitude of value or quantitative measure of value is the amount of abstract socially necessary labour time, counted in homogeneous units (Marx 1906: 45–46).
Marx also thought that market prices move around and are determined by labour values, since the latter are the equilibrium price anchors for a capitalist system.
(2) capitalism tends to increase the (1) accumulation, (2) concentration (accumulation over time) and (3) centralisation of capital. Capitalism will therefore have a tremendous tendency towards monopoly.
(3) capitalism will tend to destroy more and more capitalists and result in huge centralisation of capital (or monopoly) and reduce even capitalists to the proletarian class;
(4) capitalism will tend to use more and more machines and automation in production resulting in a huge body of unemployed people.
(5) the industrial reserve army of labour (the unemployed) grows and grows, and helps to hold real wages in check (see Chapter 25 of Capital). Even more, Marx thought that a large and growing industrial reserve army is a necessary condition of capitalism: it was a “condition of existence of the capitalist mode of production” (Marx 1906: 646).
(6) the tendency of capitalism is to keep the real wage at a subsistence level, which is the value of the maintenance and reproduction of labour-power (on this, see Chapter 25 of Capital and here). Wages rise and fall around this subsistence level as an equilibrium process;
(7) machines will only increase the intensity, speed and arduousness of work for the proletarians and their misery (see Chapter 15 of volume 1), and also increase the employment of women and children who are paid a lower wage than adult men (although government laws might counter this latter trend to some extent). The adult men are then increasing thrown out of work by machines and women and children replace them with lower wages;
(8) volume 3 of Capital adds to this the tendency of the profit rate to fall, but this mechanism is not invoked in volume 1 as one of the causes of the collapse, and some modern Marxists now dispute just how important the tendency of the falling rate of profit was for the final collapse of capitalism in Marx’s theory, as the emphasis given to this may be more the result of Engels’ tendentious editing of volume 3 of Capital.
(9) eventually almost the whole of society is reduced to the proletarian class with only a tiny handful of monopoly capitalists, who according to Marx “usurp and monopolise all advantages of this process of transformation” (Marx 1906: 836).
(10) the huge and constantly growing class of proletarians, who are kept in poverty with a subsistence wage, are subject to an increasing “mass of misery, oppression, slavery, degradation, [and] exploitation” (Marx 1906: 836). As in the passage of Engels quoted by Marx, the “other classes perish and disappear in the face of Modern Industry” (Marx 1906: 837, n. 1).
(11) finally, the proletarians eventually organise and rebel against capitalism, overthrowing the system.
Now these theories and predictions judged in their totality were not the long-run tendency of capitalism.
Even if a few elements are true (e.g., the increasing use of machines), nevertheless Marx’s vision is a Marxist caricature of capitalism which has been falsified by history.
We can run through the problems and failed predictions of Marxism as follows:
(1) Marx’s labour theory of value is false. The a priori argument for the labour theory of value in volume 1 of Marx’s Capital is a non sequitur and later contradicts itself, as detailed here and here. There are devastating problems with the very concept of a homogeneous unit of abstract, socially necessary labour time and serious empirical problems with the theory, as I show here. The very concept, as Marx defines it, cannot be accepted or defended as coherent or meaningful, and is contrary to the empirical evidence. The labour theory does not explain price determination (for how most prices are actually determined, see here), and the theory of price determination in volume 3 of Capital is inconsistent with that in volume 1. See here.
(2) the tendency to monopoly has its limits even in capitalism, and the extreme and increasing degree of monopoly as predicted by Marx goes well beyond anything observed in real world capitalism;
(3) the size of the working class eventually stabilised and society was swelled by a growing and prosperous middle class and social mobility. Unemployment rates in capitalism are simply a cyclical result of the business cycle: even in the 19th century, unemployment rates did not grow and grow in the long run, as Marx’s theory predicts, but normally simply moved around a point somewhat above full employment, as John Maynard Keynes pointed out:
“our actual experience … [sc. is] that we oscillate, avoiding the gravest extremes of fluctuation in employment and in prices in both directions, round an intermediate position appreciably below full employment and appreciably above the minimum employment a decline below which would endanger life.”
Keynes, J. M. 1936. General Theory of Employment, Interest, and Money , Chapter 18.
https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch18.htm
(4) Marx thought that the large industrial reserve army is a necessary consequence and necessary condition of capitalism, but this is incorrect. In the Keynesian era of full employment, there was very low unemployment and indeed labour scarcity in the advanced capitalist world, but capitalism continued and thrived – indeed we now call it the “Golden Age” of capitalism.
(5) the long-run tendency of capitalism, even in the 19th century, was to massively increase the real wage, which has soared above subsistence level, even for workers (see here and here).
(6) the growing real wage and rising disposable income even of workers in capitalism also allowed a massive capacity for production of new commodities and new opportunities for employment (e.g., especially in services and middle class employment), which in turn has helped to overcome technological unemployment.
(7) Marx’s claim that machines, generally speaking, are an unmitigated evil in capitalism whose primary effect is to increase the intensity and speed of work by labourers is an outrageous falsehood – a perversion of history and reality. In reality, machines have, generally speaking, tended to decrease the intensity, difficulty and monotony of human labour and often reduced to human labour to lighter work of visual inspection and overseeing of machine work, not physical labour. On this, see here and here. Advanced capitalist nations have also virtually eliminated child labour as well, and in our time have tended to pay women the same hourly wage for the same type of work as men.
(8) highly developed and advanced Western capitalist states like Britain and the US proved the most resistant to communism and Marxism (contrary to Marx’s theory), and when communist revolutions broke out it was in backward Russia and China. Even the communist outbreaks in Germany and Italy at the end of the First World War were more the result of the collapse of those nations under the strain of war, and not in line with the vision Marx had predicted (as I noted here).
In the Keynesian era of full employment from 1946 to 1973, mixed economy capitalism produced a golden age.
Of course, since the 1970s we have entered a a disastrous and regressive era of Neoliberal economics, but, even so, the consequences of that Neoliberalism are not in line with all of the predictions of Marxism as listed above.
The end of the Keynesian period and the return to revived neoclassical theories from the 1970s brought with it a return to lower growth, higher unemployment, stagnating real wages, and higher income inequality, but, above all, a transnational globalised neoliberal capitalism which has shipped a great deal of Western manufacturing and jobs to the Third World, and allowed legal and illegal Third World mass immigration into the West to lower wage costs, displace native workers and even replace populations.
To the extent that early Marxists dealt with issues of immigration and open borders, many welcomed it.
Engels in The Principles of Communism (written in 1847) welcomed the destruction and erasure of ethnic and national groups:
“What will be the attitude of communism to existing nationalities?
The nationalities of the peoples associating themselves in accordance with the principle of community will be compelled to mingle with each other as a result of this association and thereby to dissolve themselves, just as the various estate and class distinctions must disappear through the abolition of their basis, private property.”
https://www.marxists.org/archive/marx/works/1847/11/prin-com.htm
Lenin saw open borders as “progressive”:
“There can be no doubt that dire poverty alone compels people to abandon their native land, and that the capitalists exploit the immigrant workers in the most shameless manner. But only reactionaries can shut their eyes to the progressive significance of this modern migration of nations. Emancipation from the yoke of capital is impossible without the further development of capitalism, and without the class struggle that is based on it. And it is into this struggle that capitalism is drawing the masses of the working people of the whole world, breaking down the musty, fusty habits of local life, breaking down national barriers and prejudices, uniting workers from all countries in huge factories and mines in America, Germany, and so forth.
America heads the list of countries which import workers. …. The bourgeoisie incites the workers of one nation against those of another in the endeavour to keep them disunited. Class-conscious workers, realising that the break-down of all the national barriers by capitalism is inevitable and progressive, are trying to help to enlighten and organise their fellow-workers from the backward countries.”
V. I. Lenin, “Capitalism and Workers’ Immigration,” Za Pravdu No. 22, October 29,1913. https://www.marxists.org/archive/lenin/works/1913/oct/29.htm
So early Marxists saw mass immigration and the destruction of national differences as “progressive,” and thought that once people had been mixed up into multicultural or multi-ethnic states, this would create a huge class-conscious proletarian movement, which would then overthrow capitalism. This was yet another Marxist delusion.
Instead, unending Third World mass immigration means the dispossession of the people of the Western world, the Islamisation of our societies, the transformation of our nations into dysfunctional, Balkanised areas with rent-seeking nepotistic and mutually hostile ethnic and religious groups fighting for control of the state.
The deteriorating plight of Western workers and even segments of the middle class by Neoliberalism, the Islamisation of our societies, and Third World immigration has not produced any renewed Marxist or Communist movements of any political importance in the First World.
Rather, more and more people have reacted with increased support for nationalist and protectionist conservatives, and Marxists and Communists – where they still exist – militantly support the disastrous mass immigration policies that more and more people hate and reject.
In particular, modern Marxists are mired in irrational regressive left and Cultural Leftist delusions, such as Third Wave feminism, the idea that all cultures are equal and the nonsense that mass immigration is always a positive force.
That is why Marxism is destined for the dustbin of history.
Yet another indecipherable argument about value. Cost paid by capitalists for commodity production: $X; commodity sold for $X + $Y. Surplus value, profit to capitalists = $Y. All done in compliance with law of commodity exchange, value for value. LABOR POWER paid as cost; LABOR to produce commodity NOT PAID. What is so hard about that? Human labor CREATES VALUE.