# [OPE-L:3635] Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: constant capital and variable capital

From: Steve Keen (s.keen@uws.edu.au)
Date: Thu Aug 10 2000 - 01:00:27 EDT

Oh come one Rakesh,
---------------
If, by cost, Marx meant cost without a profit component, then how do you
interpret the following rather crucial passages from Capital I?:

We assumed, on the occasion of its sale, that the value of a day's
labour-power is three shillings, and that six hours' labour is incorporated
in that sum; and consequently that this amount of labour is requisite to
produce the necessaries of life daily required on an average by the
labourer. If now our spinner by working for one hour, can convert 1 2/3
lbs. of cotton into 1 2/3 lbs. of yarn, [12] it follows that in six hours
he will convert 10 lbs. of cotton into 10 lbs. of yarn. Hence, during the
spinning process, the cotton absorbs six hours' labour. The same quantity
of labour is also embodied in a piece of gold of the value of three
shillings. Consequently by the mere labour of spinning, a value of three
shillings is added to the cotton.

Let us now consider the total value of the product, the 10 lbs. of yarn.
Two and a half days' labour has been embodied in it, of which two days were
contained in the cotton and in the substance of the spindle worn away, and
half a day was absorbed during the process of spinning. This two and a half
days' labour is also represented by a piece of gold of the value of fifteen
shillings. Hence, fifteen shillings is an adequate price for the 10 lbs. of
yarn, or the price of one pound is eighteenpence.

Our capitalist stares in astonishment. The value of the product is exactly
equaI to the value of the capital advanced. The value so advanced has not
expanded, no surplus-value has been created, and consequently money has not
been converted into capital. The price of the yarn is fifteen shillings,
and fifteen shillings were spent in the open market upon the constituent
elements of the product, or, what amounts to the same thing, upon the
factors of the labour-process; ten shillings were paid for the cotton, two
shillings for the substance of the spindle worn away, and three shillings
for the labour-power. The swollen value of the yarn is of no avail, for it
is merely the sum of the values formerly existing in the cotton, the
spindle, and the labour-power: out of such a simple addition of existing
values, no surplus-value can possibly arise. [13] These separate values are
now all concentrated in one thing; but so they were also in the sum of
fifteen shillings, before it was split up into three parts, by the purchase
of the commodities.
---------------
Marx meant by cost what Ajit said: cost includes profit. His triumph,
compared to his classical forebears, was to explain how this could be
achieved while commodities exchanged for their cost of production.

Steve Keen
At 11:17 AM 8/9/00 -0400, you wrote:
>
> Instead of meaning "cost price", which implies a particular
>>theory of value, you simply meant "cost", i.e., cost to the capitalist or
>>capital
>>investment needed to produce one unit of y is \$6.
>
>Yes, Ajit that is what Marx and I mean by cost price. And it is clear that
>you were talking not about Smith but Marx whom you have read so much
>through Sraffa's or classical eyes that you did indeed think cost price for
>Marx as well was c+s, instead of the replacement value of c+v.
>
>>But you should know that Sraffa
>>has proven that the concept of cost is irrational or undefined prior to the
>>determination of prices.
>
>Such determination assumes the same rate of profit for the inputs (last
>period's commodity output) as this period's outputs. You have to justify
>the assumptions on which Sraffa's thinking is based (it will not strike any
>non economist as a reasonable assumption), instead of offering up the old
>dogma that only Sraffian methods can solve the transformation error Marx
>himself recognized.
>
>It is simply not true that the input prices are not determined in Marx's
>transformation tableaux and thus there must be some method for determining
>them on the basis of data within this one period of production. The inputs
>come into the tableaux with prices which Marx assumes to be their values as
>well. Their prices do not need to be determined by data within that period
>of production. Sweezy and Meek (see A Plain Person's Guide to The
>Transformation Problem) have offered an incorrect reading of Marx.
>
>>
>>I thought you were critiquing my criticism of Fred's position on how to
>>calculate
>>the constant capital.
>
>You know Ajit. Without embarrassment to yourself you called me a Hegelian
>for months even as I was flooding the list with my criticisms of Hegelian
>interpretations. Jerry tried to point this out to you, but you went on. Now
>I have flooded the list with criticisms of Fred's assumption that constant
>capital or the value of the means of production is determined by the cost
>price of the commodity, and you seem not to notice that I agree with your
>refusal to equate them.
>
>So I have accepted the burden of defending the logic of Marx's
>transformation without use of the deux ex machina that since the price paid
>for the means of production actually equals its value, there is no need
>for the inputs to be transformed by some method.
>
>It seems to me that you do not read very carefully.
>
>Now, you say we are discussing some chapter of *Capital*, I
>>presume. I don't know when did that start.
>>______________
>
>You didn't know that the interpretation of Fred's we are discussing is of
>Marx's transformations in Capital 3?
>
>
>No matter whatever Tableaux it is,
>>you should know that the total value equal to total prices of production
is a
>>condition that is imposed on the system because there are n+1 unknowns and
>>only n
>>equations in the system. It is similar to adding an equation as x=1, that is
>>defining commodity x as money commodity. There is no "reason" that total
>>value and
>>prices of production will equate. However, once you have imposed this
>>constraint on
>>the system, then your "assumption" will be simply illegitimate because you
>>would be
>>what is called overdetermining the system.
>
>No, you are missing the nature of Marx's argument, and you don't deny that
>I have presented his reasoning correctly.
>
> If we assume that prices are regulated by the law of value, then Marx
>demonstrates it can only be through the average rate of profit due to the
>unequal compositions of capital.
>
>In this demonstration Marx assumes the price of the inputs is equal to
>their value, but his own demonstration that the law of value can only rule
>through the indirect means of the average rate of profit implies that this
>assumption built into the tableaux is simply false.
>
>Now indeed if the law of value regulated the formation of prices in the
>same way in the prior period as he demonstrates in this period--and why
>shouldn't it have?--then the price/value divergences for which he indeed
>has to correct should cancel themselves out and thus not affect his
>calculation of the average rate of profit and production.
>
>This is simply a logical conclusion based on what we see in the one period
>example he has offered.
>
>Now has Marx proven that prices and values are really or must be related in
>this way? Or that total value must really equal total price in each
>sequential price?
>
>NO! The labor theory of value cannot be proven apodictically.
>
>Marx is offering here a hypothesis about the formation of prices on the
>assumption of the validity of the labor theory of value, a hypothesis about
>how the law of value works its way out. True enough, the hypothesis must
>be free of internal contradiction.
>
>But in order for this hypothesis to be confirmed, there should then be some
>falsifiable, unique predictions about capitalist development based on such
>an understanding of the relation between prices and values.
>
>But we never get to test Marx's hypothesis in terms of its ability to
>account for real crisis-ridden capitalist development (think of the sorry
>history of this list) because the bourgeoisie, often through Marxist
>academics, have attempted to throw him out of the game on logical grounds
>before he is even allowed up to the plate.
>
>It is a terribly sad story that prominent Marxists, Paul Sweezy in
>particular, gave their imprimatur to this while never acknowledging
>Grossmann's Bortkiewicz critique in his wert-pries essay.
>
> But many great Marxist scholars were largely wiped out or displaced by
>Nazism and Stalinism--real material history has effects on theory--allowing
>for the neo Ricardian weed to choke out life in the garden
>
>And this neo Ricardianism is doubtless a sterile weed. Where are the great
>accounts of real events by the neo Ricardians? Mattick predicted the end of
>Keynesianism. Mandel also predicted the end of the post war boom (see the
>excellent piece by Jesus Albarracin and Pedro Montes in the Legacy of
>Ernest Mandel). Both tried to make sense of the instabilities of the
>international monetary system. But these contributions have tended to be
>made quite far away from "Marxist" economics departments.
>
>
>>So how is value calculated, Rakesh? Why don't you ever answer this simple
>>question?
>
>I do answer your questions. You previously asked me how is value measured,
>and I answered it. What is value? Socially necessary labor time needed to
>reproduce a commodity. But above we are talking about whether Marx's
>hypothesis of how the average rate of profit is formed and regulates prices
>is logically consistent. I am not evading anything. Nor do I have an
>interest in doing so. I want the truth of the matter. And so far the charge
>of Marx's logical incoherence in terms of the transformation of inputs
>seems to me to be a very weak one indeed, despite the best efforts of
>experts like you to insist on it. Again, that Marx's theory is not
>logically inconsistent in no way demonstrates its truth. We'll have to talk
>about the real world at some point.
>
>
>All the best, Rakesh
>
>
Dr. Steve Keen
Senior Lecturer
Economics & Finance
University of Western Sydney Macarthur
Building 11 Room 30,
Goldsmith Avenue, Campbelltown
PO Box 555 Campbelltown NSW 2560
Australia
s.keen@uws.edu.au 61 2 4620-3016 Fax 61 2 4626-6683
Home 02 9558-8018 Mobile 0409 716 088
Home Page: http://bus.macarthur.uws.edu.au/steve-keen/
Workshop on Economic Dynamcs: http://bus.macarthur.uws.edu.au/WED

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