[OPE-L:3714] Re: Re: Re: Re: Re: Re: cost-price

From: Ajit Sinha (ajitsinha@lbsnaa.ernet.in)
Date: Thu Aug 24 2000 - 05:28:30 EDT

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The System here had a serious crash or something like that for last one week or
so. Therefore, i coun't get anything from outside, and this one bounced back to
me as well. Hope everything is working okay now. ajit

Rakesh Bhandari wrote:

> By "cost price" one conflates the two
> >concepts of cost and price, and the logical meaning of it, as the
> >literature has
> >accepted, turns out to be a theory of price that says that the "price" is
> >determined by its "cost".
> Ajit, I am not quite sure what you are getting at here.


First of all, you should be absolutely clear that I'm not attributing to Marx a

"cost price theory of value". Precisely speaking the 'cost of production theory

of value' is generally used in literature to refer to Adam Smith's additive
theory of value that stands in opposition to the labor theory of value.
Malthus, following Smith, objected to Ricardo's labor theory of value as a
theory that confounds the distinction between cost and value. To which Ricardo
responded by saying, "Mr. Malthus appears to think that it is a part of my
doctrine, that the cost and value of a thing should be the same;--it is, if he
means by cost, 'cost of production' including profits." Of course, Marx knew
all this--but i cannot say the same for all the 'Marxists' on ope-l. In
anycase, my remark about the cost price theory of value was a simple aside to
make you aware that it could be misunderstood. It had nothing to do with either

marx's theory of value or my criticism of your interpretation of constant
capital in Marx.

> So I'll just go back to the logic of Marx's Capital. Let's consider the
> effects of a 20 0rop in wages (remember how Marx chides the Ricardians for
> not only being obsessed with relative values as affected by wage changes
> but also for only considering the effects of wage rises).
> Now of course it is no problem as long as we are assuming that the money
> price paid for the means of production equals the value of those means
> consumed in the commodity to construct an average industry such that after
> the wage drop the profit appropriated remains equal to the value produced
> within that industry.


The fall in wages must lead to rise in the rate of profits. If the proportions
of the means of production to labor are the same in all the industries then it
will have no impact on the relative prices of the commodities. In the case of
different proportions, however, the relative prices must change to redress the
different rates of profits emerging in different sectors if the old relative
prices prevailed.

> I take it that above you are referring to this kind of paradox, however:
> That exactly those industries in which the cost price would seem to be most
> decreased by wage setbacks may now have to buy more expensive inputs due to
> the postive effects of wage wage losses on the relative values of capital
> industries' outputs that the relative cost price borne by labor intensive
> industries may actually rise from a wage setback.


There is no paradox here. Which way the prices will go depends upon the complex

input-output structure of the whole system. The point can be better explained
by Sraffa's dated labor concept.

> Rakesh:
> So the cost price of a commodity cannot be determined independently of
> output prices once we consider distributional changes in the context of an
> input-output system?


The "cost" independently of prices is simply an ill defined concept. Changes in

distribution has nothing to do with the ill definition of cost's independent or

prior determination of price. Cost is nothing but one concept of capital. And
it is simply the 'capital theory controversy' point that you cannot determine
the quantity of capital prior to the determination of value or prices.

> Rakesh:
> Marx clearly understood that there could be complex feedback effects from
> distributional changes. For example he notes in the penultimate chapter of
> Capital 3, chap 11:
> "If the rise or fall in wages results from a change in the value of the
> necessary means of subsistence, the only modifications of the process
> analyzed above occurs when the commodities whose price changes serve
> increase or lessen the variable capital aslo enter as constituent elements
> into the constant capital and hnece simply do not affect wages. But in so
> far they do only affect wages, the above argument contains all that is to
> be said."


Of course, Marx knew that his 'average commodity' did not really solve the
problem. Sraffa's Standard commodity is a much more complex devise, and marx
did understand that the problem was much more complex. But he didn't have a
solution to it. You should take a look at my paper in the most recent RRPE, it
is in the same issue as Fred's paper, and it preempts many of Fred's incorrect
interpretations and criticisms of the "Sraffian interpretations".
Interestingly, Fred's reference list does not have either Sraffa or any
Sraffian in it. He just created this "Sraffian interpretation" out of his hat.

> Rakesh:
> But this does not say that cost price is determined by prices. That is,
> before the wage drop, there is a set of cost prices for the industries at
> T0. For Marx each cost price is a datum, a given precondition. This is not
> changed
> by the fact that in the next period T2 there will be a new set of cost
> prices as the result of the price changes at T1 brought about by the
> distributional shift. Moreover at period T2 not only will there be a new
> set of cost prices, the technical conditions in each industry should change
> as well as a result of the reconfiguration of relative values (that is,
> marginal producers should be added and substracted from the various
> industries).


As I said above, the non-determination of cost prior to the determination of
the prices have nothing to do with the changes you are talking about. The
concept is ill defined in a multiple input-output system in a completely static

case, with no introduction of any kind of change. Cheers, ajit sinha

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