From: Rakesh Bhandari (bhandari@Princeton.EDU)
Date: Thu Aug 24 2000 - 23:25:57 EDT

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OK, I'm sneaking this short reply out.

I will modify my position once again in response to what Ajit writes in
3714 regarding COST PRICE. But I think this answer is pretty good, and look
forward to critical comments from Ajit and anyone interested.

After referring to the problem of the determination of the quantity of
capital, Ajit wrote:

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

Not ill defined in Marx's framework.

 COST PRICE is the money sum laid out to purchase means of production and
and hire workers. By not reading Marx in his own terms, you are refusing to
understand what is actually ill defined in his own conception of cost

You have yet to realize that at one level Fred is doubtless right that c
and v are the money sums laid out to buy means of production and hire
productive labor, respectively.

For Marx, c+v (k) is the cost PRICE of a commodity. Please tell me that you
can admit this.

However, there is no doubt--and here I agree with you--that Marx had
assumed that the money needed here as constant and variable capital was
determined on the assumption that means of production and wage goods sold
at their value (the price=value assumption which has been carried over from
Vol 1, see Capital 3,p. 263).

Do note that Marx simply could not have begun his transformation
demonstration with inputs for which the prices of production already
diverged from their values. Marx has to begin the exercise with the
assumption which he has been carrying over since vol 1, viz. exchange at

There is no logical error in the way Marx proceeded. He had to go about the
problem exactly as he did; there is simply no other way of logically
relaxing the assumption he had previously made. One simply cannot
anticipate the results of science. For this kind of rigorous thinking, Marx
has ironically been blamed for logical contradiction.

To be sure, once we realize as a result of the transformation tableau that
means of production and wage goods could not have been sold (tendentially)
at their value, we have to make some modifications to cost price (k). And
this too necessarily means that the prices of production will have to be
modified (kr).

So we can't assume that after these modifications the money laid out for
means of production and wage goods remains the same; Marx is clearly
calling for a modification of cost price and I don't think Fred has been
able to deal with this.

 So let us confine ourselves to the price adjustments (not quantity
adjustments) in dealing with this problem of modifying the cost price.

That is, Marx is assuming that the same quantity of means of production and
the same number of workers had been 'purchased'--we can even say that this
is all given by technical conditions--but Marx is now not admitting but has
himself shown why this same quantity of means of production had to have
cost more or less than he had assumed when he had set prices=value, and
hiring the same number of workers had to have cost the capitalist more or
less (the cost of hiring workers is indirectly determined by the price of
the wage goods they need to purchase to reproduce themselves).

So if means of production sold above value and wage goods below value, the
capitalists had to have laid out more MONEY as constant capital and less
MONEY as variable capital than indicated in the tableau.

And if means of production sold below value and wage goods above value,
then the capitalists had to have laid out less MONEY as constant capital
and more MONEY as variable capital.

As a result of these modifications, the cost prices of the five industries
had to have been different than in the tableau, BUT...the total mass of
value will not have been changed (transferred value + new value added),
though now the profit available for distribution via the average rate of
profit will change as total profit after all is the difference between
total value (which is the same), less cost prices which have been modified
one way or another.

Of course if total cost price is now more than it was in the tableau, the
profit rate will now be less than it was in the tableau; and if total cost
price is less than in the tableau, then the profit rate will be more than
it was. This however is of absolutely no consequence because the mass of
value remains exactly the same, and it is this mass which,as Mattick Sr
argued, sets the limits within which each capital can move and therefore
the enlargement to any particular capital.

Now--here is we may agree--since Fred thinks the value transferred from the
means of production is determined by the money sum laid out for them, the
value of the means of production consumed in the commodity output would
have to change once we have modified cost price, and then the total mass of
value actually produced would too then have to change, which then implies
there would then be a total disjunction between the unmodified and the
hypothetically modified tableau. For this reason, I must reject Fred's

 So even after the modification of cost prices, the mass of value remains
exactly the same once we drop Fred's untenable interpretation monetary
interpretation of what determines the value which is transferred from the
means of production.

Now of course there is a real problem from a sequential input-output
perspective: the transformation of the inputs (different k's at T1) will
lead to a different set of prices of production at T1 (kr2) than indicated
by Marx's tableau, which will then "feedback" on the cost prices (k) at T3
which will then lead to a new of prices of production at T3 (kr4).

Since Marx has not begun with the correct cost prices--and indeed he has
not!-- he has necessarily not calculated the correct prices of production.
All the critics from Bortkiewicz on are absolutely correct on this point.
In fact Marx did himself make this point. Emphatically. Twice. Capital 3,
p.265 and 309.

 There is no getting around this problem. And if I have implied otherwise,
I was escaping the difficulty

BUT...this assumes that Marx was interested in arriving at the correct
prices of production or relative prices. HE WAS NOT (see most importantly
Mattick Sr's chapter on the transformation in Marxism: Last Refuge of the
Bourgeoisie?, 1983).

For Marx, this was no longer the explanadum of value theory; in terms of
prices Marx's real concern was the quintessentially dynamic phenomenon of
changes in the average rate of profit over time(see Karl Korsch's chapter
on value in his Karl Marx, 1938 and Mattick Sr's chapters on value and
price in his magnum opus, 1969).

 The criticism from Bortkiewicz on is simply the reductio ad absurdum of
the Ricardian obsession of getting the relative prices right--the
explanatory object of bourgeois microeconomics.

 So what the neo Ricardians, including you my dear Ajit, seem to be
missing--and why you are all economists after all--is that even with the
transformation of the inputs or the modification of cost price at T1--and
here Fred's macro point could not be more important--the total mass of
value remains EXACTLY THE SAME(as long as we confine ourselves to price,
not quantity, adjustments in the modification of "the inputs") and profit
will STILL be apportioned according to the principle of the average rate of
profit on cost price which for Marx is the FORM in which the law of value
must assert itself. A pseudo-quantativism should not obscure this most
brilliant theoretical discovery.

So nothing changes about the essence of the logic of the transformation,
which simply remains untouched by transforming the inputs.

Of course I have also been arguing against the stricture that these prices
of production have to be determined as equilibrium prices. Marx is not
obliged to demonstrate the transformation on any of his previous vol 1 or
vol 2 assumptions--identical VCC for each and every capita;stationary
prices or value; equilibrium values or prices; annual turnover of capital.

The question then becomes whether the Sraffian method for determination is
superior because it can reasonably yield--and even this is quite
controversial--equilibrium prices while Marx's theory of production prices
is simply incompatible with simple reproduction or equilibrium prices. And
for proof of this we have Bortkiewicz to thank, as Michele Naples has
argued in Marx and Non Equilibrium Economics.

In my opinion it is the pleasantly surprising strength of Marx's approach
that in dropping the assumption of exchange at value, he must also drop the
assumption of stationary or equilibrium values (or prices), on which the
whole argument of vol 3 depends anyway! Good riddance to static
reproduction (whether simple or expanded) and hello to real world dynamics!

You may want to argue that since I have assumed given technical conditions
while allowing for the modification of cost prices--that is, the
modifications have been price, not quantity, ones--then we don't need the
detour of value to determine relative prices and the profit rate given what
the Sraffian instrumentarium can deliver with given technical conditions
and a given real wage (Howard and King, vol 2).

 This may be true if what we were after was equilibrium or stationary
prices--that is, we (arbitrarily) remove one of the n equations by fixing
output prices as identical to input prices, as Alan F has pointed out, to
solve the mathematical problem which has so fascinated the economists among

 If it is not this shadow world in which we are trying to find our way--and
the explorers of this pseudo terrain remain economists alone--then we do
indeed need to know the total value produced (transferred value, plus new
value added) to determine the average rate of profit to which cost price
will be added to arrive at prices of production, albeit non equilibrium

Marx's incompatibility with such a project reveals yet again that he was
not an economist.

By now, it should be clear to you that this has always been the real
meaning behind all the charges made by Marxist and bourgeois economists
alike of poor Marx's logical inconsistency. That is, the assumption has
always been anti- equilibrium=illogical.

As Mattick Sr put it:

"The Bortkiewicz 'solution' depends on the static situation of simple
reproduction. It will not hold under conditions of expanded reproduction,
when the capitalists of the third sector invest part of their profit in the
depts producing wage and cpaital goods. It is perhaps for this reason that
the transformation problem has played a rather minor role in Marxian
theory, and found its locus of cultivation in bourgeois economics. The
circulatory static conditions of simple reproduction bear a resemblance to
bourgeois equilibrium theory--the main tool of bourgeois price theory.
Marx's theory is thus approached as if it were a sort of Walrasian
equilibrium theory, whether looked up from the viewpoint of value or that
of price, and presumably accessible to mathematical treatment. As capital
by its nature is self-expanding, Borkiewicz's solution has not connection
with the real capitalist world. It remains a mere intellectual exercise,
which may excite mathematically inclined economists but is no substitute
for economic analysis in which mathematics may serve for some purposes, as
an aid to understanding but never as a replica of real economic
processes."(Mattick Sr, 1983, p. 48)

All the best, Rakesh

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