From: Ajit Sinha (ajitsinha@lbsnaa.ernet.in)
Date: Fri Aug 25 2000 - 05:44:45 EDT

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Rakesh Bhandari wrote:

> 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
> price.
> 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
> value.
> 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.


As I understand it, up till here you have not said anything different than
Shaikh's 1977 paper on the transformation problem. You are basically describing
the iteration method suggested by Shaikh. But as Shaikh knows, and you should
too, that the iteration method is nothing but a cumbersome way of solving the
simultaneous equation system. The idea that it was logical for Marx to begin
his iteration with the assumption that value = price is neither great nor
objectionable. Since formally you could begin with any other assumption and
still eventually arrive at the same result. By the way, instead of suggesting
iteration method, Garegnani suggests that in the absence of simultaneous
equation method, Marx had no other way to arrive at the rate of profits than go
via value. See my paper in RRPE 32 (2), 2000 for further discussion on Marx's
method and the whole question of profits being a non-price phenomenon. It's all
there in Sraffa!

> Rakesh:
> 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.


No serious problem till here. However, you should keep in mind that "BUT...the
total mass of
value will not have been changed (transferred value + new value added)" can
only be accepted as a condition imposed on the system. Mathematically you
cannot prove that total value must be equal to total prices of production after
what you have accepted above. (May be you should take a look at my piece on
'transformation problem' in *Encyclopedia of Political Economy, 1999,

> Rakesh:
> 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
> interpretation.
> 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


No serious problem till here.

> Rakesh:
> 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).


You want me to take a chapter entitled, 'the transformation in Marxism: Last
Refuge of the
Bourgeoisie?' seriously? Most of the bourgeoisie haven't even heard of the
transformation problem. I can tell by the title only that Mattick Sr. is not
too knowledgeable about the transformation problem. The chapter most likely
will be full of time wasting rhetoric.

> Rakesh:
> 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).


Even if it is correct (which I don't think it is), don't you think that first
you will need a theory that correctly determines the rate of profits? How can
you work out the "dynamic phenomenon of
changes in the average rate of profit over time" without having a theory of the
"average rate of profit" to begin with? Think about it.


> 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.


It is more importantly about getting the rate of profits right.

> Rakesh:
> 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.


I don't understand what is this "most brilliant theoretical discovery". As far
as imposing the condition that total value is equal to total prices of
production (in the gross sense), not many people have any serious objection to.
It is just a normalization equation. If you think there is some deep philosophy
involved behind it, you can keep thinking so. No body is bothered about this
issue as far as the transformation problem is concerned. Secondly, who is
concerned about the "quantity adjustment" in the context of the transformation
problem? And as far as your claim that "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" is
concerned, the problem, as you have yourself accepted, that the "cost price" of
Marx is not correct. So you now have two problems, neither you know the "cost
price" nor you know the "average rate of profit". So what you gonna do now? As
far as your "principle" is concerned, every child knows that. If you think that
it is Marx's great discovery, then you got to be kidding yourself.

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


The above statement most likely is a nonsense. Though the meaning of it is, of
course, not clear.

> Rakesh:
> 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
> us.
> 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
> ones.
> 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.


What is the meaning of all this mind boggling rhetoric? You are smart enough to
know that what have you said there makes no sense. Just read them slowly
yourself, and see if you can make any sense of it.

> Rakesh:
> 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)


So my guess was correct. Mattick Sr. is poorly read on transformation
literature. It is true that for simplicity sake Bortkeiwicz assumed a simple
reproduction model. But as early as 1948, Winternitz liberated the
transformation problem from this restrictive assumption. Had Mattick Sr. read
Seton and Morishima (who gives more emphasis on the dynamic transformation
problem than the static one) he would have never bothered to write this
meaningless mumbo jumbo. By the way, in my Ph.D dissertation I have developed a
solution to the transformation problem in a dynamic context. Both the Marx's
conditions will be satisfied in the balanced growth model if we assume that the
labor employed to produce capitalist consumption is unproductive. I have not
published this solution for the simple reason that it restricts the relevance
of Marx's value analysis a bit too much, and Marx, though came close to
declaring luxury production as unproductive, never did so. Cheers, ajit sinha

> All the best, Rakesh

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