[OPE-L:3728] Re: Re: COST PRICE

From: Rakesh Bhandari (bhandari@Princeton.EDU)
Date: Sat Aug 26 2000 - 13:16:26 EDT

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 If we *define* total commodity value as the labor time represented by the
means of production used up in production+ direct labor time needed to
produce the entire commodity output, then as a matter of definition
commodity *value* cannot change as result of changes in the *prices* of the
inputs. In Marx's system even after we modify the cost prices--a price
adjustment--we still have the same quantity of means of production consumed
and the same number of worker hours. Therefore modification of cost price
can bring no change to the total value of the product. Labor time is not
changed thereby. Now I shall sidestep the difficulty of the those tricky
"socially necessary labor time" units in which labor time is measured. But
those are the units as they were for Ricardo.

So that total value does not change as a result of the modification of cost
price is not a normalisation condition; nor is it an arbitrary postulate.
It follows from the way in which value is defined.

However, you seem not to understand this is all part of hypothesis
formation, not confirmation of the hypothesis.

 Marx's hypothesis that the law of value not only governs capitalist
production but governs it in the specific form in which he is laying out
should yield predictions about the specific developmental tendencies of
such a system of production, specifically that it is rational for
innovative enterpreneurs to introduce technical changes which raise their
own profits (as mass and rate) while depressing the average rate of profit
in the system as a whole.

Of course here I shall abstract, just as Marx initially does, from the
effects of these innovations on the cheapening of the inputs for next
period's profit rate, but do remember that the firms in those branches for
which these innovations will be inputs are under the same microeconomic
pressure to replace as much direct labor as possible with as little more
indirect labor--that is unit values are continuously declining though
indirect labor rises relative to direct labor per unit, which means that
unpaid labor per unit should be declining as well.

At the same time, the greater mass of produced use values neutralizes this
negative effect on profitability; that is, reduced unit values are spread
over ever greater masses of use values. Unit value and and the quantity of
use values move in inverse direction. This has been Marx's point ever since
the opening of Capital 1; if you don't understand this and you furthermore
deny that this is what is Marx is saying, you are just missing the point.

At any rate, you have no fear in your embarrassing yourself in telling me
that Marx was not talking such "unadulterated nonsense". So now as I had to
inform you of what cost price means in Marx's system, which is the starting
concept of vol 3, now I have to open your eyes to what Marx is basically
trying to achieve in vol 3.

and then tell me that I am talking unadulterated nonsense. If you think
about this page, it will be clear to you that Marx's law of the tendential
fall in the profit rate is fully anticipated here. How this could be in a
chapter supposedly on what has been called the transformation problem
seems to have escaped almost all commentators, save Grossmann and his
students (William J Blake and Paul Mattick Sr).

But the reasoning is as clear as day. The transformation shows that profit
is not appropriated on the basis of surplus value produced within an
enterprise or a branch; it is therefore possible to appropriate profit at a
higher rate even as an enterprise produces less surplus value relative to
the capital advanced due to the cost advantage of having replaced a lot of
direct labor for just a little more indirect labor, though in the system as
a whole such technical change will exert downward pressure on the average
rate of profit.

It is the macroeconomic performance of the system as a whole over time
which yields to value analysis, not relative prices in any given snapshot
of reality. Sweezy himself agreed to this in his debate with Cogoy.

So Marx's value theory is not to be tested on the basis of its ability to
explain relative prices but in terms of its ability to account for the laws
of motion. There can be no denying that this is the most important task
which Marx set for himself in Capital.

It just seems to me that you have missed the most important role that value
plays in Marx's system. Value can't be see anymore than entropy, field
intensity, valence, dissociation energy, genetic information are evident in
everyday experience (to draw from Mario Bunge). While they make look
suspicious to science faker positivists, realists know that most of reality
is hidden to the senses. Value is similarly a hypothesized variable in an
explanatory theory but this does not make it a *ghostly* variable such as
Walras' auctioneer, perfect knowledge, rational expectations, or
equilibrium prices.

All the best, Rakesh

>Rakesh Bhandari wrote:
>> re3722
>> Ajit,
>> I think you missed my point. I include your reply below. This can't be a
>> point by point reply at this hour and in my state. But I shall strive for
>> brevity and coherence, and then sleep.
>> How is r determined?
>> Total value(a)-total cost price(a)=total profit(a)
>> total profit(a) divided by total cost price(a)=r(a)
>> The cost prices will then be kr(a).
>You mean kr(a) is the mark up over your "cost price(a)", I guess.
>> Rakesh:
>> If we now modify cost price, what changes?
>> Total value remains the same,
>On what basis can you say that. You are simply insisting it without any
>Give me an argument for this condition, which you are insisting. Your
>statement that
>"and that's ultimately the most important 'variable' of all since it is
>this mass
>which sets the limits within which each capital can move and therefore the
>enlargement to any particular capital." is not an argument.
>> Rakesh:
>> And the method by which r is determined remains the same.
>> So if we modify the cost prices of this SAME system, then what do we have
>> Total value (a)-total cost price (b)=total profit(b)
>> total profit (b) divided by total cost price(b)=r(b)
>> And the cost prices are now k(b)r(b).
>As I said total value(a) is unjustified.
>> Rakesh:
>> That total value (a) does not change despite a modification in the cost
>> prices is not a "normalization" condition but rather what is logically
>> entailed by the labor theory of value.
>Give us the logic please!
>> That is, how can the value
>> transferred from the means of production change or the new value which
>> workers are adding change simply if the input prices have been modified?
>What is your value by the way? What is its unit, and how is it calculated?
>> Rakesh:
>> By working on the assumption of the truth of the labor theory of value,
>> Marx shows that it can only govern bourgeois society through formation of
>> the average rate of profit, not in terms of relative prices. There is
>> actually no attempt in Marx's work to get the relative unit prices right as
>> there is in bourgeois economics.
>If you don't get your unit prices right then how do you go about
>calculating your
>"cost price" or for that matter your total value, which apparently is
>given in money
>terms for you?
>> Rakesh:
>> Marx is not interested in demonstrating what the relative prices or the
>> exact average profit rate would have to be. That would be impossible on the
>> basis of tabeleau anyways because it does not deduct rent and interest
>> payments before determining the average industrial rate of profit; it makes
>> no allowance for monopoly; it makes no allowance for differential turnover
>> times. Any attempt to determine actual prices is simply a pseduo
>> quantitativism.
>Let me be a bit blunt and tell you that i have a strong suspicion that I have a
>better understanding of Marx's writings than many of you on this list. I'm
>getting a
>bit sick of listening to you guys lecture me about what Marx is doing or was
>interested in doing etc. As if you guys are the great champions and scholars of
>Marx, and i'm some dud sitting here who has not even an acquaintance with his
>writings. What I'm arguing on this list is not whether Marx was right or
>wrong, but
>rather some of the interpretations I'm critiquing are simply nonsense. And by
>attributing those ideas to Marx, in effect, what you guys are saying is
>that Marx
>was talking a bunch of nonsense. My point is that if yours or Fred's and
>some others
>on this list interpretations of Marx were right then today we wouldn't
>even have
>heard of a guy called Marx, because no serious minded person would have
>taken him
>seriously. But this didn't happen. So obviously he wasn't talking what you are
>> Rakesh:
>> So the attempt to test Marx on the terrain of relative prices is simply a
>> waste of time; actually relative unit prices have no place in his theory.
>> He doesn't even really consider them. His prices of production are
>> aggregates for industries; they are not unit prices.
>Then how do you get those aggregate price figures for the whole economy as
>well as
>sector wise. Does god give you those figures?
>> Rakesh:
>> But there are much more important testable predictions which derive from
>> Marx's hypothesis of the form in which in the law of value regulates
>> capitalist production. That is, if the law of value holds in this Marxian
>> form, it may then be possible for an individual capitalist to appropriate
>> the average rate of profit and even more just as less surplus value is
>> produced in his own enterprise due to the cost cutting substitution of more
>> direct labor for less indirect labor, which thereby depresses the average
>> rate of profit in the system as a whole on the basis of a rising OCC for
>> total capital though this is not felt immediately by the innovative
>> entrepreneur himself. This is the central paradox with which Marx was not
>> concerned, not the unexpected effects on relative prices from
>> distributional shifts. That is a Ricardian problem which shares with
>> bourgeois microeconomics an obsessive concern with the hardly important
>> question of relative values. It is not Marx's main concern at all; if Marx
>> is concerned with prices, it is not the relative ones in a snapshot of
>> time, it is the continuous revolution in values in time (again see Korsch).
>If marx was talking like this, do you think any serious minded person
>would give him
>time of the day? This is unadulterated nonsense! By the way, what do you
>mean by
>"law of value"?
>> Rakesh:
>> Also, you seemed not to understand my point that it is not the precise
>> quantitative magnitude of the profit rate which matters (or has to be
>> determined) as much as its downward movement as an index of a looming
>> shortage in the mass of surplus value that is needed for further
>> accumulation.
>Then what were you trying to do at the beginning of this post? Just waste
>our time?
>> Rakesh:
>> Finally you tell me on the authority of one the heavyweights in the
>> Sraffian world (whose work I do not know) that in the lieu of simultaneous
>> equations Marx had no other recourse than value in determining the profit
>> rate. Leaving aside my previous point that Marx was not interested in
>> relative prices, I now simply turn around and say that because you have
>> expunged value you have had no recourse than to turn to simultaneous
>> equations in the determination of the profit rate and this means you must
>> accept the fantastically atemporal assumption that input prices must equal
>> output prices. Moreover, once you resolve your problem with the use of this
>> upper reach high school math, you can no longer understand the central
>> paradox with which Marx was concerned. So Marx's mathematical ignorance
>> here puts him on much more solid ground than you and your Anglo Italian neo
>> Ricardian friends who now survive apparently only as critics of Marx's
>> logical inconsistencies, since the neoclassicals seems to think reswitching
>> and all that amount to curiosa and no more.
>> Yours, Rakesh
>Rakesh, if you could cut out your meaningless rhetoric, then may be I'll
>get a bit
>sober too. There is no doubt in my mind that on this question you have
>more to learn
>from me than i from you. So if we keep to simple straight questions and
>answers, we will get somewhere. Don't think that you are some great
>champion of Marx
>or Marxism, and I'm anti-Marx. Remember! Marx had to admit that he was not
>a Marxist
>in his lifetime, and had he read the kind of stuff his champions are
>saying in his
>name on this list, he would have been glad to have opted out of the
>"Marxist camp".
>Cheers, ajit sinha
>> >________________________
>> >
>> >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
>> >the iteration method suggested by Shaikh. But as Shaikh knows, and you
>> >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
>> >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
>> >method and the whole question of profits being a non-price phenomenon.
>>It's all
>> >there in Sraffa!
>> >No serious problem till here. However, you should keep in mind that
>> >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,
>> >Routledge)
>> >
>> >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.
>> >
>> >It is more importantly about getting the rate of profits right.
>> >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
>> >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
>> >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
>> >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.
>> >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
>> >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
>> >
>> >>
>> >>
>> >> All the best, Rakesh

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