However, this is not good enough for many 'Marxists'. In early 1980's a group of scholars (Dumenil, 1984; Foley, 1982; Lipietz, 1982) came up with a 'new solution' to the problem, which found ready acceptance by many Marxists. They argued that it is incorrect to equate total value with total prices of production of the gross output. Instead, the equality should apply only to the net output. Moreover, they argued that the values of the variable capital and the surplus value should not be calculated by the labour-time needed to produce the commodities but by the 'value of money' it takes to buy those commodities in the market, where the 'value of money' is defined as the total money value of the net output divided by the total live labour-time spent in the production process. Once these definitions are in place, Marx's two invariance conditions turn out to be a tautology. Sinha (1991) has criticised this approach on several grounds. First, its definition of commodity value is inconsistent. Though the constant capital part of the commodity value is calculated by the labour-time it takes to produce the commodity, its variable capital and the surplus value parts are calculated by the 'value of money'. Second, this approach places the problem in the sphere of income distribution, akin to Ricardo's problem, rather than in the sphere of reproduction schema of Marx, where the problem arises because of exchange between capitalists rather than between capital and labour. Third, the rate of surplus value, as defined by this approach, turns out to be dependent on the choice of the money commodity. A change in the money commodity, with everything real remaining the same, would change the rate of surplus value (ie. S/V) in the system. Moreover, the rate of surplus value also becomes dependent on the pattern of capitalist consumption. If the capitalists shift their consumption from expensive cars to expensive holidays, this would change the rate of surplus value in the system. These results show how far this approach is from the basic foundation of Marxian economics. In the end, a couple of highly unorthodox but interesting interpretations deserve mentioning. Farjoun and Machover (1983) have argued that Marx's attempt to derive the prices of production was a mistake. The nature of capitalist competition is such that the rate of profit would never equalize across sectors. Instead of a deterministic method, they propose the method of statistical mechanics for an analysis of capitalism. They argue that in the stochastic world the relative prices or the exchange ratios of commodities would be closer to Marx's first assumption of exchange ratios being proportional to their value ratios rather than the prices of production. Thus Marx should have stuck with the labour theory of value as his theory of prices. I see two fundamental problems with Farjoun and Machover's proposal. First, their whole argument about the nature of capitalist competition is built on the analogy of capitalist competition with gas molecules in a closed container. This analogy has serious problem. It is quite clear that in the case of gas molecules there is no innate desire on the part of any gas molecule to move fastest or to get to a position where it could move faster; however, profit maximization is a fundamental urge for an individual firm in capitalist competition. Second, Farjoun and Machover come to the conclusion that there is no real tendency for the rate of profit to equalize in a capitalist system because as prices change to bring about equal rate of profit across sectors, simultaneously some other parameters of the system such as technology of production, income distribution, etc. also change throwing the system continuously in disequilibrium. This may be true, but this by no means appear to be a criticism of the "deterministic method" or its explanatory power. The deterministic method only claims that given technology and rate of surplus value etc. there would be a tendency for the relative prices to gravitate toward the prices of production. If in the mean while the technology or other parameters change then the prices of production or the gravitational point itself would change. The most fundamental question in this context is whether one could separate the fundamental causes of capital mobility across sectors in search of maximum profit from the fundamental causes of technological change and change in the rate of exploitation etc. Marx definitely makes the fundamental separation of the main causes. The causes of technical change are primarily identified with (a) intraindustry competition between capital, and (b) capital's tendency to control the labour process as well as intensify it in the face of the shortening of the length of the working day (Marx, 1977, pp. 527, 560, 562, 582). Similarly the the long term real wage is supposed to be determined by the historical and cultural traditions and the short term fluctuation in real wages is supposed to be caused by the ups and downs of the business cycles (Marx, 1977, p. 790 and Marx, 76, pp. 56 ff.). The immense explanatory power of Marx's analysis is built on such separation of causes and their systematic interconnections. The stochastic analysis that gives a "better estimate" of empirical prices may come with too great a price tag. Last but not least, Hollander (1981) has argued that Marx's transformation problem reveals that Marx belonged to the general equilibrium tradition (loosely speaking). He argues that Marx's value analysis of the first two volumes was conducted by deliberately adjusting supplies of commodities which resulted into prices equal to value-- a necessarily disequilibrium situation. This, according to Hollander, was done in order to reveal that non-wage incomes are derived from labour. In chapter IX and X of volume three the system is allowed to move to equilibrium. This takes place with changes in supply of commodities, thereby changing the original allocation of resources. Hollander argues that with this change in the supply of all the commodities there is no reason to believe that the initial wage basket could be maintained in the current situation. This leads Hollander to contend that wages in Marx's system are given in money terms and not in real terms. Given the wages in money, with prices changing, the income distribution changes as well. Thus revealing the simultaneous determination of prices and income as a solution of the allocation of resources rather than the distribution being independently determined 'prior' to the determination of prices. Hollander's various arguments are echoed in most of the Marxist literature that claims to be anti-Sraffian, even though these 'Marxist' authors are apparently unaware of Hollander's contribution. Because of the limitation of space, it is not possible to develop a critique of Hollander's interesting thesis here. Elsewhere I (Sinha, 1996) have strongly argued in favour of putting Marx in the 'surplus camp' rather than 'scarcity camp', which goes directly against Hollander's basic thesis. For a specific criticism of Hollander's paper see Pokorny (1985). References: Bortkiewicz, A. von. (1907) 1949. 'On The Correction of Marx's Fundamental Theoretical Construction in the Third Volume of Capital,' in P. Sweezy (ed.) Karl Marx and the close of His System. New York: Augustus M. Kelly Dumenil, G. 1983-4. 'Beyond the Transformation Riddle: A Labor Theory of Value,' Science and Society 47(4): 427-50 Eatwell, J. 1974. 'Controversies in the Theory of Surplus Value: Old and New,' Science and Society 38(3): 281-303 ----. 1975. 'Mr. Sraffa's Standard Commodity And The Rate Of Exploitation,' Quarterly Journal of Economics 89(4): 543-55 Farjoun, E. and M. Machover. 1983. Laws of Chaos. London: Verso Foley, D.K. 1982. 'The Value of Money, the Value of Labor Power, and the Marxian Transformation Problem,' Review of Radical Political Economics 14(2): 37-47 Garegnani, P. 1976. 'On a change in the notion of equilibrium in recent work on value and distribution,' in M. Brown, K. Sato and P. Zarembka (eds.), Essays in Modern Capital Theory. North-Holland Publishing Company ----. 1991. 'The labour theory of value: "detour" or technical advance?,' in G. Caravale (ed.) Marx and Modern Economic Analysis vol. I. Eldershot: Edward Elgar Hollander, S. 1981. 'Marxian economics as "general equilibrium" theory,' History of Political Economy 13(1): 121-155 Laibman, D. 1973-4. 'Values and Prices of Production: The Political Economy of the Transformation Problem,' Science and Society 37(4): 404-36 ----. 1992. Value Technical Change And Crisis Exploration in Marxist Economic Theory. New York: M.E Sharpe, Inc. Lipietz, A. 1982. 'The So-Called "Transformation Problem" Revisited,' Journal of Economic Theory 26: 59-88 Marx, K. (1867) 1977. Capital, vol.I. New York: Vintage ----. (1894) 1981. Capital, vol.II. New York: Vintage ----. (1865) 1976. Value, Price and Profit. New York: International Publishers Morishima, M. 1973. Marx's Economics A Dual Theory Of Value And Growth. Cambridge: Cambridge University Press ----. and G. Catephores. 1978. Value Exploitation and Growth. London: McGraw-Hill Ltd. Pokorny, D. 1985. 'Karl Marx and general equilibrium,' History of Political Economy 17(1): 109-132 Seton, F. 1957. 'The "Transformation Problem,"' Review of Economic Studies 24(3): 149-60 Shaikh, A. 1984. 'The Transformation from Marx to Sraffa,' in E. Mandel and A. Freeman (eds.) Ricardo, Marx, Sraffa. London: Verso Sinha, A. 1991. The Concept of Value in Marx's Economic Writings: A Critique. Ph.D dissertation, State University of New York at Buffalo ----. 1995. 'Understanding the Transformation Problem: Is the Standard Commodity a Solution?,' Paper presented at the ASSA meetings, Washington DC, January ----. 1996. 'A Critique of Part One of Capital volume one: The Value Controversy Revisited,' Research in Political Economy, vol. 15, pp. 191-218, (eds.) Paul Zarembka and Ajit Sinha. Greenwich: JAI Sraffa, P. 1960. Production of Commodities By Means Of Commodities. Cambridge: Cambridge University Press Steedman, I. 1976. Marx after Sraffa. London: NLB Sweezy, P. 1942. The Theory of Capitalist Development. New York: Monthly Review Press Winternitz, J. 1948. 'Value and Prices: a solution of the so-called transformation problem,' Economic Journal 58(June): 276-80 Wolfstetter, E. 1973. 'Surplus Labour, Synchronised Labour Costs And Marx's Labour Theory Of Value,' The Economic Journal 83(Sept): 787-809 Alejandro Ramos wrote: Alejandro Ramos wrote: > Ajit in #3900: > > "First of all, the determination of what you call the "m" is the central > problem with Marx's transformation problem." > > What is your definition of "Marx's transformation problem"? It seems to me > that there is not an universal agreement about what is understood by this. > > Why is the determination of "m" the "central problem" of this... "problem"? > > "That's why assuming that the value of m is "given" can never be taken > as a solution to the problem, and particularly when it is added that not only > the real m is unknown but is unknowable." > > So, this problem would not belong to the realm of science? What is this, > then?? > > "This simply confirms the Steedman critique." > > Do you mean the "redundancy" issue here? > > Alejandro > > P.S. If you're very busy, you can perhaps post any of your writings (cited > in another post) regarding this matter. It's obvious that for people like > me it's really impossible to get a copy in another way.
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