[OPE-L:3920] Re: The Transformation Problem

From: Ajit Sinha (ajitsinha@lbsnaa.ernet.in)
Date: Sun Oct 01 2000 - 07:24:33 EDT

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).


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:

Sinha, A. 1991. The Concept of Value in Marx's Economic  Writings:
   A Critique. Ph.D dissertation, State University of New York  at

----. 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):

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.

This archive was generated by hypermail 2b29 : Tue Oct 31 2000 - 00:00:07 EST