[OPE-L:3945] Re: Re: Re: Re: Re: The Transformation Problem

From: Ajit Sinha (ajitsinha@lbsnaa.ernet.in)
Date: Wed Oct 04 2000 - 08:04:29 EDT

Tsoulfidis Lefteris wrote:

> Ajit Sinha wrote:
> > Tsoulfidis Lefteris wrote:
> >
> > > Ajit Sinha wrote:
> > >
> > > Many scholars have argued that the divergence of total profit from
> > >
> > > > total surplus value or the total prices  of  production  from  the
> > > > total value is not all that damaging for Marx's basic  proposition
> > > > about exploitation, since it can be proven that positive profit is
> > > > possible if and only if  there  is  positive  surplus  value  (see
> > > > Wolfstetter, 1973;  Morishima,  1973,  Morishima  and  Catephores,
> > > > 1978). Recently Sinha (1991, 1996) has argued in favour  of  using
> > > > the condition that  total  value  is  equal  to  total  prices  of
> > > > production as an outside constraint  on  the  system,  given  that
> > > > values are substance and it is neither created or destroyed in the
> > > > process of exchange.  Moreover,  the  system  must  be  put  in  a
> > > > balanced state since only  in  a  balanced  state  the  prices  of
> > > > production could actualise. In this  case,  Morishima  (1973)  has
> > > > shown that Marx's average rate of profit will come out to  be  the
> > > > correct solution if there is zero consumption by the  capitalists,
> > > > ie. all the surplus value is reinvested or  accumulated.  However,
> > > > this, in general, will not be true  in  the  case  of  capitalists
> > > > consuming a part of the surplus value. Shaikh (1984)  argued  that
> > > > this happens because capitalists' consumption becomes part of  the
> > > > revenue and falls out of the circuit  of  capital.  Since  we  can
> > > > explain the divergence of prices of production from values as well
> > > > as the divergence of total profit from total surplus value on  the
> > > > basis of the value analysis  itself,  the  transformation  problem
> > > > should be considered solved.
> > > >
> > > > Note: the reader should know that I'm not convinced with Shaikh's argument. The
> > > > point has been left uncriticized there. Ajit Sinha
> > >
> > > In my view the transformation problem (that you summarized in your posts) has been
> > > discussed extensively in the decades of 1970's and early 1980's and the solution
> > > proposed independently by Morishima (1973), Okishio (1973?!) and Shaikh (1973,
> > > 1977, 1984) deals with the issues of logical consistency and all that in (my view)
> > > a satisfactory way. In addition the solution by Shaikh (1984) includes also a
> > > discussion of the circuits of revenue and capital which present (besides the
> > > mathematical) a conceptual explanation of the possible divergence of total surplus
> > > value and profit. These two magnitudes normally are expected to differ from each
> > > other and only in the improbable case that there is no circuit of revenue (i.e. the
> > > economy expands along a von Neumann ray) the two totals equal to each other. I am
> > > very much interested in your critique to this thesis.
> >
> > ___________________________
> >
> > I'm not sure whether the transformation problem has anything to do with what Shaikh
> > calls circuit of capital and circuit of revenue. In my opinion, the transformation
> > problem in the end boils down to whether the competitive rate of profits is equal to
> > Marx's S/(C+V). If this comes out to be true then Marx's main argument of chapter 9
> > pretty much goes through. Most of the literature on the problem have shown that in
> > various situations this would be true, von Neumann ray is one of those situations.
> > However, it is also proven that in general it is not true. As I have explained in my
> > piece, a part of which you have quoted above, that the transformation problem is about
> > measuring the investment. I don't think that the problem has anything to do with what
> > the capitalists do with the outputs in their hand. Cheers, ajit sinha
> Thanks for your answer, it seems to me, however, that your critique is rather sympathetic
> to the solution to the TP advanced by the three authors at least more so than the "new
> approach". Now I want to make a few related points by way of questions:
> (1) What problems do you see in the circuits of capital and revenue? don't  they arise
> logically from the distinction of productive/unproductive consumption? Is there any
> evidence in Marx against such a distinction?


The distinction between productive and unproductive consumption will play a role in the theory
of accumulation and growth. But I'm not sure what the transformation problem has to do with
the use of the surplus produced.

> (2) What do you mean by competitive rate of profit? If you mean the uniform rate of profit
> in perfect competition I must say that such a concept is totally different from Marx's
> notion of the tendential equalization of interindustry profit rate. I agree though that
> S/(C+V) in value terms will differ in general from the rop in pop terms, the question
> however is _by how much_ ? In the usual numerical solutions of  the TP the differences
> between the two rop is negligible or not? On the other hand the empirical evidence, that I
> know, shows that the two rates of profit are extremely close to each other. A result that,
> in my view, shows that the distinction between the circuits of capital and revenue is
> meaningful.


By competitive rate of profits I mean the uniform rate of profits that capital mobility is
supposed to bring about in the long-term context. As far as the divergence between Marx's
value rate of profits and pop rate of profits is concerned, I think theoretically significant
divergence could take place even with reasonable examples. I have not worked this problem out,
but Samuelson claims this and I'm inclined to take his word for it. As far as empirical case
is concerned, I cannot say much but if it is true than I think it supports Allien and Paul
C's. position better than Shaikh's in some sense.

> (3) It seems to me that the question of time does not appear in the TP in ch. 9. Time and
> investment behavior appear in ch. 10 and after.  The TP in ch. 9 is discussed purely in
> static terms and really constitutes  an exercise in logic. If you want to include the
> question of investment behavior then you are asking an altogether different question. Such
> questions have been investigated in many papers and,  to the extent that I know the
> literature,  did not reach any conclusive results. It seems to me that it is extremely
> difficult to integrate the theory of value with the theory of effective demand.


I was not at all talking about investment behavior. I agree with you that the transformation
problem is a logical problem, and has nothing to do with the time dimension. In my opinion all
probematics of prices have to be completely static in nature. It is not possible to have a
dynamic theory of prices because you simply cannot have a measuring rod that would remain
invariant in this situation. I was referring to the problem of how to measure the investment
given in terms of heterogeneous goods. Cheers, ajit sinha

> Lefteris Tsoulfidis

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