[OPE-L:3967] Re: Re: Re: Re: Re: Re: Re: Re: Re: m in Marxs theory

From: Rakesh Bhandari (bhandari@Princeton.EDU)
Date: Thu Oct 05 2000 - 09:27:43 EDT

In his 3963, Ajit wrote:

I don't have such trouble with the idea that money represents labor time.
problem is which money, and how and how much of labor time it represents. I

don't think that when Marx said, "And what we call price of production is
fact the same thing that Adam Smith calls 'natural price', Ricardo 'price
production' or 'cost of production' ..." he simply made a huge error. All
are basically price concepts. So Marx's transformation problem is an
attempt to
develop his theory of prices based on labor-values of commodities, which
determined directly by the given technologies of production.
Of course in developing that theory, Marx also shows that the law of value
cannot directly account for the surface phenomena of bourgeois society,
viz. prices. Marx's basic idea is that the form in which the law of value
asserts itself is dynamic and changing. That is, the form in which the law
of value is expressed is no longer in terms of prices but in terms of that
which seems most clearly to contradict or at least modify the law of
value--the principle of the average rate of profit. In this demonstration,
Marx hardly descends to the determinants of actual relative prices in the
market; nor does he have to. Read the chapter.	Marx's effusive praise of
Ricardo as scientist who attempted to explain the phenomena which  appeared
to refute most decisively the law of value on the basis of the law of value
is rather obviously Marx's brimming self praise. 
That's why I think
taking prices as empirically given in this context is like putting the cart

before the horse--it simply negates the theoretical problem posed. So what
the problem of "m" in this context? Now we know that by using either
Seton's or
Sraffa's formulations we could derive Marx's prices in terms of any
as money commodity. In Seton's formulation taking any commodity as 'money
commodity' directly implies the assumption that we are assuming no
deviation for that particular commodity.
For reasons of having through the power of abstraction to construct money
as a theoretical reference point, Marx	assumes away for the money
commodity not only any price-value deviation but also any change in the
value of money over time. Alas, this means that Marx is not after a
realistic price theory which would be of interest to practical businessmen
who needs to know how the actual value of money is changing over time ;
rather Marx has an academic interest in comparing values in historical
periods which means he must assume a constant value of money. This
assumption is maintained throughout the three volumes of Capital. 
This gives us an "m" but this "m" will
be completely arbitrary as well as logically not very sound.
The arbitariness would come from changing the money commodity in each
successive period or even allowing the value of the same money commodity to
change inter-periodically. In the case of the transformation tableaux, it
is possible that the relative value of money was greater at the point that
the inputs were purchased than when the outputs were sold. If we don't rule
this out, it would then be impossible to demonstrate how the average rate
of profit can be formed on the basis of the law of value alone. This is why
there is no money commodity in the transformation tableau. Money has
already been assumed to be an ideal or theoretical measure--a yardstick
which is not changing. The assumption has to hold for the theoretical
analysis in all three volumes of Capital.
 It is arbitrary
because we could have chosen any commodity out of the n commodities as the
money commodity, and so we could legitimately have n different values of
To prevent such arbitrariness one must therefore choose one one money
commodity and its value, and then stick with it.

It is logically also not coherent to claim, on the one hand, that in
all commodity prices must deviate from their values, and then claim, on the

other hand, that for one arbitrary commodity this does not happen by
Not only is there is not price-value deviation in the value of money, the
value of money is not even allowed to change over time. Far from being
incoherent or arbitrary, any theoretical analysis of the dynamic system of
capitalism over time could not get off the ground without the construction
of a theoretical reference point. You seem not to understand this which is
why I took the time to type out a long passage from Grossmann--you did not
respond. It will help you understand not only Marx's method but the bold
abstractions (or seemingly arbitrary or decreed abstractions) a successful
science often has to make to puruse purely theoretical or academic topics
of investigation. For example, don't you neo Ricardians claim that you have
to assume constant returns to scale and invariant technical
conditions--that is, decree the production system to be static in a
seemingly arbitrary way--in order to carry out theoretical investigation.
Marx also thinks that he has to hold the value of money as fixed and given.

All the best, Rakesh

is like Marshall's claim that marginal utility of everything declines
money's. Thus this problem of "m" logically leads to finding out a
commodity for which the value-price deviation will be zero. Marx's attempt
toy with the idea of a commodity produced with the average organic
of capital was a search in this direction. But his investigation showed him

that this was not completely satisfactory. If we leave out your empirical
derivation of "m", and just deal with the claim that labor theory of value
implies that the prices of net output (and in this case the prices will
have to
be prices of production and not the empirical market prices) must equal
live labor time. Then this gives us another "m". But then this is again a
decree similar to saying that value-price deviation is zero for the money
commodity. Moreover, given this "m" when we analyze the property of Marx's
system, we find that many conclusion derived from taking this "m" do not
well with Marx's analysis of his system. Same happens with other such
candidates such as taking total prices of gross output equal to total gross

value on the ground that prices must be bound by the total value substance.
seems to me that Sraffa's standard commodity comes closest to what Marx was

looking for, but still is not completely satisfactory in my opinion. Thus i

think the problem as posed by Marx is still unresolved, and probably

Now in your above statement, "...the basic macroeconomic determinants of
profitability are the ratio
of the value of output to the value of capital (what Tom Michl and I
call the "productivity" of capital) and the ratio of profit to total
value added (which is a transformation of the rate of exploitation).
I take the essence of Marx's theory of value to be the observation
that you can't change the rate of profit in the macroeconomy without
changing one or the other or both of these variables."
I'm not sure what you are trying to get at. In monetary terms your ratio of

"value of output [gross] to value of capital" minus one will give you the
of profit, i presume. Now this rate of profit is determined and will not
unless something changes either the value of output or the value of
What is the significance of the second ratio here? In anycase, I do not
any quibble over these macro level definitional identities. My problem is,
these macro level definitional identities help us in solving Marx's
transformation problem? Cheers, ajit sinha

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