[OPE-L:4394] Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Technical change and general truths

From: Rakesh Narpat Bhandari (rakeshb@Stanford.EDU)
Date: Wed Nov 01 2000 - 00:41:38 EST

Steve writes in 4392:

You would acknowledge that the labor theory of value is 'false' in
equilibrium--in that it suffers from insurmountable logical inconsistencies
which you attribute to the equilibrium methodology itself, rather 
than theunderlying logic of the labor theory of value

Nope Steve I have now accepted (for the sake of argument only) the 
equilibrium methodology and still demonstrated that there is no 
transformation problem.

  I shall try to be as clear as possible again.

I agree that the inputs have to be tranformed into prices of 
production and the cost prices thereby modified.

I *assume* for the purposes of argument that we should have the 
identical unit prices of production on both sides, though I think 
this assumption is a positive obstacle to the advance of knoweldge.

I argue that a transformation of the *prices* of the inputs cannot 
change the indirect and direct labor embodied in the output and thus 
its value: total value/ price is therefore held invariant in the 

I derive PV ratios from the output prices of prod and apply them to the inputs.

I then add up the total cost prices and subtract them from total 
value to derive a new mass of surplus value.

Dividing this modified mass of surplus value by the modified cost 
prices, I then derive a new average profit rate, then new branch 
profits and then new branch prices of production from which are 
derived new PV ratios again applied to the inputs.

The process is iterated until equilibrium.

So far the well-known Shaikh-Gouverneur iteration which results in a 
sum of surplus value and average profit rate which are both different 
than in the second tableau.

I argue that these differences do not represent a violation of the 
second equality which is not an invariance condition. Two reasons:

A. since Marx defined surplus value as total value minus cost price 
and the rate of profit as surplus value over "cost price" or "total 
capital advanced" (terms which he uses as synonyms in capital 3, ch 
2) , he could not have thought that the mass of surplus value and the 
rate of profit would remain invariant if the cost prices are modified 
due a transforming of the inputs.

That is, I argue that the interpretation of the second equality as an 
invariance condition is a total fabrication of Bortkiewicz-Sweezy.

What is the meaning of the second equality then?

B. it means, as Fred has laid out,  that the mass of surplus value 
has to be determined prior to and then itself determines the sum of 
the sum of branch profits. This is exactly how it is done in each new 

(1)total value-sum of modified cost prices=

(2)modified mass of surplus value=

     modified mass of surplus value
(3) ______________________________  X  modified cost price of each branch=
     total modified cost prices

(4)the profits of each branch the sum of which is total profits=

(5)total surplus value

The determination of the sum of branch profits by the mass of surplus 
value is thus maintained in each iteration and in the final 
equilibrium state.

It is in fact the maintaining of this equality that tells us how to 
go about doing the iteration and determining each branch's profits 
which added to their respective modified cost prices generate the new 
branch prices of production in each iteration.

My easily understood contribution then is my argument that the 
iterative process actually maintains both equalities.

My disagreement with Gouverneur is three fold:

1. This iterative process does not violate but rather assumes the 
second equality, which he wrongly interprets as an invariance 
condition (Marx could not have thought that the mass of surplus value 
and the rate of profit would remain invariant as cost prices are 
modified--see A above).

2. He does not understand that the only reason to transform the 
inputs into the same prices of production as the outputs is to 
satisfy the equilibrium conditions stipulated by bourgeois economics 
and thus respond to equilibrium theorists on their own terms.

3. The point of this input transformation exercise actually is to 
demonstrate formally Marx's insight that unless the inputs are 
modified, it is possible to go wrong in the determination of economic 
magnitudes (the average rate of profit and prices of production are 
indeed different in the final state than in the original unmodified 
one); I do not take this exercise to be the supply of additional 
reasons for the two equalities which, properly understood, are 
instead assumed throughout the iteration.

I call the above response to the transformation problem on the 
assumptions of equilibrium thinking the 
Shaikh-Gouverneur-Moseley-Bhandari solution.

It is of course possible that the first three would disavow the affiliation.

All the best, Rakesh

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