[OPE-L:7611] Re: Re: Gold in the Transformation Problem

From: Gil Skillman (gskillman@mail.wesleyan.edu)
Date: Thu Sep 05 2002 - 17:49:06 EDT

Hi, Fred, you raise a number of interesting issues that I attempt to 
address below.  But perhaps we should also ask whether  its worth pursuing 
this line, insofar as it concerns an analytical scenario whose only 
relevance is in assessing the sense of your  claim (following Marx) that 
the determination of the rate of profit is analytically prior to the 
determination of prices of production.  If you don't find it too 
onerous/obnoxious, I think that if you could address the questions I posed 
in the "Moving on..." post, we could figure out if there are interesting 
issues--(my interpretation:  unresolved issues that can be pursued on 
mutually accepted theoretical  grounds)--that might be pursued on this 
question. [Alternatively, if you could point me in the general direction of 
earlier posts in which you've already answered the questions I've posed, I 
could look them up in the archives myself.]

Anyway, where I wrote

> > On (b), as far as I can tell, no one has disputed my demonstration that
> > *given these conditions* there is an inconsistency in the claim that the
> > rate of profit is determined analytically prior to prices of
> > production.  The question is whether this demonstration is relevant to
> > Marx's, and thus Fred's, analytical project, which brings us to 
> (a).  Since
> > Marx is dead, we have no way of settling the matter, so I won't bother
> > trying.  Marx does not clarify the matter either way in Ch. 9, and
> > presumably neither side of this discussion pretends to be able to go back
> > in time to read Marx's mind or to recall him from the dead to figure out
> > the answer.  But the discussion has at least given rise to a new (or at
> > least not previously obvious) theoretical insight about the economic
> > conditions under which Marx's/Fred's conclusion do and do not hold.

You say

>Gil, I certainly have disputed your "demonstration" and so has Rakesh.
>On the following three main theoretical grounds:
>1.  Gold is a scarce, privately-owned mineral, and therefore the income of
>the gold industry must contain a component of rent.  In terms of Sraffa's
>theory, this adds an unknown, without adding another equation, so that the
>rate of profit is not uniquely determined by given technical conditions of
>production and the wage rate.
>In terms of Marx's theory, the existence of absolute rent implies that the
>income of the gold industry is determined by the "value" of gold,
>independently of the equalization of the rate of profit in the other
>(n-1) industries, which reduces the number of equations by one, so that
>again the rate of profit is not uniquely determined by given technical
>conditions of production and the wage rate.

Insofar as it is logically possible to imagine a world in which the 
realized level of this rent is zero, this observation doesn't rebut my 
point.  What you assert here is, in effect, that by its nature, the 
production of gold *must* accrue a strictly positive absolute rent.  Of 
course, the fact that gold is "privately owned" is not at issue; all 
commodities and means of production are privately owned under 
capitalism.  "Scarcity" in the sense you intend it here only matters if the 
scarcity constraint is binding at the margin, which is once again a matter 
of historical contingency, not theoretical necessity.  That is, one could 
without contradiction imagine the capitalistic production of gold in which 
the level of rent were in fact zero.  (And not only *can* one, but the 
substance of your next point is that it's *quite plausible* to imagine a 
world in which the scarcity constraint on gold production is non-binding, 
since by your representation the supply of gold in circulation far exceeds 
the level of gold production!)  And in that case, the inconsistency I 
asserted again arises.

But now let me put the shoe on the other foot and accept for the sake of 
argument your suggestion that Marx excluded the gold commodity from his 
analysis for the sorts of reasons you and others have suggested.  Granting 
that the return on gold production has a component of rent does not deny 
that it also has a component of profit.  Therefore a portion of capitalist 
profit is earned in the gold production sector.  Therefore if gold is 
excluded a priori, it is no longer necessarily true *for the production 
sectors that are included* that total profit equals total surplus value, 
since of course profit and surplus value earned in the gold industry may 
not be equated (I'll justify this claim in my response to your point #3 
below).  So the consequence of this exclusion, if accepted, is to rescue 
one of Marx's theoretical claims at the cost of losing another, at least as 
a categorical claim.

>2.  There always remains in existence a very large supply of gold in
>circulation (approximately 20 times the quantity of current gold
>production during the gold standard period), so that changes in current
>gold production have only a very small effect of the rate of profit in the
>gold industry, and thus there does not seem to be any effective mechanism
>through which the rate of profit in the gold industry could be equalized
>to the average rate of profit.

Again, this is an accurate claim about descriptive reality that has no 
necessary relevance for the abstract theoretical considerations raised by 
Marx's discussion in K.III Ch 9 or the prices of production 
framework.  Note that you could make the same sort of claim as above for 
*all* durable consumption goods:  the supply of goods in circulation 
exceeds, often greatly, the amount of current production (consider:  used 
musical instruments; cars; furniture; just about everything sold on e-bay). 
It also would apply to any durable constant capital goods that enjoy a 
secondary market (pickup or delivery trucks, say) Therefore, if this counts 
as a legitimate argument against the inclusion of the money commodity in 
the relevant equation system, then it must also count as an argument 
against including *any* durable consumption or constant capital good in 
Marx's transformation analysis and/or the Sraffian price of production 
equations.  So, are you insisting that Marx (a) committed a logical error 
in his K.III Ch. 9 analysis by not recognizing, as you do above, that the 
continuing existence of previously produced durable goods hinders the 
mechanism for equating the rate of profit across sectors; or (b) Marx 
intended *also* to exclude sectors producing durable goods from his Ch. 9 
analysis, further exacerbating the problem noted above in answer to your 
first point; or (c) Marx's Ch. 9 analysis *abstracts from* the sorts of 
problems you raise above.  If your choice is (a) or (b), then my suggestion 
that Marx's analysis in Ch. 9 is invalid is established on alternative 
grounds.  If your choice is (c), then I may legitimately base my analytical 
scenario on the same abstraction, thus negating the relevance of your point 

But second, it's not at all clear to me why the durability of the gold 
commodity should of itself  hinder the "mechanism
through which the rate of profit in the gold industry could be equalized to 
the average rate of profit."   To begin with,  "changes" in production are 
not at issue in this scenario; rather the question is whether the rate of 
profit in the gold industry would, under conditions of capitalist 
production, be equalized with the rate of return in other sectors, and I 
don't see how this would be affected by the existence of a secondary market 
in gold.  With or without such a market, gold production would presumably 
expand if its rate of profit exceeded that in other sectors, and contract 
if it fell short of that in other sectors.

>3.  In terms of Marx's theory, since gold has no price, it is not possible
>to transform the price of gold from value to price of production, and thus
>it is not possible to transform the surplus-value contained in gold to
>profit as a different magnitude.

I don't see this.  Granting that gold does not itself have a price denies 

(A)  that gold is itself the measure of *monetary* value, so that one can 
derive the profit per unit of gold produced by subtracting from that unit 
the cost, in gold, of the inputs used up in producing that unit (e.g., if 
it costs me 50 cents to produce each unit of gold, then obviously I've 
earned a profit of 50 cents per unit of gold produced),


(B) that gold itself, being a commodity, has a value, as do the constant 
and variable capital expended in producing gold, so that one may derive the 
surplus value contained in a unit of gold as the difference between its 
value and the value of the contant and variable capital used up in 
producing it.

Thus, as I understand it, it *is* possible to determine both profit and 
surplus value associated with gold production, despite the fact that gold 
does not have a price in Marx's sense.  Furthermore, these two quantities 
need not be equal, insofar as the prices of production of input commodities 
need not be equal to their values measured in money, and (even more 
evidently), the value of a unit of gold will not in general equal one.

>  This means that there can be no sharing
>of surplus-value between the gold industry and other industries, which
>implies that the rate of profit in the gold industry and the rate of
>profit in the other (n-1) industries are determined independently of each

Again, in light of my previous response, I don't see how this is so.  And 
even if your first statement here were true, I don't see how the conclusion 
you assert follows, since it would still be the case, other things being 
the same, that capitalist competition would serve to equalize the rate of 
profit across sectors.

>Gil, I look forward to your responses on these theoretical points.
>P.S.  Beyond the points above, there is another even more fundamental
>objection to your argument, that I have not yet discussed and will save
>for a later post - that the initial givens in Marx's theory are not the
>physical quantities of inputs and outputs (as in Sraffa's theory), but are
>instead the money quantities of constant capital and variable capital
>invested in the first phase of the circulation of capital to purchase
>means of production and labor-power.

But I don't see how this constitutes a legitimate (let alone fundamental) 
objection either, for two reasons:  first, if one were to ask how the 
"money quantities" you speak of were determined, the only answer I could 
imagine would be by multiplying physical quantities of constant and 
variable capital inputs by their associated prices--so to *derive* the 
givens you ascribe to Marx's theory from data on production and market 
conditions, you would need to start from the more basic givens in Sraffa's 

Second, the fact that Marx approaches the prices of production in a 
particular way does not *of itself* count as a valid objection to the 
logical coherence of proceeding in Sraffa's way.  Therefore I could in 
principle grant your point about Marx's initial givens without at all 
taking away from the logical force of my claim of inconsistency on the 
basis of the Sraffian system including commodity money.

> > My original intention upon joining the discussion between Gary and Fred 
> was
> > to begin with the scenario of commodity money and then move directly to
> > that involving fiat money.  But in light of discussion prompted by the
> > first scenario, I think it's necessary first to ask Fred about the ground
> > on which he advances (or understands Marx to advance) the theoretical
> > conclusions we're discussing. So I'll wait for Fred before moving on to 
> the
> > case of fiat money.
> >
> > Gil
>I look forward to reading how you will incorporate fiat money into the
>Sraffian system of equations.  It seems to me (and I think to Paul
>C. too) that, in the case of fiat money, the rate of profit is definitely
>not determined by given technical conditions and the real wage (even if
>the case of commodity might remain in dispute).

Yes, I'm looking forward to it too, but I still need to understand your 
position with respect to the questions I posed in the "Moving on..." post. 
Meanwhile, thanks for raising the interesting set of issues addressed above.


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