Re: [OPE-L] monetary macro interpretation

From: Fred Moseley (fmoseley@MTHOLYOKE.EDU)
Date: Thu May 25 2006 - 10:51:25 EDT

On Fri, 19 May 2006, Rakesh Bhandari wrote:

> Fred, I found this description of Lexis' interpretation on the web.
> Don't know whether it's an accurate summary of Lexis. But how does
> the idea below relate to your interpretation. It seems more macro
> than yours? There is a movement from an irreducibly macro level to
> the micro level. Seems intriguing to me.
> Rakesh
> from
> Lexis' idea is that the concepts of surplus-value and rate of
> exploitation be applied to the working class as a whole. There is
> then no difference in the organic composition of capital to worry
> about -- the organic composition of capital to use in the computation
> is the composition for the entire capitalist economic system. That
> determines the rate of profit, which then determines the "values in
> exchange."

Hi Rakesh,

Thanks for this interesting link.

Who is Wilhelm Lexis?  A late 19th century statistician?
Like Bortkiewicz?!
What did he write on Marx?
And who is "William King" that is writing about Lexis?

A few comments:

1.  Lexis is right that Marx's main goal was to explain exploitation, and
to explain exploitation as a class phenomenon; i.e. the main question of
Marx's theory is the determination of the total surplus-value produced by
the working class as a whole for the capitalist class as a whole, and the
rate of exploitation for the working class as a whole.

Lexis is also right that Marx's logical method was to use these macro
variables (the total surplus-value and the class rate of exploitation)
that are determined in Volume 1 to explain the general rate of profit and
the micro variables of prices of production in Volume 3.

In other words, Lexis got the "macro" part of Marx's method right.
(Rakesh, why do you say that Lexis seems "more macro" than me?)

2.  But then King goes wrong, and in the usual direction, and argues that
it is not possible to do what Marx wanted to do - derive micro prices from
the macro total surplus-value, because the macro total surplus-value also
depends on the micro prices of the wage goods.  Therefore, the macro total
surplus-value and the micro prices have to be determined simultaneously,
not sequentially as Marx attempted.  It is not clear whether or not this
is also Lexis' view.  This is pretty much the standard view of Marx's
theory these days, as you know, although some would deny that Marx even
attempted to determine the macro variables prior to the micro variables.

3.  But King is mistaken.  It is not necessary to determine the macro
surplus-value and the micro prices simultaneously.

The analytical framework of Marx's theory is the circulation of capital:

        M - C  P  C' - M'       M' =  M + dM

I argue that, in Marx's theory of the total surplus-value, the initial M
is TAKEN AS GIVEN, as the quantities of money capital advanced to purchase
means of production and labor-power in the first phase of the circulation
of capital, prior to production.  (This initial M that is taken as given
is eventually explained at a later stage of the theory; see below).

This initial M consists of two components, constant capital and variable
capital; i.e. M = C + V.  These two components of the initial M, that are
taken as given, become determinants of the total price (P) and the total
surplus-value (S), along with the total current labor of the working class
(Lc) and the MELT (m), as follows:

        P  =  C  +  N  =  C  + m Lc

        S  =  N  -  V  =  m Lc  -  m Ln         (where Ln = V / m)

                        =  m (Ls)

Then in Volume 3, the total surplus-value is used to determine the general
rate of profit and prices of production, as follows.

        R  =  S / (C + V)

        PPi  =  (Ci + Vi) (1 + R)

The initial C and V, that are taken as given to begin with, are equal to
the prices of production of the means of production and means of
subsistence.  After prices of production have been explained in Volume 3,
then the initial C and V can also be explained.  This method of first
taking the initial C and V as given, and then explaining them later, on
the basis of previously derived results, could be described in Hegelian
terms as "posit the presuppositions".

Therefore, King and the usual Sraffian interpretation of Marx's theory are
wrong.  It is possible to determine the macro total surplus-value before
the micro prices, and then to use the total surplus-value to determine the
rate of profit and micro prices.

4.  It is reasonable and legitimate to take the initial C and V as given,
for the following reasons:

a.  The initial C and V have already been advanced, prior to production,
and therefore already exists, prior to production.

b.  The initial C and V are in principle observable, as equal to the
long-run average prices of the means of production and means of

c.  The above  equations are valid, no matter what determines C and V.  No
matter what determines C, P = C + mLc.  And no matter what determines V,
S = mLc - V.  C and V do not have to be determined at this stage of the
theory, but can be determined later.

d.  The total surplus-value is explained by this method, the actual total
surplus-value in the real capitalist economy, and that is the main purpose
of the theory (not to explain micro prices).

e.  C and V are also eventually explained, after prices of production are

Furthermore, the alternative Sraffian method of taking the physical
quantities of inputs and outputs as the basic givens, and using these
physical quantities to simultaneously determine the rate of profit and
individual prices is EXTREMELY PROBLEMATIC:

a.  It assumes that means of production and labor-power enter capitalist
production as mere physical quantities without prices, rather than as
commodities with already existing prices.

b.   It assumes that all industries have exactly the same turnover period.

And it assumes that, at the beginning of the identical period, all
industries start out with physical inputs, then the physical inputs move
through the production process together, and then all the outputs are
completed at the same time, and finally (and most importantly) all outputs
are SOLD AT THE SAME TIME.  (Sraffa called this method the "annual
harvest".)  This assumption is not a simplifying assumption that could be
later relaxed, but is a necessary assumption that is required by the
method of simultaneous determination.  If prices are determined
simultaneously, then they must be sold at the same time.  Sraffa's
question is:  how can exchange of all goods take place at the end of the
period (after the "harvest"), so that the initial physical quantities are
exactly reproduced, and the same processes can start all over again the
next period.

c.  It assumes that the partially used elements of fixed capital (used
machines, buildings, etc.) are "joint products", that are treated as if
they are bought and sold at the end of every period, along with the
regular outputs.

d.  It provides no theory of money.

I could go on, but that is enough for now.

Rakesh, I hope you are still intrigued.  Any further thoughts?


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