[OPE-L] The roots of value theory

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Thu Mar 01 2007 - 14:29:50 EST

Hi Diego,

You are correct I think, Marx distinguishes the method of inquiry from the
method of presentation, and the order of presentation and the real order of
a phenomenon. This was emphasized among others also by Ronald Meek,
Jindrich Zeleny and Johan Witt-Hansen.

For example, Marx claims that the process of competition as it observably
appears "inverts" the real process or real sequence that is happening, and
thus he himself describes the processes of the production and distribution
of product values in a way which is often the opposite of the observable
process, just as e.g. the sun seems to turn around the earth, but in reality
it's vice versa.

The reason is, that in reality product-values are produced, before it is
certain exactly how much of that value will be realised from sales, yet the
total value produced delimits how much value can be realised in an interval
of time; this is a dynamic reality, which causes Marx to combine price data
and value data in one equation, in an attempt to illustrate how the
distribution of surplus-value will occur in the pure or simplest cases. But
that gives rise to a lot of protests from economists, as we know. What
businesspeople do, after all, is to deduct costs from sales-revenue to
obtain profit, once sales have occurred. What Marx does is to say, assume
that the total volume of profit that can possibly be distributed during an
interval is already given (since X amount of value has been produced), then
how will it be distributed, if you also know that capital compositions will
vary? What does it mean for the trend of business development?

This is one of the big problems with Marx's exposition, i.e. he tries to
abstract out the purest forms of the overall process (e.g. the general
results to which the process of competition will tend) or an "ideal average"
situation, and then the question arises how and to what extent that applies
in empirical reality, or to what extent it is logically sound. Indeed Leszek
Nowak has devoted a number of volumes inspired by Marx to exploring the
"structure of idealization". The problem is compounded 1) by the fact that
Marx never finished his manuscripts for Cap. Vol. 2 & 3 for publication,
including the order in which they should be presented and 2) that he is
rather messily discursive in his discussion.

Market competition (however imperfect) will tend to result, on average, in
profits proportional to capital size (if that wasn't the case at least
tendentially, trading would very likely stop) and the theoretical assumption
of a uniform profit rate is merely the simplest "pure case" describing the
ideal result of "perfect" market competition and "perfect" sales in this
sense. In reality there is no uniform rate of profit of course, goods remain
unsold etc. it's only an assumption used to illustrate the distribution of
surplus-value. What is important however for Marx is not so much the
distribution itself, but the consequences it has for business behaviour,
i.e. the attempt to crank up productivity and efficiency by every means
possible, and increase sales as much as possible, in order to capture the
maximum possible share of surplus-value produced. This in turn has further
consequences for the "economic logic" of capitalism, as we know.

Logically speaking, we can talk both about real prices approximating an
ideal price, or an ideal price approximating real prices. That is just a
quantitative operation, I don't see any problem with that, the question is
only what the status of the ideal price (or theoretical price level) is.
What I've mooted is, that I think Marx argues that values and value
relations really exist, as an objective fact, inasmuch as they express
quantities of labour-time really worked to produce products. This "value" is
not an ideal price such as we might compute, and is distinct from it.

His argument seems to be both (1) that you have to explain the simplest,
purest cases or you haven't explained it at all, (2) that the purest cases
describe an economic movement which the empirical trends will tend to
approximate in the long run. Thus, there is an ambiguity about "ideal
prices" - they are theoretical, sure, but Marx feels they can express the
real longrun outcome or tendency anyway. What is a "regulating
price"? It is a price-level above or below which people will be much
less likely to trade. But obviously this regulating price does not
presuppose equilibrium at all.

Presumably if we say the "ideal price approximates real prices", we are
saying that e.g. the averaged unit-price of the total output of a sector
(arrived at according to some method of calculation) is similar to the
observable distribution of actual unit-prices of the relevant products, or,
that the observable trend of price movements conforms rather well to the
ideal pattern we would predict from movements in certain critical variables.
In statistical theory, the analysis of variance provides some concepts for
the quantitative description of this, e.g. the heteroskedasticity or
homoskedasticity of a distribution.

What IS problematic is if we start to think an ideal price is the same as a
real price or vice versa. Just as Hegel fell into the illusion of objective
idealism, we can also fall into the illusion of believing that our model of
prices is more real, that the prices it seeks to depict. Concepts and
language are fine, so long as we do not confuse them with what
they try to represent.

Value and value relations cannot be measured directly, they can only be
measured as quantities of labour-time, money-prices (real or ideal), or
trading-ratios between products (x quantity of products A = y quantity of
products B). Consequently Marx's value and value relations are useless in
ordinary accounting practice. Yet value theory is essential and presupposed
(1) not only to be able to group, relate and aggregate those things that you
can measure, but also (2) to explain the relative movements and mutual
adjustments in labour-time, money-prices and trading ratios across an
interval of time.

What Marx often does, especially in his drafts, is simply to assign a number
to express a quantity of value. This causes a lot of confusion, precisely
because strictly speaking you cannot do that; as I just said, "value" in
Marx's own theory can in reality only be (observably) expressed and measured
in the three ways I mention. He resorts to this abstract quantitative
procedure only to illustrate theoretically what he thinks the important
proportions and relationships are. If this is understood, there is nothing
particularly wrong with it; conventional economists constantly try to relate
real prices and ideal prices anyway (and not infrequently confuse them). As
I have also said, it is absolutely impossible to "prove a concept of value
is correct", it remains an interpretation. It can be "proved" only in the
sense of its predictive, explanatory or heuristic power.

I know that Marx tries to prove logically that human labor-time is the
"common substance" of commodities, as the basis of economic exchange. But,
critics point out, it could just as well be argued that what commodities
have in common and makes them commensurable is e.g. that they have a price
(real or notional), and that these prices are, precisely, what makes
commodities comparable. Thus, this "logical proof" by Marx fails absolutely,
especially since he does not discuss the "price-form" in detail. From there,
it is obviously only a simple step to say that what makes commodities
commensurable in trade is simply that "people subjectively value them" or
simply that "they want them", so all that is presupposed in trade is that
people want the traded objects.

One might well ask, how can "value" be transformed into "price" at all, if a
commodity by definition already has a value and a price (real or notional)?
To understand this, one needs to recognise the process whereby products move
into markets and are withdrawn from markets. Outside the market, not being
offered for sale or being sold, commodities have at best a potential or
hypothetical price (an ideal price). But for Marx, actual prices are formed
and regulated according to pre-existing product-values which are socially
established prior to their exchange, by quantities of social labour, and
moreover product-values are conserved through successive exchanges.

Assuming this is so, then logically those product-values also have to exist
quite independently of exchange and prices. What proof is there of their
existence then, if we cannot measure them directly? Well, we could try
running a survey in which we ask people questions of the type
"hypothetically do you think people would barter a car they own for a bunch
of carrots (even if your fridge is full)?". You would find that people know
very well, as a matter of social fact, the rough proportions in which things
will trade most times, and that some trading proposals will never succeed,
because some objects have a greater value than others, regardless of what
one might wish.

Marx sought to theorise the transformation of commodity values into prices
of production within capitalism dialectically, as a "moving contradiction":
namely, in capitalism, the value of a commodity output produced encompassed
both the equivalent of the cost of the used inputs which were initially
bought to produce it, taken as a given datum, as well as a gross profit
component (surplus value) which became definite and manifest only after the
commodity has been sold and paid for, and after costs were deducted from
sales. I agree this raises important problems for quantitative modelling -
in reality, everything is flux - but I am not really so concerned with that,
I will gladly leave it for the most part to those people who have more
competence in it. All I am interested in is to get clear about the concepts,
and then try to figure out what the implications are for real market
behaviour in capitalism as a social system.

Best regards


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