[OPE-L:105] Re: the "law of value" (was: Marx's goals)

James Devine (JDevine@lmumail.lmu.edu)
Thu, 21 Sep 1995 17:38:47 -0700

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Gil writes: >>What I "see" has nothing to do with it;*Marx* sees
the law of value as a claim that labor values regulate prices, and
corroborates this vision repeatedly throughout Volume I and in
places in the Grundrisse, the Contribution to the Critique, Volume
III, etc). <<

In addition to Paul's points, it is important to realize that
there are more ways in which prices can "regulate" prices than the
standard "transformation problem" way (i.e., that there's some
mathematical formula which can be used to calculate a given price
of production from values which are presumed to exist independent
of prices).

A very common meaning of the word "regulate" comes at things in a
different way, i.e., that prices and values are related at the
macro-societal level. (One mainstream thinker with this view is
William Baumol; see also my article in RESEARCH IN POLITICAL
ECONOMY 1990.) In this perspective, often stated as one of Marx's
so-called "invariance conditions" (not a term Marx used), total
value = total price (where both are stated in the same units and
both are added up in a way that avoids double-counting). (Also,
total surplus-value = total property income (profits, interest,
rent, etc.)) As a society, capitalism hires wage-labor to produce
value and surplus-value. Once realized, these limit the amount of
value and surplus-value that can be distributed to individuals: in
terms of commodities rather than values, one can't receive real
income unless _someone_ produces products corresponding to it.
(BTW, this is definitely a non-tautological proposition.)

In this perspective, we can reconsider the price of a commodity
that has no value, a case which at first seems to reinforce the
orthodox Marx-critic's attack on Marx's law of value. Marx
mentions such things as unimproved ("virgin") land, the activity
of lending money, and conscience as having prices but no value.
But how can such a commodity have a price if it has no value?

The fact is a commodity owner may not actually have contributed to
the flow of value but can nonetheless lay claim to part of
society's value. As Mike L. points out, the appearance of
everything is reversed when the role competition is introduced. A
money-lender (e.g.) can claim a fraction of society's value that
was produced by someone else -- because loanable money-capital is
scarce (usually). But it is (productive) labor that actually
produces the value. After the value has been produced, it is
redistributed to the money-lender or the owner of unimproved land
or the seller of conscience.

The owner of the commodity with no value is one of those folks who
can benefit from individual appropriation of value and
surplus-value without directly contributing to the socialized
production of value and surplus-value. The fact that the
zero-value commodity has a price is just as much part of Marx's
value theory as is the fact that some commodities' prices are
highly correlated with their values: it is part of the
contradiction between individualized appropriation and socialized

>> And ... Marx doesn't simply make this abstraction [price
proportional to value] for convenience; at the end of ... Chapter
5 he *insists* that one must be able to account for surplus value
on the basis that commodity prices and values are proportional.
That's invalid: price-value equivalence is neither necessary nor
particularly relevant to a world in which profit (and therefore
exploitation) exists. <<

(1) What Marx _insists_ on at the end of K1 ch. 5 is that "the
formation of capital [i.e. the creation of surplus-value] must
be possible even though the price and the value of a commodity
be the same, for it cannot be explained by referring to any
divergence between price and value." (n. 24 of Vintage/Penguin

The reason why he _insists_ on assuming that price is
proportional to value in K1 and K2 is that if it isn't then one
is simply talking about _redistribution_ of value, as when the
money-lender grabs a fraction of the value without contributing
value. If one doesn't separate out the redistributions, one has
a harder time dealing with the actual production of value and
especially surplus-value (which allows the money-lender to earn
interest). It's Marx's way of avoiding the fallacy of
composition: he abstracts from the price/value deviations to get
an idea of what's happening on the societal level and to not get
bogged down in the microeconomic and fetishized perspective of
the participants of the system and most economists. It sure
looks _to the money-lender, the seller of virgin land, the
seller of conscience, and the neoclassical economist_ as if
they're "producing property income." But says Marx, they
couldn't appropriate any of that property income at all if it
weren't for the capitalist hiring and exploiting wage-labor,
regulated by the reserve army of the unemployed.

In most of K1, by assuming individual prices are proportional to
values, Marx deals with capital as if it were a "representative
firm," with capital in general exploiting labor in general,
abstracting from the particular characteristics of both capital
and labor. In K3, he deals with the obvious limitations of this
abstraction. There not only a more complete conception of
competition but the differences amongst capitalists are
introduced. Once he's figured out where surplus-value comes
from, he can deal with its distribution and redistribution,
together with price/value deviations.

Actually, Marx seems pretty favorable in this note to the idea
of using prices of production rather than values in his effort
to ferret out the etiology of surplus-value, as when he says "he
would formulate the problem of the formation of capital as
follows: How can we account for the origin of capital on the
assumption of that prices are regulated by the average price,"
i.e., the price of production? I for one am glad that Marx
didn't use this formulation, since is dealing with the ideal
equilibrium state of equalized profit rates (one that seems
extremely unlikely to me). Values are not necessarily
equilibrium phenomena.

(2) Gil writes that Price/value proportionality is >> invalid:
price-value equivalence is neither necessary nor particularly
relevant to a world in which profit (and therefore exploitation)
exists. <<

Marx is also very clear in the same note that "average prices
[prices of production] do not directly coincide with the values
of commodities." However, price/value proportionality is a
_useful abstraction_, since it reveals the societal nature of
captital and its exploitation of wage-labor. Sure, once the rate
of surplus-value is positive (profit exists), prices of
production will differ from values (unless, as is extremely
unlikely, all capitalists have the same organic composition of
capital). But in order to understand why prices of production
differ from values, one has to first understand why
surplus-value exists. It cannot be simply assumed the way
neoclassicals do (as with their silly aggregate production
function). The job of understanding why surplus-value exists is
facilitated by Marx's assumption of price/value proportionality.

Gil's last comment seems to be a criticism of all abstraction.
Marx was not one of these empiricists who insisted that we stay
rooted in the realm of surface appearances (even though he was
clearly interested in understanding those appearances). In fact,
I don't know of _any_ economists who is totally opposed to
abstraction. Suppose that von Neumann or Morgenstern had gone to
a police station to observe the interrogation of two prisoners
accused of some crime. I doubt that either one of them would
have developed the idea of the "prisoner's dilemma game" if they
had refused to make abstractions or assumptions that at first
blush seemed "neither necessary nor particularly relevant to
[the real, emprirical] world." No, they abstracted from the
particularities of the prisoners, the police, the crime, in
order to divine what might be termed "the abstract prisoner's

in ope-l solidarity,

Jim Devine jdevine@lmumail.lmu.edu
Econ. Dept., Loyola Marymount Univ., Los Angeles, CA 90045-2699 USA
310/338-2948 (daytime, during workweek); FAX: 310/338-1950
"Segui il tuo corso, e lascia dir le genti." (Go your own way
and let people talk.) -- K. Marx, paraphrasing Dante A.

Gil Skillman