[OPE-L:745] equal exchange and price of land

Fred Moseley (fmoseley@laneta.apc.org)
Sun, 17 Dec 1995 08:16:27 -0800

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Thanks to Gil for his stimulating posts (739 and 741).

Gil's main points seem to be the following, which I will discuss in turn:

1. exchange is not necessarily transitive.
2. transitive exchange does not necessarily imply equal exchange.
3. equal exchange does not necessarily imply a common property of commodities.
4. an empirical test of the LTV is irrelevant to the assumption of the
exchange of equals, since the LTV does not necessarily follow from
the exchange of equals.


Gil wrote:

Furthermore, absent conditions similar to perfect competition, the
equivalence established by exchange does not even establish
transitivity, as mentioned before: even though q exchanges for x and
x exchanges for y, it does not follow that q exchanges for y. So
even on the weak grounds of transitivity Marx's argument fails in
general. I doubt that by "mutual consistency" Fred or Marx means
"perfectly competitive."

My reply:

According to Marx's method of abstraction, Marx in Chapter 1 is not
analyzing exchange actual, concrete capitalist economies, with market
imprefections, etc. Instead, Marx is analyzing a very abstract view of
exchange in capitalist economies - considering only the fact that each
commodity is in principle exchangble with all other commodities in a
mutually consistent way. Market imperfections in actual capitalist
economics may make exchange not intransitive. But, according to Marx's
method of abstraction, market imprefections affect the distribution of
surplus-value, and the distribution of surplus-value can be analyzed only
after the production of surplus-value (i.e. the determination of the total
amount of surplus-value). Thus, Marx abstracts from market imperfections in
Chapter 1 (i.e. assumes there are none). This is not meant to be a
realistic assumption, but is rather Marx's method of explaining a very
complicated capitalist reality. One cannot explain everything at once.
Instead, Marx explained capitalism in different stages, from the abstract to
the concrete. Marx criticized Ricardo precisely for failing to follow this
method of abstraction and for trying to explain everything at once.
(TSV.II. Chapter 10). Marx explained the effects of market imperfections on
price; he just did not do it at the very beginning of his theory.


Gil wrote:

Transitivity does not imply equality; equality implies transitivity.
Transitivity of relationship R states that if aRb and bRc, then aRc.
It does not follow that a and c are equal, contrary to Fred's claim.

My response:

Really? I always thought that transitivity meant that:
if: A R bB
B R cC
and A R dC

then d = bc.

However, the precise meaning of transitivity is not the crucial issue here.
The crucial issue is whether d=bc. I think that this is what Marx assumed
about mutually consistent exchange. Marx did not simply assume general
exchange, but mutually consistent general exchange, in the above sense.

Mutually consistent exchange in this sense implies equal exchange.


Here the main argument is the price of land.

Gil wrote:

Again, the counter example. Suppose unimproved land where among the
items exchanged. Then according to Fred's "objective" argument,
"mutually consistent" exchange establishes an equality between
unimproved land and, say, x units of boot-polish. But then they must
have some common measurable element, which Marx claims is

Nowhere does Marx show, or say, or even suggest, that
somehow only (mutually consistent) relationships of exchange among
*commodities* "express something equal", while at the same time
(mutually consistent) relationships of exchange among non-commodities
(or a mixed set of commodities and non-commodities) somehow do not
identically "express something equal."

My reply:

I have already explained why Marx abstracted from land and the price of land
in his analysis in Chapter 1. The price of land is explained as capitalized
rent, and rent is explained as one aspect of the distribution of
surplus-value, which Marx analyzed subsequent to the production of

To repeat, Marx's analysis of the commodity in Chapter 1 is very abstract.
>From this abstract perspective, the equality of commodities seems to require
a common unit of measure. Equality as a general mathematical relation
requires a common unit of measure. At this abstract level of analysis,
there is no other way to explain the equality of commodities. Furthermore,
according to Marx's objective method, the common unit of measure which
determines the equality of commodities can only be a common property of

Later on, it turns out that in actual capitalist economies, the equality of
commodities does not require a common property - land has a price and is
exchange as equals with other commodities. But Marx explained the price of
land in a way consistent with the LTV, and his method of abstraction.
Contrary to Gil's claim, Marx did explain why and how the equal exchange of
land, distinct from the exchange of products of labror, does not require a
common property.

The price of land does not invalidate Marx's argument in Chapter 1 because
this argument does not apply to real concrete capitalist economies, with all
their specific characteristics, including the price of land, but instead
applies only to a very abstract view of capitalist economies - the fact that
its products are exchanged in a systematic, mutually consistent way.


Gil wrote:

This sounds suspiciously like Milton Friedman's methodological dictum
that the appropriate defense of unrealistic neoclassical assumptions
is in the empirical success of the hypotheses derived from them, but
it doesn't really matter: since one can *assume* that values are in
some sense the basis of exchange value *whether or not* exchange
establishes relations of equality, the test Fred proposes is *necessarily

Fred is wrong to suggest that we can "test" the assumption
of exchange of equals by checking the explanatory power of the
conclusion drawn from this assumption. But this is clearly not the
case; if one derives a true conclusion based on an invalid deduction
from a given premise, one cannot "test" the premise by showing the
explanatory power of the true conclusion invalidly reached.

My response:

As I have said before, I think the main test of Marx's LTV is its empirical
explanatory power, not the logical arguments in Chapter 1. Marx said the
same thing in the letter I quoted before ("all that palavar about the
necessity of proving the law of value in Chapter 1 ..."). At most, the
logical argument proves that the LTV necessarily follows from mutually
consistent or equal exchange. In this argument is valid, then an empirical
test of the LTV is also an empirical test of the assumption of equal
exchange. But even if this argument is not valid, and the LTV did not
necessary follow from equal exchange, as Gil claims, Marx's theory of
surplus-value would be still based on the two assumptions of equal exchange
and the LTV, even if the latter does not necessary from the former:
The transformation of money into capital has to be developed on the basis
of the immanent laws of the exchange of commodities, in such a way that
the starting point is the EXCHANGE OF EQUIVALENTS.
(C.I. 268; emphasis added)
Therefore, an empirical text of Marx's theory would still be an empirical
test of the exchange of equivalents (or exchange of equals, in Gil's sense).
But I don't consider this point very important. The main point is the
validity of the labor theory of value, which has been the most controversial
issue in the history of economics.

The empirical test I am suggesting is different from Friedman's empirical
test of "predictive power." My test (and I think Marx's ) is based not just
of making predictions, but on providing causal explanations of the important
phenomena of capitalism, and especially on explaining the necessary
connections between these important phenomena.

Fred Moseley