[OPE-L:801] OPE-L 793: NonEquilibrium values and prices

Alan Freeman (100042.617@compuserve.com)
Wed, 17 Jan 1996 18:09:05 -0800

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Duncan Foley writes [OPE-L:793 Re: Non-equilibrium values, dated Tue,
16 Jan 1996 09:56:45 -0500]:


For what it's worth, Gerard Dumenil and my proposal to calculate the
value of money (or its inverse, the monetary expression of value) as
the ratio of realized value added to productive labor time was an
attempt to address precisely this question, since it does not make any
assumption about the forces determining relative prices.


I think it's worth a lot.

I think two streams in value theory are coming together and believe
that a complete recuperation of Marx's theory, on a sufficiently
rigorous basis to permit genuine extensions, requires their synthesis.
I am concerned that each stream seems unable to recognise the other's
contribution. I can find no good reason this recognition is not

This is why I think the present exchange is as important as it is

This is also one of the reasons I am concerned that an emphasis on
seeking errors and gaps may mislead us; we need an approach which,
without avoiding difference where it exists, consciously seeks out the
positive elements of each contribution rather than its faults.

I think Marx's historical-critical method provides such an approach,
particularly if we judge theoretical contributions (including our own)
historically, by asking not just if they are wrong or right but where
they fit in the evolution of thought. Therefore I want to try and
identify what I find positive in Duncan and Gerard's proposal and from
this standpoint explore any differences which may (or may not) exist,
hopefully illustrating what I mean by the historical-critical

The streams now coming together, I hope and wish, are:

Stream 1 (non-dualism)


One must fully theorise both value and price at the Volume I level of
abstraction, that is, in terms of capital in general. Negatively put,
it is not essential to theorise that goods exchange at their value, in
order to have a theory of value. Negatively put another way, it is not
necessary, and actually leads to error, to try and pass through the
category of price of production in order to arrive at the category of
market price.

This clearly posits a theory of money in which the value of money can
and does differ from the labour socially necessary to produce the
money commodity.

A logical completion is to recognise that the portion of the value-
product appropriated by the worker (variable capital, V) is equal to
the price of wage-goods, not their value: to put this precisely, V is
equal to the value of the money used to pay the wage. If I have not
misunderstood, this step is an essential part of the proposal of
Duncan and Gerard.

For me an equally vital parallel step is to recognise that the value
transferred to the product by the means of production (constant
capital, C) is equal to the price of these means of production, not
their value: to put it precisely, the value they transfer to the
product is equal to the value of the money used to purchase them, or
the value they represent in exchange rather than the value with which
they emerge from production, exactly analogously to V. If I have not
misunderstood, this is not accepted by Gerard. I don't know if this is
Duncan's view. I'm pretty sure it is not accepted by Simon, Hans or

Therefore as far as I can see the work of Duncan and Gerard was a
crucial breakthrough. First because it is impossible to express these
ideas without a concept of the value of money; second because the idea
that the value of variable capital is represented by the money wage
drew the attention of the marxist world to the possibility that the
value of a purchase might be better represented by its money-cost than
its embodied value.

However I think there is a conflict between the view that the value of
variable capital is the price of its elements, and the assertion that
the value of constant capital is the value of its elements. It seems
simpler, more consistent and more fruitful to say there is a general
result: the value transmitted to the recipient of any bundle of goods
obtained on the market, be it capitalist or worker, is the value she
or he parts with to obtain it. On the basis of Okham's razor, if no
other. In a money economy this is in every case equal to the value of
the money which represents the price of these goods.

Once one makes this step, everything else falls into place.

It would be out of place not to note that one of the first statements
of this general view was made by Wolff, Roberts and Callari.

Not being American, I don't really understand why their contribution
is not more widely recognised. There seems to be some problem with a
thing called the Amherst School. I don't know nothing about no Amherst
School. I wasn't there. And I swear on the MEGA I'm not a Post-
Modernist. I just think these guys said one right thing, and when
someone says one right thing it should be recognised no matter how
many wrong things they say. This was Marx's method.

Stream 2 (Sequentialism)


Stream 2 is the idea that we have to conceive of the formation of
values and prices not as the endless repetition of the same circuit of
reproduction with the same coefficients, but as a series of periods
with technical coefficients - and the value of money - changing from
one period to the next.

The logical completion of this is perhaps still ahead of us. But one
necessary development is already clear and accepted by a growing body
of people: the prices and values of inputs to the period [t, t+1] must
be equal to the prices and values of outputs from the preceding
period, namely [t-1, t] and not - as the simultaneous approach demands
- the outputs from the same period, namely [t, t+1].

This seems so obvious that I am constantly astonished at having to
defend it, especially since I have never heard, from any of its
opponents, a coherently-argued refutation; I conclude that this idea
conflicts both with entrenched belief-systems and, sadly, with
material interest. I have no other explanation for the scale of
opposition. This conclusion in no small measure accounts for the tone
of my polemics, but I intend to stick with it until I hear that
coherently-argued refutation. And it's been a long time coming.

Though I realise he does not accept the conclusions I draw, I think
the 'iterative' solution to the transformation problem proposed by
Anwar was a vital step in the development of this stream of thought -
it was certainly the decisive influence on me - but I believe that in
order to complete this evolution it is necessary to break altogether
with the use of simultaneous equations, because these necessarily
imply that the prices and values of inputs at time t must also be
equal to prices and values of outputs at time t: what John calls
'simultaneous valuation'.

In this sense the difficulty may be greater than Duncan suggests: the
problem is that simultaneous valuation is not treated in the
literature as it should be and as Duncan proposes, merely as the
limiting case of a difference equation; it is treated as the
epistemological foundation of value and price. This is justified by an
argument which I consider wrong, but which it may be helpful to
discuss: that Marx considered the value transmitted to the product to
be its 'replacement' cost rather than its historical cost.

What then goes wrong is that, in discussing sequential formulations,
authors systematically use a concept of value derived from a
simultaneous equation system, in order to criticise or understand
concepts of price expressed in a sequential system. This, I think, is
wholly illegitimate and leads to great confusion. It is also extremely
irritating. *Both* price *and* value must be expressed sequentially;
the difference between them is then exceedingly simple: price is the
quantity of value which a commodity represents at one point on the
circuit, and value is the quantity of value which the same commodity
represents at another point on the circuit. The difference is one of
time, that is, position in the circuit of reproduction. Countless
citations from Marx support this interpretation.

One of the difficulties I have with the proposal of Duncan and Gerard
is that in many versions it rests on a simultaneous derivation of
value, even when combined with a sequential derivation of price: I
think more in Gerard's version than Duncan's; but also in the versions
I have seen from Simon, Hans and Mark.

I think that John Ernst's work was a decisive breakthrough on this
front and I am just as saddened and surprised that his work has
received so little attention, as that the work of Roberts, Wolff and
Callari received the same general lack of serious treatment. John
seems to me one of the first to clearly state that simultaneous
valuation does irreparable damage to Marx.

If it is possible to reach agreement on the following simple
propositions I think enormous progress can be made:

1. The appropriate general mathematical instrument for formalising
Marx's theory is the difference or differential equation, of which the
simultaneous equation is only a special case. In particular, this
special case excludes technical change or variations in price.

2. The values and prices of outputs in period [t-1, t] are the values
and prices of inputs in period [t, t+1]

3. The share of constant capital in the value of the gross product is
equal to the value of the money paid for its elements.

4. The share of variable capital in the value of the gross product is
equal to the value of the money paid for its elements.

5. Surplus value is what remains after the value of constant and
variable capital purchased at time t, have been deducted from the
value of the gross product at time t+1 (that is, constant capital plus
living labour less variable capital)

I would add a point 6 which may be more controversial:

6. The special case of simultaneous valuation has been adequately
studied and failure to go beyond it, at this point in the evolution of
political economy, has become an obstacle to progress.

Reduced to its barest essentials, I think this is all that Andrew,
Mino, Paolo Giussani and myself are saying. (though I speak for myself
and I don't know if Andrew, Mino or Paolo would agree with this

[Note also: I am trying to get published a work by a French author
writing as Manuel Perez who I think put forward such a synthesis in
1980; but it is scarcely known in Anglophone world]

When points 1-5 are accepted, the real problems begin. By this I do
not mean that the solution is worse than the problem. I mean one
encounters a range of genuinely fundamental problems, the solution to
which genuinely 'extends' political economy.

1. What actually is the value of money? Once technical change is
introduced, two different magnitudes emerge: one may calculate a
quantity we might call the stock-measure of the value of money, the
ratio between the labour-time expression of the value of all
commodities in circulation and the money-expression of the same
collection of goods. This is only the same as what Duncan calls the
value of money, and which we might term the flow-measure of the value
of money, if there is no technical change and no inflation. It is
typical of many such distinctions that they can only be made in a
general, dynamic formalisation of the type Duncan suggests in [OPE
787] - a sure indication that such formalisations are richer and more

2. What is the relation between individual and social value? If there
is more than one producer of the same good, each with different
productivities, one receives a superprofit. I believe, following
Mandel, that the real driving force of capital movement is not the
equalisation of the profit rate but the pursuit of this surplus
profit. The tendency to equalisation is a side-effect of this
movement. Again, this is a dynamic feature which does not appear in
equlibrium systems because, in equilibrium, there cannot be two
producers of the same thing. If followed through, this idea produces
many new and complex phenomena.

3. How does one theorise depreciation and the valuation of stocks?
John's concern is I think completely justified. I suspect it will not
receive an adequate treatment until points 1-4 above are cleared up.
Again it gives rise to purely dynamic concepts such as the release and
tie-up of constant capital. One obvious point emerges: we cannot
assume that supply equalises to demand in each period, and we must
properly account for unconsumed output with exact equations relating
stocks to flows. (K'=I, etc)

4. What is the role of supply and demand in the formation (not the
determination) of value? Makoto's presentation in 'Value and Crisis'
of the discussion on this question in Japanese Marxism, and Dave
Kristiansen and Paolo Giussani's recent treatments, indicate for me
that this is a profound issue that needs to be re-opened.

5. related to (4): what actually is socially-necessary labour time? In
simultaneous presentations it appears as the labour time that would be
necessary, if all of society were reorganised to reflect the most
modern technology available. But in a dynamic formalisation one must
recognise that, in order to bring about such a reorganisation, the
necessary means of production must first be themselves produced, by
which time new techniques will have emerged. This ideal state of
society thus never arrives and, moreover, it is not comprehensible why
the extra labour required to reorganise society should be excluded
from socially necessary labour time. If I want to make linen and
possess only a handloom, how can it be that the labour-time needed to
make the linen is only equal to the time it would take me on a
powerloom I do not have, and does not include the labour required to
produce this powerloom? A different (and much simpler) interpretation
suggests itself: socially necessary labour time is the labour time
necessary with the existing distribution of technology.

6. and for me one of the most problematic: how does one rigorously
pass from a difference equation to a differential equation
formulation? From the discrete to the continuous case? To put it
another way, how long is a period of reproduction?

The resistance to the simple propositions 1-5 is, it seems to me, the
main obstacle to confronting questions such as 1-6. I was completely
taken aback by the scope of this resistance when I first met it;
particularly the resistance by members of each stream, to the ideas of
the other stream. The fusion of the two is so clearly necessary to the
success of each. A bizarre self-limiting ordinance is in operation.
Duncan's observations on the successful working methods of the
neoclassicals may perhaps be inappropriate if a new synthesis is
called for.

This resistance to synthesis led me to enquire into many things I did
not previously find it necessary to enquire into, not least its
material and psychic roots. For now let me just say that it is
probably symptomatic of a period of a revolution in thought, a
complete paradigm shift, that such resistance is encountered. This is
another indication that the gains to be made are substantial.

But I certainly think that the road to a synthesis passes through a
country which Duncan and Gerard explored long before there were many
travellers in it.


PS Is this a digression? We are after all discussing value so we seem
to be in the right place for it.