[OPE-L:1112] A Last Vast Blast (1 of 7)

Alan Freeman (100042.617@compuserve.com)
Mon, 19 Feb 1996 04:53:12 -0800

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Apologies for the delay in responding. The next few posts
attempt to reply to a very useful discussion. They aren't
meant to have the last word, but for a month I'll be in lurk
mode, so no offence if I can't reply. I'll try to rise to
mail-byte mode from time to time.

The most active debate has been with Gil. But the substantive
issue, whether capital is the labour embodied in goods, or the
labour represented by the money that buys them, is broader.

My view is that given Marx's view on money, Gil has no
quarrel with him; or to put it another way, his real quarrel
is with Marx's concept of money. But I can't expect this to
be accepted just by stating it, so I'll try to establish the
connection this and his 'logical error' criticisms - showing
also why the numbers come out different.

Even if listmembers find the argument unpalatable, I hope
they study the numbers. The content of the remaining posts is
listed at the end of this one.

Sorry also that this post doesn't deal with anything after
10/02/96, because I'm still catching up.

A Thought-Experiment

The story goes that in the middle of a complex proof, the
mathematician G. H. Hardy wrote down the words 'reason:
obvious'. He then turned and asked his class 'is it
obvious?' No answer came. He retired for three hours and
then returned.

'Yes,' he said, 'it is obvious'. And carried on where he had
left off.

This is a risk with discussions between paradigms. Once
people start conjugating as follows:

I state the obvious
You fail to understand
He assumes what has to be proved

then either someone is wrong, or everyone is right but the
same words are being used for different questions.

The reasons for some current frustrations lie, I think,
somewhere between these extremes. Certainly things which to
me are obvious, appear to Gil as false or tautological, and
vice versa. The only way to get into anyone's debate appears
to be to suspend disbelief in their premises. How can we
escape a dialogue of the deaf in such circumstances?

One way to compare incompatible concepts is to apply them to
the same data.

If reality is complex, this becomes hard. In the honourable
tradition of Einstein I offer a Thought Experiment: a
simplified numerical example representing a reasonable
abstraction from reality. I will interpret the numbers and
pose the questions which the debate provokes for me - with
no claim they are also anyone else's questions. In the
process I will try and respond to criticisms.

Others can point their own questions at the same data. They
can supply their own numbers or extra numbers, re-interpret
mine any way they choose, introduce any other matter or use
any figures to explain anything.

Only two restrictive rules:

(1)participants should offer at least some explanation of
all the numbers offered, not just their own.

(2)numbers cannot be dissolved into equations. Equations
are allowed, but at the end of the day, precise concepts
must be attached to precise numbers.

The Experiment

Throughout '$' means 'pounds'.

On midnight at the end of 1st January 1990, the capitalists
possess means of consumption (MC) produced in 1989 which
were both sold and bought for a total of $400bn, and means
of production (MP) similarly acquired for $1000bn.

They have contracts for labour-power amounting to 2000 hours
(one year) for each of 10 million workers, a total of 20 bn
hours. They paid $5 per hour, so this cost $100bn; with this
money the workers paid for $100bn in MC.

All goods made during 1989 were sold during January 1st
1990, a day set aside for trading during which there was no

To test the hypothesis that circulation can create new
surplus value, January 2nd 1990 is a special extra trading
day. At the beginning of this day, everyone reverses the
purchases of January 1st at the prices of January 1st,
recreating the situation just after production. Then they
recirculate the goods at a new set of prices. By comparing
the situation at midnight on January 2nd with that at
midnight on January 1st, we can assess the pure effects of
simple circulation, independent of production.

All commodities sold on 2nd January 1990 are consumed
without waste during the rest of 1990 and the labour power
turns the MP into new products; the MC owned by workers are
used to reproduce their labour power; and the MC owned by
the capitalists are consumed unproductively.

Through historical research, we know that the total value of
last year's goods is 32 million years including labour
power. The fact that this is historically given is an
'inductive' assumption [see separate post, later]; it is
proven if we can show that, on the basis of this assumption
(that values are historically-given, not that they are 32 mn
years) in 1990, the same assumption holds in 1991.

Derived data

>From the above we know:

1.The monetary expression of 1 hour of labour is $25 at
the prices of January 1st 1990. Of 1 year, $50,000.

2.The constant capital (C) of $1000bn spent on MP
represents 40bn hours, or 20 million years;

3.$500bn spent on means of consumption (MC) represent
20bn hours or 10 million years.

4.The variable capital (V) of $100bn spent on the
labourer's wages represent 4bn hours or 2 million years.

5.If the labourers deliver their 20bn hours (10 million
years) of labour-power, they will add $50,000*10mn = $500bn
to the $1000bn C to create a new product whose monetary
expression (X) is $1500bn at the prices of 1 January 1990,
or, 30 million years, 60 bn hours.

Hence the capitalists will make a profit of $400 bn (=8 mn
years) in 1990 on sales of $1500bn, after deducting costs of
$1000bn C and $100bn V.


I think the substance of the debate, and the section of
Marx's work under scrutiny, both turn on the following: what
can change the magnitude of this $400bn in profit and how
can they be interpreted?

Why it matters

Several listmembers have asked if the debate is economically
significant or has empirical import, and these are fair
questions. A short digression suggests why.

During 1990, there are at least three distinct possible
sources of economic change. All have to be theorised and
measured by anything claiming to be 'real' economics.


Without any change in the conditions of production, prices
might go up during 1990. The monetary expression of labour
might change, so that though at 1990 prices the value of the
product might be $1500bn, it might sell for say 10% more,


Productivity might go up. To illustrate in the simplest
possible way: the same labourers could, as a result of
better machinery or changed labour practices, produce 10%
more of everything in 1990 than in 1989. If unit prices
remained constant, the price of output would then be 10%
bigger, $1650bn.


The capitalists might employ 30% more workers, increasing
employment to 13 million. [To emphasise the point let us
somewhat artificially assume that physical output rises pro
tanto, though this does not alter anything significant]. If
the monetary expression of labour did not change, the
product would then also sell for $1650bn.

Three sources of economic change - monetary inflation,
increased productivity, and increased employment - change
the price of output by the same amount.

In a nutshell, how can we analytically and empirically
distinguish these three distinct sources of change?

Any economic theory that cannot do this is, I think, not up
to much. For example in the first case, money profits will
go up by $150bn though no-one makes anything extra or works
any harder. The policy conclusion that follows from treating
this as 'real' profit is to do nothing except hyperinflate
the currency. Is this useless or is it useless? If a theory
doesn't show it's useless, then the theory is useless.

But the second case is also a classic source of confusion.
According to the the NIA, output has risen. But did it rise
because the economy was more productive, or more active?
Marx's value analysis shows that at a given employment
level, outwith an inflationary issue of credit, prices will
fall as fast as output rises.

This is not to deny that a rise in physical output can raise
physical wellbeing or power; but what is under discussion is
*money profit* and its economic impact.

In the third case the value of output genuinely rises and
with it, its monetary representation. According to Marx this
is the only 'real' way to increase the mass of profit (we
leave out superprofit from abroad), and I think he is right.

A 'simplistic' analysis of the bare figures will not make
these necessary distinctions. At least one reason a value
theory is necessary, is that without it they cannot be made
at all.

The thought-experiment: my questions

First question

Can the capitalist class modify the profit of 1990, through
simple circulation alone?

Since there are two ends to the entire reproduction process,
and two phases of circulation, this breaks down into two
distinct parts, namely the C-M-C which occurs at the
beginning (2nd January 1990) of C-M-C-P...C'-M', and the C'-
M'-C which occurs at the end (1st January 1991). Since each
of these can independently impact on the magnitude of
profits there are two parts to this question:

1.Can the capitalists augment profits by *buying* at
different prices on 2nd January 1990?

2.Can they, having produced surplus value in 1990,
augment profits by *selling* at different prices on 1st
January 1991?

Second question

On the basis of the answer to question 1, is any generality
lost by Marx's decision, from chapter 6 onwards, to treat
only the 'pure case' in which goods exchange at prices equal
to their values? Or is this decision the hidden basis of a
circular definition?

Third question

The dualist, simultaneous method does lead to the conclusion
that value can be created in circulation. This is the
meaning of the failure to satisfy both of Marx's
'equalities', as well as some of the points Gil has made.
Does this conclusion arise from Marx, or from the dualist,
simultaneist interpretation of Marx? Where does the
conclusion that value can be created in circulation 'come


to come: LVB2,3: Why money matters and what it is worth
LVB4: A Numerical Interpretation of this Thought Experiments
LVB5: Where the discrepancies come from
LVB6: Definitions
LVB7: The Real Fundamental Marxian Theorem