[OPE-L:1139] LVB5:Accounting for the differences

Alan Freeman (100042.617@compuserve.com)
Tue, 20 Feb 1996 05:52:26 -0800

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Why does the standard interpretation differ from ours?

Pursuing the Thought Experiment this post tries to respond
to a question provoked (but not asked) by Gil's allegations
of numerical discrepancies [OPE:1010 and others].

This question is: why, when value is measured using the
standard construction (equation 1, or v=vA+L) do we find
that surplus value can apparently appear or disappear
outwith production, even though this equation seems to meet
all the criteria of Marx's definition of value, being defined
independently of prices, etc?

In defending his use of this equation, Gil says

"no statement is being made in this definition about prices
at all".

But if one defines value in this manner, when prices *are*
introduced (and it is hard to discuss capitalism without
prices), it then emerges that 'exploitation' apparently
happens in places Marx says it shouldn't.

My claim is that all such discrepancies arise from the use
of this definition of value. In short, if value is not
defined in this way, no discrepancies can be produced.
That's why it has to go.

To start with it is best to demonstrate numerically where
the differences arise. There are two sources of difference.

One (dualism) arises because of implied *measure* of value
in exchange. It uses the value of goods, instead of the
value of the money which aquires them, as the measure of
value appropriated by capitalists. This can be corrected (as
Callari, Wolff and Roberts have done, for example) in a
simultaneous framework. But this obscures the origin of the
difference, and works only in the absence of technical or
price changes.

The other (simultaneism) arises because of the effect of
changes in value on the surplus appropriated by the
capitalist. In particular when inputs become cheaper, the
capitalist can pay less to replace them, acquiring an
additional operating surplus termed 'released capital' by
Marx. The equation v=vA+L reverses this effect, with the
paradoxical result that rising productivity creates negative

The third way differences can arise, if inflationary effects
are ignored or estimated differently, has been discussed

The effect of dualism

Suppose, in the thought-experiment, that 2 January brings
higher relative prices for means of consumption with an
unchanged wage at constant total prices. However much the
means of production rise in price, the means of consumption
must fall by the same amount.

Suppose the means of production sink to $900bn and the means
of consumption rise to $600bn. Then at the end of trading we
find ownership of goods as follows:

Capitalists:C =$900bn
V =$100bn (creative power $500bn as before)

Workers: MC=$100bn

The $100bn of MC in the hands of the workers now represent a
smaller share of total MC than before. They have 1/6 of the
total MC, whereas before they had 1/5.

The $500bn MC in the capitalists' hands is a correspondingly
greater share. As for the $900bn in means of production,
this money sum covers exactly the same goods with exactly
the same value, even though their price has fallen.

If the value appropriated by each class is measured by the
values of the goods it *consumes*, then this recirculation
transfers value from one class to another. Or in Gil's
terms, exploitation takes place outside of production.

This requires no simultaneous equations, eigenvalues,
Perrons, Frobenii, matrices, expectations, gamblers or
ramblers; the only issue is whether the share of total value
appropriated by a class is measured by the value of its
goods or the value of the money which buys them. This is the
essence of all other more sophisticated expressions of the

If, this fact is 'exploitation' then we surrender: yes,
circulation can transfer value from one class to another by
raising the price of what one eats, and dropping the price
of what the other eats. You don't need mathematics for that:
anyone on the street could tell you. Are we really supposed
to believe Marx 'failed to understand' such a simple truth?

The great bulk of the issues at dispute with Gil, I strongly
suspect, boil down to this question. One of the reasons for
supplying a clear example with definite numbers is to bring
this clearly into the day so that the underlying qualitative
issues can be illuminated.

The effect of simultaneism with falling values

Until now we have made no supposition about the use-value
composition of either inputs or outputs and therefore we
cannot apply v=vA+L. We now make the crude simplification
that the economy makes a single product, let's say potatoes
for a change, also the only means of production and the only
means of consumption. Suppose on 1st January 1990 150bn
potatoes were sold, so that the value of each rather
expensive potato was $10, or 0.4 hours.

Now suppose in 1990 the same number of workers plant just as
many potatoes (100bn) but harvest twice as much (300bn). We,
and Marx, argue the value of a potato falls according to the
following calculation:

X = C + L = 60 bn hours = $1500bn

This value is distributed over 300bn potatoes, so each one
is worth 60/300 = 0.2 hours or $5.

This hardly unreasonable; for the same inputs, there is
twice as much output, and the unit value halves.

Notice that if the capitalists replace inputs *in kind* they
have more money to hand than their money profits. For, their
gross receipts are $1500bn but though they rehire the
workers for $100bn as before, the same seed potatoes now
cost only $500bn, leaving them a surplus of $900bn. This
exceeds profits by $500bn, or the fall in the value of inputs.
Marx terms this 'released constant capital'.

Equation 1, however, proves that raising productivity *destroys*
money. The unit value of inputs must equal the unit value
of outputs. 100bn spuds are consumed as means of production.
Therefore value is given by the solution to

v.100 + 20bn hours = v.300 in hours, or

v.100 + $500bn = v.300 in pounds

therefore 200v = 20 in hours, or 200v = $500bn in pounds.

therefore v = 0.1 hour = $2.50

So, even though twice as many potatoes are grown for the
same effort and with the same seed potatoes, the value of
each potato falls to one-quarter of what it was.

But then profit, in any sense recognised by accountants,
capitalists, banks and normal people, cannot possibly equal
surplus value. If the potatoes sell at their value the
*revenue* of the capitalists is $25*30bn = $750bn. But we
know for a fact that they *spent* $1100bn.

Gil says equation v=vA+L "makes no statement about prices".

So make a statement. Any statement. By what procedure can
the capitalists, who have already ponied up eleven hundred
billion green ones, now sell these potatoes, scarcely worth
half this amount, at a profit?

And suppose you do get a money profit from it, equal to
surplus value. Suppose by some unknown means the capitalists
manage to squeeze $1500bn from the market. In this case,
potatoes with total value $750bn have circulated for twice
this value; so either you have to say that their value is
not $750bn but really $1500bn - in which case equation 1 is
invalid - or this extra profit has not arisen in production.

Equation 1 or Marx: which one has to go?

These same contradictions can be reproduced by the unwary in
many forms and guises. The transformation 'problem' is by no
means the only one.

But anyone who approaches these contradictions openly should
surely ask: do they arise from Marx, from my interpretation
of Marx, or from my differences with Marx?

An important part of Gil's thesis is that because of a
'fundamental error in Marx's logic', the value-theoretic
component of Marx's work fails to recognise sources of
exploitation other than the sale of labour power for less
than the value it creates:

"Marx's value-theoretic account in I, Chapter 5 must
establish two claims. The substantive claim is that surplus
value cannot exist in a scenario in which the only relation
between exploiters and value producers is one of exchange;
the corresponding methodological claim is that an adequate
account of surplus value must be based on the condition of
price-value equivalence. Neither claim is valid." [from
Gil's Science and Society article p15 in the version he sent

I think these figures give reasonable evidence - and there's
plenty more - that when sources of surplus value other than
the purchase of labour-power emerge after dropping price-
value equivalence, they 'arise' (in the math, not in real life)
from one or both of two sources:

(1)a genuine difference of interpretation, which centres on
the concept of money, as to whether the value appropriated
by a class should be measured by the value of the goods it
consumes or the value of the money with which it buys them.

(2)irreconcilable differences between Marx and the standard
presentation of Marx, centring on 'equation 1', namely

v = vA + L

and the interpretation of v thus calculated as the measure
of value appropriated.

Without prejudging how much of our differences arise from
source (1) and how much from source (2), I not only admit
but confidently predict that if value is defined using
equation 1 then value transfers will indeed be 'registered'
which cannot be traced back to the sale of the commodity
labour power. That's why equation 1 has to go.

If equation (1) is Marx's definition of value then he is
wrong, if not deranged, to maintain that the only source of
profit is surplus value, or that sale at prices other than
values makes no difference. If this is all Gil is saying,
there is no disagreement.

However, Gil says more, and what he says is very peculiar
given his thesis.

He says, Marx was wrong, but equation (1) is correct.

We don't say that. We say, Marx was right, and equation 1 is

The asymmetry in this argument needs to be brought to light.
Only one side in this discussion accepts this equation,
namely Gil. Yet it is Gil who says that the Marx's value
theory is based on a fundamental logical error.

Our solution to the problem is very simple: junk equation 1,
keep Marx. This is not only valid but consistent.

Gil's position is, I think, both invalid and inconsistent.
For, if the real problem is the 'fundamental logical error'
of Marx's value theory, why hang onto its most suspect
equation? This is like refuting God by saying the Devil does
miracles too. It has iconoclasm appeal but somehow misses
the point.

If the alternative to Marx's 'fundamentally erroneous' value
theory *rests on* its most disputed equation then the
proposal is substantially less radical than the rhetoric.

If Gil wants to defend something he himself has proved
indefensible, that is up to him. But what he cannot do, is
use it to attack a construction which starts from its
rejection. A 'disproof' of what we maintain - and hence any
proof of a 'fundamental error' in Marx - *cannot* employ
equation 1, unless it can be shown that there is no other
basis on which to proceed.

But we have shown another basis on which to proceed.