[OPE-L:3150] Re: Fred's Comments on 3074

Duncan K. Fole (dkf2@columbia.edu)
Thu, 26 Sep 1996 13:00:59 -0700 (PDT)

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In his reply to Fred, John Ernst makes some comments on my posts:

>As you see, I have asked Duncam for more info on the role IVA plays
>in the accumulation process.

Duncan says: I'm arguing that the definition of value added is fundamental
to translating the principles of the labor theory of value into price
changes in models and examples with changing technology. The IVA is the
technical way of referring to the change in the value of inventories
through the period of production due to changes in prices (or labor values,
if we're using that accounting system). It's through this analytical route
that it has anything to do with the accumulation process.

>In doing so, I noted that his use of
>it at the very least does acknowledge the loss of value due to
>productivity increases.

There is a loss of value due to productivity increases. It does show up in
the rate of profit on historical cost. These points are not in dispute (at
least with me.) I still don't think the examples can support the
interpretation that a falling rate of profit arises from technical changes
that increase the productivity of both labor and capital inputs.

>Generally, those who use simultaneous
>valuation do not do so. Rather value vanishes as accumulation

At any point in capitalist production value is imputed to a lot of things,
such as land, government bonds, watered stock, and so on. We might do
better to think of these as "claims to value", and restrict the concept of
value itself to the value flow created by the expenditure of living labor.
It's certainly true that technical change makes these claims to value
imputed to existing assets change, but not as the result of the expenditure
of living labor. Therefore I would argue against including these changed
values in the value added we attribute to the expenditure of living labor
in determing the price path in the examples and models.

>I am not sure how you use the concept of IVA in your
>interpretation of Marx. Note that we are talking about using the
>concept of IVA as prices fall. Money is involved. That is,
>it matters little that I, as a capitalist, report a high profit
>rate if, at the same time, I lose my shirt because of "inventory
>value adjustments." Again, we are dealing with Marx and his assumption
>that the value of money is constant, that productivity increases
>lead to price decreases.

Typically reported capitalist profit rates are calculated on the historical
cost of capital, and include an analysis for capital gains and losses on
capital due to revaluation. I don't see any point of disagreement here,
either. The problem is that the TSS method of determining prices leads to
cumulative falls in the profit rate in models with continuous technical
change that do not appear when you calculate the price path according to
the usual definition of value added. I hope we can focus on this point, and
at least agree to disagree on the interpretation of the assumption that $1
represents a unit of living labor.

>(This may be nitpicking but I do not think Duncan or I are dealing
>with a "mere change in the price of material inputs." Here we are
>talking about the destruction and preservation of value itself.)

As I argued above, I'd prefer to speak of the destruction and preservation
of claims to the value produced.

>Given Duncan's position on the amount of value living labor creates
>and his idea of using that to determine prices, I suspect that he
>and I would differ on issues concerning the transformation of values
>into prices of production. Somehow, I think you and he will differ
>on the matter of prices of production.

My position on the transformation problem is pretty much the same as in my
1982 RRPE article and in Understanding Capital.

In further search of clarity,


Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947
e-mail: dkf2@columbia.edu