[OPE-L:3177] Re: LOV and Money

John Ernst (ernst@nyc.pipeline.com)
Sun, 29 Sep 1996 10:36:40 -0700 (PDT)

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Jerry writes in OPE-L 3175.

A couple of quick comments on John's [OPE-L:3174]:

* The question of whether it is appropriate to assume a constant value
of money within a production period given the subject that is being
examined seems to be emerging as one of the key bones of contention.

a) could John and Fred and others state clearly why they believe
that the value of money should or should not be assumed to be
constant initially (and the implications of that assumption)?

John responds:

As we started our latest discussion concerning TSS, the value
of money was assumed constant. This, at first, hardly seemed
the basis for any issue at all. In the example, I've used
in the discussion with Duncan and Fred, we see that if we hold
fast to that assumption, the accumulation process itself can
"breakdown." That is, capitalists invested $100 at the start
of the 2nd period and end up with $60. There is no M-C-M'
where M' > M.

What is interesting here is that we started with a typical TSS
example and those of us defending that interpretation never
suggested that things might breakdown in this fashion. Indeed,
to see it you have to

(1) Admit that capitalists invested $100 at the start of period.
(2) See that it is possible for prices to fall such that only
$60 is produced as the value of the output of that 2nd period.

For me (1) was not difficult. (2) is stated as a possibility. To
be consistent, those who simultaneously value inputs and outputs
(2) is a necessity assuming that each hour of living labor creates
$1 in value and that prices are such that the input values are
equal to the output values.

I held that given the massive loss of capital value, inputs might
indeed be revalued such that input and output values were equal to
output values. I readily admitted that this revaluation would lead
to an increase in the rate of profit given the assumptions in this

In my discussion with Fred, I have insisted that we stick with the
assumptions in the example. Frankly, I think we have to explore
this a bit more prior to relaxing some of assumptions.

Let me point out that the assumptions we have are not different
from those in Marx's CAPITAL.

a. The value of money is constant.
b. Living labor adds the same amount of value
capital advanced in each period.

As a TSS person, I look to others to explain how this huge fall
in output might take place. Of course, I'd be more than willing
to add a thought or two as we proceed. As matters stand, we
simply have a breakdown by assumption. Yet, it does not come
as a total surprise since we know that the process of
expanding value is at the same time one that destroys value
via increases in productivity. Here then we are presented with
the opportunity to develop a "breakdown theory" or a "crisis
theory" as part of developing Marx's notions of value expansion
and accumulation.

What are the problems here? First, some see that the rigid
assumptions about the value of money and the idea that each
hour of living labor adds $1 to capital advanced as too
restrictive. Second, the end result in the example is an
increase the rate of profit. Indeed, the falling rate of
profit seems eliminated from the analysis. Let me suggest
how we might deal with these difficulties as we begin.

1. The product at the end of second period has a price of
$60. The question is how we get there. There is
nothing to prevent use of the concepts of social value,
market value, or whatever in showing how the economy
can move from period 1 to period 2.

2. In an more elaborate example then the one at hand and
with further assumptions consistent with those made by
Marx in CAPITAL, we could show that the end result may
be a lower rate of profit in period 2 than in period 1.
This would eliminate the falling rate of profit as the
primary cause of crisis while maintaining that the
tendency of the rate of profit to fall does indeed
describe the process of accumulation. The falling rate
of profit that we see in the analysis of capitalism
would be a result and not a cause of the "breakdown."

Jerry said:

b) why couldn't TSS and other interpretations develop *two* sets of
numerical illustrations -- one set assuming a constant value of
money and one set which does not? It might then be interesting
to compare the results.

John says:

If someone wants to do this, fine. We are still having difficulty
dealing with the set that assumes a constant value of money.

Jerry said:

* [A variation on a question that his been asked in many different
cultures throughout the millennia]: What is LOV? ... and ... How do
we find LOV? Early on in OPE-L history, we asked the first
question. As I recall, John resisted defining LOV. If we don't know
what LOV is, how do we know, as John seems to suggest, that we will
be able to find the meaning of LOV? Before I go searching for LOV
I'd like to have a better idea of what we are searching for.

John says:

For me the LTV is that portion of Marx's theory that relates values,
abstract labor time and prices. The LOV describes the manner in
which we more from Period 1 in which the output was, in our example,
$120 to that of Period 2 in which the output is $60. It is the
LOV that can lead to this possibility.