[OPE-L:4830] The Unreality of Price Theory

john ernst (ernst@pipeline.com)
Mon, 21 Apr 1997 09:34:53 -0700 (PDT)

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Given the hypothesis that "labor values" can be
useful in analyzing the capitalist system, why
have a growing number of us abandoned the notion
that the value of a commodity can be simply
computed as the time it takes to reproduce that
commodity using prevailing techniques? The question
itself suggests that the "New Solution", TSS, et. al.
are not creations of those crazed by some unknown
forces but real people trying to solve real problems.
For TSS'ers, much of the difficulty with the old concept
of value is readily seen by the examination of the
accumulation of capital in time with technical change.

The old concept of value, labeled redundant by Steedman,
can even be seen as bordering on the absurd when examining
accumulation from period to period. Consider an economy
over two periods in which workers are paid next to nothing.
In the first period it takes 100 units of commodity A and
50 units of labor to produce 150 units of commodity A.
Given that labor creates $1/unit, we see that

(1) $100 + $50 = $150

In the next period a new technique can be used such that
the same 50 units of labor can now produce 600 units of
commodity A using 200 units for commodity A. Given that
labor creates, again, $1/unit, we now have

(2) $25 + $50 = $75

Now it is obvious that this absurd for a few reasons.

a. By examining only the values, there would seem to be
no problem in moving from the first period to the next.
That is, the output of the first period, $150, appears
to be more than enough to fulfill the demands for capital
inputs in the next period, $25.

b. Given wages are minimal, the rate of profit seems to
increase from the first period to the second or from
50% to 200% but constant capital itself is shrinking from
one period to the next as the increase takes place. Indeed,
the loss of constant capital in our example is greater than
the profit produced.

c. That the movement from one period to the next is actually
impossible is lost once the conversion to these labor values
takes place.

No doubt one could construct a theory of prices for each period
using the old notion of labor values. The problem is that those
prices and values have little meaning for the analysis of an
economy in which technical change takes in real time. Perhaps
it is the pursuit of a static theory of price that must be
abandoned for the sake of an analysis of the movement of real
capitalist economies. For now at least, I am willing to allow
those who want to develop relative price theories all the room
they want to do so, but I will always recall Vivian Walsh's
caution -- "John, this has nothing to do with reality."