# [OPE-L:8148] Re: Re: Testing Marx or why the law of value holds

From: clyder@gn.apc.org
Date: Mon Dec 09 2002 - 11:04:46 EST

```Quoting Michael Eldred <artefact@t-online.de>:

> > Gerry paraphrases this as wages being 'stable', but this
> > is not quite what I mean. What I am saying is that ratio
> > of aggregate wages to net national product is very close
> > to the ratio of necessary labour time to total labour time,
> > and that this in conjunction with points a) and b) constrains
> > prices to follow values.
>
> Is this total necessary labour time determined independently by measuring
> minutes or through the monetary wage-form?

At this stage I am not proposing empirical techniques to perform measures
I am discussing underlying causal mechanisms.

>
> > Why is the ratio of wages to national product close to
> > the ratio of necessary to total labour time?
> >
> > Basically because of regression to the mean.
>
> I.e. a statistical reason?

Yes, there is no reason why we should be shy of proposing statistical
causal mechanisms, the use of such mechanisms is quite general in
science.

>
> > Given the net national product in Euro and the total number of
> > hours worked we can deduce the number of minutes
> > necessary to produce one Euro of national income, call this M.
> >
> > If we multiply the price of any commodity i  by this number
> > we get its current exchange value E[i] in terms of national labour.
> > For any given commodity this exchange value will be
> > either above or below its actual labour content L[i], according
> > to whether it is selling above or below value. We know that
> > E[i]/L[i] must have a mean value of 1, since commodities selling
> > above and below value must cancel out. Let the standard
> > deviation of E[i]/L[i] be S.
> >
> > The necessary labour time is given by the labour content of
> > the commodities consumed by workers - the labour content
> > of the wage bundle as the neo-ricardians put it.
>
> Isn't this "labour content of the wage bundle" obtained by multiplying total
> number of minutes worked by the ratio of wages to selling prices?

No, at this stage I am not discussing the techniques used to extract
the data from published statistics. I am saying that at a given point
in time there is a particular distribution of labour between branches
of activity, and that a certain portion of the product is destined for
workers consumption. Given the assumption of instantaneously linear
production functions the labour required to produce the bundle of
goods is well defined - this is standard Sraffa, Morishima stuff.

> Equivalently,
> W x M = t(W), where W is money wages paid, M is your "number of minutes
> necessary to produce one Euro of national income" and t(W) the number of
> minutes labour time represented by money wages W? Then again, a temporal
> quantity (labour content of the wage bundle) is obtained by projecting a
> ratio
> of two monetary values onto total labour-time worked.

No the two are not identical, WxM is a random variable about whose properties
I am about to argue below. I will argue that this random variable has
a mean given by the necessary labour time, and a small standard deviation.
>
> > Now if workers
> > just lived on a single commodity corn, as occurs in some
> > neo-ricardian models then expected the standard deviation of wages
> > relative to necessary labour content would also be S, but
> > in fact the wage bundle contains thousands of different
> > commodities. Each of these commodities has a selling price
> > that is either above or below value, but by the law of large
> > numbers the standard deviation of the wage W times M
> > from the actual labour content of the wage bundle will
> > be much smaller than S.
> >
> > For instance in a simulation run with the individual commodities
> > selling up to 20% above or below values I found that
> > for a wage bundle of 10 commodities I got a 3.5% deviation
> > of price from value, for 100 commodities a 1.8% deviation,
> > for 200 commodities a 1% deviation and for 1000 commodities
> > a 0.3% deviation.
> >
> > Thus in a real economy with a big wage bundle we can assume
> > that the wage bill multiplied by the labour equivalent of money
> > will be very close to the actual necessary labour time.
> >
> > Now consider all industries. Each of these has a selling
> > price in labour hours made up of a wages component which
> > is almost exactly equal to the V in labour time used by Marx
> > in volume I of capital, plus a component C for constant capital,
> > plus some random profit - determined by market conditions.
>
> Interesting that you say that profit is random, determined by market
> conditions
> (with which I agree, random meaning 'groundless', sine ratio).

According to Kolgomorov it means that the formula for generating it
is longer than the random sequence itself.

> But according
> to
> the LTV and its corollary, the theory of surplus value, profit is only the
> monetary form of surplus labour, a determinate temporal quantity, and
> therefore
> by no means random.

No, individual profits are predicted to be random variables with surplus
value as their attractor.

>
> > For most industries C will again be made up of a large
> > bundle of commodities and as such will, by the same argument
> > as applied to wages tend to be purchased for a price very
> > close to its value. The exception will be a few industries that
> > process a single raw material - these will have a C which in
> > money terms will deviate more from value than is normal.
> >
> > Empirically it is a fact that for most industries labour is the
> > major cost. We know that the cost of labour WM is very close
> > to Marx's v or necessary labour time, and also that for
> > most industries CM will also be close to Marx's c.
> > That leaves only profit as a random element causing
> > prices to deviate from values.
> >
> > But we have reason to believe that there will be a constraint
> > on the dispersion of profits.
>
> Doesn't this constraint amount to the (realistic) assumption that on the
> whole
> capital does indeed manage to get through its cycle without suffering loss?
> I.e. as long as commodity values realized on the market are sufficient to
> cover
> (mainly wage) costs plus some profit, the capital in question survives.
> Loss-making capitals _are_ not, they do not exist in their concept, and
> empirically too, on the whole (_katholou_)  they conveniently cease to
> exist.

Yes this is exactly it.

>
> > The profit of any individual firm will be influenced by a whole
> > host of factors - a collection of random un-correlated pressures.
> > We would therefore expect firms' markups over prime costs
> > to be normally distributed, as this is characteristic of things
> > which are the result of a sum of random pressures.
> > We know the mean of this random distribution - it is
> > given by the mean markup ratio or rate of profit on turnover.
> > We would expect this to be of the order of 10 to 20% for typical
> > economies. We also know that if the mean is say 0.15, that very
> > little of distribution - say less than 10% of all firms will be
> > making a loss in an average year - since firms don't survive
> > long once they start making a loss.
>
> What happens to the labour embodied in those commodity products of capitals
> which fail to make a profit? Such labour has not achieved social recognition
> in
> the value-form sufficient for the movement of value as capital to continue.
> Does this portion of total concretely performed labour drop out of
> consideration altogether?

You can not say in general. Some will represent products that have
been sold below value to other firms whose profit will rise in compensation.
Another portion will represent real losses in material - for example
due to fire damage, storm etc. Another portion will represent losses
due to over-production relative to current market conditions. One can
not really discuss the magnitude of this component without looking at
macro-economic factors relating to the business cycle which are being
ignored at this level of asbstraction.

> > Thus we have the mean
> > of the normal distribution say 0.15, and we know that less than
> > 10% of the distribution falls below 0.0. This is enough to
> > fully constrain the standard deviation of the distribution
> > and in practice to make it fairly narrow. This is because
> > a normal distribution has only two free variables, so two
> > constraints are enough to characterise it.
>
> The consideration of profit in the above paragraph seems to be totally
> independent of any labour theory of value and its corollary, the theory of
> surplus value. Indeed, it reverts to production cost factor composition of
> commodity prices plus a profit mark-up -- all in terms of monetary
> quantities
> (with which I agree, since the movement of money as capital is tautologous).

Yes, but what I want to show is that as a consequence of making
these assumptions one can deduce that the labour theory of value
will hold as a regulator of prices. I do not therefore assume it
at the outset.

>
> The statistical approach intends to test whether there is, on the whole, such
> a
> causal relation, but, as far as I can see, it is forced to make conceptual
> assumptions (see above and previous postings) which beg the question of
> whether
> performed concrete labour 'creates' monetary value.

I am not saying that labour creates monetary value, what I am saying is
that labour value regulates prices.

>
> > It will of course, be understood by those skilled in the
> > craft, that the figures 10% and 20% above are rough
> > indicators for the sake of argument.
> >
> > Thus we have a results that
> > 1.  the standard deviation of the rate of profit on turnover
> >      has to be small,
> > 2. the price of each product is made up of three components
> >     wages, constant capital and this random profit markup
> > 3. money wages can be expected to be very highly correlated
> >     with necessary labour
> > 4. constant capital in money terms will also be strongly
> >     correlated with constant capital in terms of labour albeit
> >     not so strongly as wages are to necessary labour
> > 5. thus prices are made up of two components that
> >     are very close to labour values, plus a random markup whose
> >     dispersion is narrow
> >
> > It follows that prices are constrained to be close to labour
> > values.
>
> This constraint seems to be a result of i) how necessary labour time is
> measured (i.e. through the monetary forms)

No the argument does not depend on this - see qualification earlier

> and ii) statistical regularities
> emerging from large numbers (i.e. masses of data) and iii) that performed
> concrete labour which does not 'make the grade', i.e. prove itself as
> socially
> recognized value sufficient to generate profit, evaporates.
I dont think that one has to make an assumption as strong as your
point iii.
```

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