[OPE-L] Theories and practices of economic laws

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Mon Dec 12 2005 - 12:15:01 EST

Jerry asked:

Yet,  some of the "laws" asserted by Marx, such as the tendency for
the formation of prices of production and a general rate of profit and the
law of increased productivity of labor, to the extent that they are
empirically manifested,  reveal themselves in non-crisis situations.
Why would either of these tendencies _only_, or even_ generally_,
reveal themselves particularly in times of socio-economic crisis?

Well, I take the view that Marx aimed to uncover the inner structure, the
anatomy if you like of the capitalist mode of production, in its "ideal
average". He notes several times that the way the motion of capital
observably appears is often the exact inverse of what is really happening,
just as, by analogy, the sun seems to orbit the earth, rather than vice

Prices of production are also a good example of that - Marx regarded them as
the "external form" or expression of value relations (Anwar Shaikh
explicitly claims that production prices do not really exist in trade). Some
aspects of the system will be observable all the time obviously, but the
real causal connection, the way different facets of the system are really
connected, if you like the real nature of the system's functioning, becomes
apparent only in special situations, e.g. crises when the most basic
interests of economic actors and the system's real imperatives become clear.
Marx sometimes seems to have believed a general rate of profit would be
formed, empirically, as an overall result, through the competitive process,
but his draft manuscript doesn't seem entirely free of ambiguity, and
sometimes this general rate seems more like an idealisation (a more credible

I take the view that the so-called transformation problem was really
Ricardo's problem, which Marx tried to solve. But the way Marx solves it,
gives a new twist to the analysis, because his point is that what capitalist
competition is about, systemically - regardless of how different competitors
might view it - is maximising the production and realisation of surplus
value, as profit revenues. If capitalists are obsessed with "productivity",
that's because they know the "value added" is the ultimate source of profit
income and investment capital (in that respect, Ben Bernanke is a bit vague,
when he queried "Why is the rate of productivity growth so important?
Economists agree that, in the long run, productivity growth is the principal
source of improvements in living standards."
http://www.federalreserve.gov/boarddocs/speeches/2005/20050119/default.htm -
despite increases in productivity, living standards of masses of US workers
have yet to improve significantly).

You asked:

btw, what do you (and others on the list)  think about the position of
(former member) Julian Wells on  Marx's statistical conception and
whether Marx believed that the rate of profit equalizes? (see attached).

Well I am quite a fan of Julian Wells, and I tend to take a similar view
(although my understanding of probability theory is limited, my mathematical
education came to an abrupt end, it's something to work on in future). As
soon as you admit that there is no "perfect competition", and that the
competition involves also the attempt to *block competitors* in various
ways, any convergence or levelling out of profit rates is at best a tendency
of market functioning.

In banale interpretations of competition, it's a sort of sport, whereby
every producer aims to produce at the lowest prices and sell the most
output, and "may the best man win" in a level playing field, but this is
rarely an accurate description - especially in the present age of corporate
industrial monopolies, oligopolies, enormous disparities in exchange rates,
protectionism, state regulation etc. But this doesn't necessarily invalidate
what Marx tried to do - as was characteristic of him, he aimed to solve the
problem in the pure case, arguing that if you cannot make sense of it in the
pure case, you cannot understand all the variations from it, that might
exist in reality, either. And this, in Marx's case, typically involves a
form-analysis, whereby you ascend from simple forms to more complex forms,
introducing more sources of variation step by step. Only the crudest
Marxisms try to apply the abstract concepts immediately to everyday reality.

It's interesting to note here also Engels's comment to Conrad Schmidt dated
March 12, 1895:
"The reproaches you make against the law of value apply to all concepts,
regarded from the standpoint of reality. (...) But although a concept has
the essential nature of a concept and cannot therefore prima facie directly
coincide with reality, from which it must first be abstracted, it is still
something more than a fiction, unless you are going to declare all the
results of thought fictions because reality has to go a long way round
before it corresponds to them, and even then only corresponds to them with
asymptotic approximation. Is it any different with the general rate of
profit ? At each moment it only exists approximately. If it were for once
realised in two undertakings down to the last dot on the i, if both resulted
in exactly the same rate of profit in a given year, that would be pure
accident; in reality the rates of profit vary from business to business and
from year to year according to different circumstances, and the general rate
only exists as an average of many businesses and a series of years. But if
we were to demand that the rate of profit--say 14876934...--should be
exactly similar in every business and every year down to the 100th decimal
place, on pain of degradation to fiction, we should be grossly
misunderstanding the nature of the rate of profit and of economic laws in
general--none of them has any reality except as approximation, tendency,
average, and not as immediate reality. This is due partly to the fact that
their action clashes with the simultaneous action of other laws, but partly
to their own nature as concepts. (...) it follows from the very first that
the total profit and the total surplus value can only approximately
coincide. But when you further take into consideration the fact that neither
the total surplus value nor the total capital are constant magnitudes, but
variable ones which alter from day to day, then any coincidence between rate
of profit and the sum of surplus value other than that of an approximating
series, and any coincidence between total price and total value other than
one which is constantly striving towards unity and perpetually moving away
from it again, appears a sheer impossibility. In other words, the unity of
concept and appearance manifests itself as essentially an infinite process,
and that is what it is, in this case as in all others. Did feudalism ever
correspond to its concept? Founded in the kingdom of the West Franks,
further developed in Normandy by the Norwegian conquerors, its formation
continued by the French Norsemen in England and Southern Italy, it came
nearest to its concept--in Jerusalem, in the kingdom of a day, which in the
Assises de Jerusalem left behind it the most classic expression of the
feudal order. Was this order therefore a fiction because it only achieved a
short-lived existence in full classical form in Palestine, and even that
mostly only--on paper?".

It's a slightly impatient rhetoric by Engels, but only because the point
seemed "gar offensichtlich" to him - Marx tried to form a theory by making
conceptual distinctions in a non-arbitrary, critical way, and then trace out
their implications, to arrive at an adequate view of the real nature of the
phenomenon in its totality, knowing very well that innumerable circumstances
might modify its appearance in practice. You abstract from experience, and
return to experience, in order to improve the "fit" between theory and the
data. But as regards data, Marx worked out his theory about 70 years before
comprehensive macroeconomic data became available, and even then, few people
have used that data to corroborate or test the theory. On top of that, it
often takes a lot of work to test  even a simple hypothesis, so really we
usually have more theoretical interpretation than substantive proofs.

As a student I regarded the retreat to discussion about transcendental
realism and hidden mechanisms as largely a subterfuge, because the real task
is to study the facts of experience, and see if the theory can make sense of
them or not, and if not, how the theory would need to be adjusted or how we
would get better data. Save for that, we're just left with a 19th century
phenomenology of capitalism. So I looked at quite a lot of stats, and
historical facts. And I think the theory does need adjustment, since
capitalism in our time is in many respects different from what it was in
Marx's time. The advantage there is, that Marx at least attempted to arrive
at a basic model of pure cases with his form analysis, so that you have
something to orient research. Things become easier I think when you've
cracked the riddle of the "value added" and realise no price accounting can
be done at all without reference to a value theory, implicit or explicit.


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