[OPE-L] price of production/supply price/value

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Wed Jan 25 2006 - 14:02:09 EST


Since I'm home anyway - I personally don't think this interpretation is
correct, although it is poetic. Value relations and price relations are
analytically separate domains, and one ought at least to distinguish

- the capital cost (priced) of inputs used to produce a new output,
- the value of the inputs, as distinct from their price,
- the value of new output prior to sale (including both conserved,
transferred and newly created value),
- the intended sale price of new output
- the price of output actually realised upon sale
- the "average" or "modal price" realised upon sale for that type of output.

This means there exists a real (practical) transformation problem, because
goods and services have to be priced so that they will sell at an acceptable
rate of exchange.

One aim of value theory is to explain in causal terms what regulates price
movements (the movements of the market), but in order to do so, product
values have to be distinguished from product prices, which can be above or
below those values. What those values are empirically, can be approximated
or expressed quantitatively only by:

(1) average or modal quantities of labour hours,
(2) price aggregates, or
(3) the ratios in which different categories of products exchange.

The production price is the expression, in price terms, of the real value of
a product, which is exactly equal to the actual market price only by
statistical exception. This production price (really, an ideal price)
reflects the fact that:

(1) in an economy where both inputs and outputs are marketed goods and
services, the value of the product is determined in the production process
both "ex ante" by the value of the inputs used up and conserved in making
the new product, as well as "ex post" by the newly created surplus value it
contains, and

(2) that the production price as an economic regulating price (a "price
regime") is set not by individual enterprises, but expresses an aggregate
"ex post" outcome, of the activities of all enterprises in the market that
are involved in producing that type of product.

The analytical difficulty is that what the production price will be, is the
outcome of a range of different variables subject to constant change, and
that production takes place when inputs are withdrawn from the market to
create outputs. This means that values and prices rarely coincide exactly,
in a moving reality. But this analytical difficulty exists for any theory
aiming to explain what regulates price movements for new outputs. That is
exactly why one needs a value "theory", namely a theory which makes one's
valuation assumptions explicit in a coherent way. We have to assume some
constants initially, in order to study variations.

Both Marx and Engels however explicitly rejected the idea that total
production prices and total values (or, total profit and total surplus
values) would necessarily be exactly identical, contrary to what the
Marxists argue. The assumption of these identities was only a modelling
assumption, which Marx and Engels thought was justified, since they believed
the deviation between the two would "in the normal situation" of a developed
market not be all that great, i.e. a more refined value theory than Ricardo
offered could reflect the economic process with reasonable accuracy. But
even so, the new outputs had values which were only "approximately
reflected" by the prices they fetched in exchange, a messy reality did not
conform to a neat accounting concept, so value theory could only supply
useful "generalisations" about the process.

If it is argued that talk of values is redundant, because prices can be
explained in terms of other prices, the problem is that value and valuation
assumptions are still being made in that explanation, and that these
assumptions themselves ultimately cannot be inferred from observable prices.
Sraffian prices still rest on value assumptions. In addition, explaining
prices in terms of other prices, pursued comprehensively, leads to problems
of tautology and infinite regress. So really, all that happens when prices
are explained in terms of other prices, is that the value assumptions behind
the explanation are not made (fully) explicit and theorised. This in turn
leads to a pragmatic eclecticism which reduces the explanatory power of the
interpretations made, and can invite the accusation of arbitrariness (why
this assumption? Why not another?). The whole aim of theory is, after all,
to provide coherent, non-arbitrary generalisations with the greatest
explanatory value.

As I've shown previously, this kind of problem becomes palpably evident in
social accounting when the attempt is made to derive an ideal price from
observed prices which is supposed to represent true "value added" or "the
capital stock" and suchlike. Real profits and real depreciation charges etc.
are "adjusted" to match an accounting concept.  I have called that the
"inverse transformation problem". Doing such a calculation involves a whole
range of assumptions about what value is, and what the economic relations
are... in reality, all accounting and all price aggregation logically rests
on assumptions about five variables:

a.. comparable value (or value equivalence)
a.. value used up
a.. conserved value
a.. transferred value
a.. newly created value

So really we do not get away from value theory at all, by just talking
prices. Any price aggregation involves assumptions according to which it is
legitimate to relate one price to another, and we are all "valuing
subjects". That aside, at any time, the majority of goods and a large part
of services in an economy do not have any actual price, at best an ideal
price. Yet nobody will say that those goods and services have no value. They
have a value, but, sure, it may be hard to know what that value is, in the
absence of market sales. So what's all the fuss about the validity of the
concept of economic value anyway?


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