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

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Mon Jan 30 2006 - 15:53:53 EST

Hi Ian,

Thanks for your response. You are very clear in setting out the arguments.
In reply (maybe too long):

>I think my overall point is that I want to take the neo-Ricardian
formalisation of the TP seriously, whereas you seem to be rejecting it
on grounds of realism.

Well maybe there is merit in the neo-Ricardian argument in some way, we'll
see, I am undecided. But as far as I understand, it tries to make the
argument work without any reference to values, just prices (both real prices
and ideal prices, although this distinction is fuzzed). As soon as we argue
that the price-level for output is not established by the individual
enterprise, but by "the market" (the overall supply-demand relationship),
then I think we are already referring to value, to value theory which is
necessary to relate the prices involved. So really I have no special
epistemic problem with Marx's argument, what interests me is what the
empirical evidence of the observable trends is. I guess that I am closer to
TSS in that sense.

>No, I don't think so. Marx was not concerned with uncertainty of
profit realisation in ch. 9, unless I've missed something. I am sure
he is abstracting away from such factors. He later talks about market
prices. I think he is concerned to show that, despite appearances,
labour value is conserved in price, so that the Vol I. law of value
still obtains. It's important for Marx here that the quantitative
connection is maintained.

Well, in his example, Marx does write: "To the same extent that one section
of commodities is sold above its value, another is sold below it. And it is
only because they are sold at these prices that the rates of profit for
capital I-V are equal to 22 percent, irrespective of their organic
compositions" (Cap 3, Pelican, p. 257). It is true, he nowhere refers to
"uncertainty of profit realisation" directly, specifically, in chapter 9.
But he does aim to explain there why "How much of this profit is mediated by
the overall exploitation of labour by capital as a whole, i.e. by all his
fellow capitalists, this interconnection is a complete mystery to him"
(ibid. p. 270). Specifically, "What the capitalist sees, and therefore the
political economist as well, is that the part of the paid labour that falls
to each item of the commodity changes with the productivity of labour, and
so too does the value of each individual article; he does not see that this
is also the case with the unpaid labour contained in each article, and the
less so, as the average profit is in fact only accidentally determined by
the unpaid surplus labour absorbed in his own sphere. The fact that the
value of commodities is determined by the labour they contain now continues
to percolate only in this crudified and naive form." (p. 272). I would say
that is broadly speaking true to this day; all the talk is about
"productivity" with very little understanding of what it really means. I do
not think that "labour value is conserved in price" because I think values
in Marx's sense can only be expressed or manifested as quantities of labour,
real or ideal prices, or exchange ratios. There is no other way of knowing
what values are, beyond theorising about them. At best you can say e.g. that
relative aggregate labour magnitudes are proportional to relative aggregate
output price magnitudes, which you can measure. But proof of this is an
empirical proof.

>It can, given the starting assumptions. You can count labour values.
You can count prices. In what way are they related?

Okay, what you can do, is assign a numerical magnitude to a product-value
for theoretical purposes. That is what Marx often does, to save himself from
the intricacies of price fluctuations. But if you do that, and you draw an
equation between value numbers and price numbers, you cannot thereby supply
any logical proof that as a matter of fact value magnitudes must necessarily
be proportional to price magnitudes. All you can do is illustrate a
theoretical argument about how values and prices might evolve, given certain
assumptions. Why does Marx refer to "values" at all here? Basically, I think
for three main reasons: (1) it's a theoretical shorthand to make a complex
story (which would involve price fluctuations) simple, (2) all the
labour-activities and the outputs are related at a level that goes beyond
prices and sets limits for prices, (3) he aims to explain a "law of motion"
(dynamic principle) governing economic behaviour of actors in a market
situation none has control over. The law of value is not an accounting
principle, or an aggregation principle, but a law of motion.

>Yes, I agree. But there's a logical proof that Marx's theory of value
is logically impossible. I don't buy it for one minute, but that's
what the TP is. Neo-Ricardians, in general, reject labour theories of
value on these grounds (e.g. Steedman). According to them, there isn't
an important relationship between labour-time and prices. The question
is not one of proving, but disproving.

Well, if there is such a logical disproof, it would have to show the
internal incoherence of the theory. But from what I understand of it,
neo-Ricardians do not actually accomplish that. The reason is, that they
introduce assumptions alien to Marx's argument, and basically just try to
relate prices, based on eclectic assumptions about economic value. Marx is
according to them not entitled to assume, for the sake of argument, that the
cost-prices are equal to their values, but why? Why is this unreasonable?
That aside, the neo-Ricardian examples do not seem realistic, and seem to
have very little in common with business realities. Actually, measuring an
"internal rate of return" is actually a hell of a lot of work, and mostly,
businesspeople do not even know what their business is worth as a "going
concern". All they have is input costs, output prices, cost-centres and
revenue streams. The only "incoherence" I can think of is quite simply that
Marx combines values and prices in one equation, or assumes for the sake of
argument they are identical, but as far as I can see he does that only to
show, in a simplified way, a "moving reality" in which the micro-level and
the macro-level reciprocally affect each other. Values are conserved and
transferred between successive exchanges by production, but what the
incremental (added) value will be, is determined at the macro-level, that's
the problem (in business language, ""the state of the market").

>Yes, maybe for Marx (e.g. TSS intepretation heavily emphasises a
dynamic reading of Marx). Nonetheless, there is a modern TP, which is
static. You are rejecting this special case study.

Well I am prepared to look into it, but I didn't think it was particularly
useful, at least not for Marx's purposes. It could, however, elucidate
aspects which Marx hadn't thought of (one has to experiment with things).
Modern economics moves from observed prices to ideal prices stating an
aggregate value, Marx goes the other way round. I don't think either
procedure is any less problematic than the other. But, not being a
professional economist, I do not normally cudgel my brains over the
implications of a model unless I think it is reasonably realistic.

>But the possibility of that reconciliation is precisely what is at
question. You know that neo-Ricardian critics will interpret your last
statement as dialectical "mumbo-jumbo". They will say that no such
contradiction is reconciled in practice, and that this is just Marxist
wishful thinking, that somehow the economy sorts out their theoretical
confusions for them (etc.).

But in that case the Neo-Ricardians are in truth not Ricardians at all,
because for Ricardo (as for Marx) there really was this problem, i.e. output
could sell above or below value in the marketplace, with value defined in
terms of labour-content. It was an empirical observation of Ricardo and
other economists that capitals of equal sizes reaped very similar returns,
regardless of labour-time expended. There was therefore an inconsistency
between theory and observation. The returns were supposed to be determined
by direct labour input. Marx then asks, how is this inconsistency possible
in the first place? There is a puzzle leading to a discovery. In answering
it, he argues that this inconsistency (or paradox) must be understood not
statically, but in terms of a moving reality, in which "the parts" and "the
whole" reciprocally influence each other in the dimension of time, and
additionally he also tries to explain the objective causes for why the idea
that "the value of commodities is determined by the labour they contain"
henceforth continues "to percolate only in this crudified and naive form" of
"productivity". This is a perfectly acceptable idea, which I think can be
stated and formalised without any reference to "dialectics" whatsoever. But
in the process, a mutation occurs in Ricardo's theory, namely, value is no
longer a technical function or numeraire, but becomes a socially determined,
aggregate relationship that can be understood only in motion, in a temporal
perspective. The fact, that prices and values deviate from each other,
itself becomes highly important in explaining the dynamics of competition,
the behaviour of producing enterprises and the growth of production.
Economics is full of paradoxes, there are many books about this from many
perspectives, and indeed, to be in business, they say you have to "learn to
live with paradoxes". But what are these paradoxes made of? Contradictions.
What is a dialectical contradiction? A situation where a condition involves
the presence of its opposite as a requirement for its existence, giving rise
to a mediation between the condition and its opposite. Nothing particularly
mystical about that.

I assume Marx would have said something like "The utility of my value theory
is that it permits one to grasp the economic reality dynamically in such a
way that there is one set of conceptual distinctions covering both the
micro-level and the macro-level together", in other words you have one
theory of social reality in its totality, showing the place of its different
facets. This in contrast to a theory in which X is real at the micro-level,
but not real at the macro-level, and vice versa. You could also drop all
talk of value, but the problem is, for any more complex discussion of
prices, assumptions about value are made anyway. So really the interesting
questions I think do not concern "proving the concept of value" but looking
at whether they can make sense of empirical reality or not, or if we have to
adjust our concepts in the light of experience. I had an interesting
exchange with Jonathan Nitzan, who argues that price relations really refer
to power relations instead of value relations: big price - big power, small
price - small power, sort of thing. That's another way to look at it...
until you experience the constraints of labour-time...


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