[OPE-L] Stocks and flows in Marx's theory

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Sun Nov 25 2007 - 10:44:33 EST


Yes of course there are also flows in Marx's story, since he also refers to capital expenditures and capital revenues across time. But the capital compositions discussed in Cap. Vol. 3 ch. 9 and which are so critical to the transformation problem controversy, are just expressed as given sums of capital, as given business results, which abstract from time. Marx indeed says so explicitly at the beginning: "For the present, therefore, we disregard the difference which may be produced in this respect by variations in the duration of turnovers." http://www.marxists.org/archive/marx/works/1894-c3/ch09.htm 

I'm going one step back from theoretical equilibrium analysis here, and all I am saying there is, that in conventional accounting, the prices of inputs and outputs THEMSELVES are arrived at by adding and subtracting financial flows of expenditure and revenue across time according to a grossing and netting procedure, aided by certain definitions and valuation principles. 

To arrive at the conventional estimate of value-added (or net output), one subtracts inputs "used up" from the gross output, but this already presupposes that this whole accounting procedure has been accepted. 

Within this accounting system, total inputs must necessarily equal total outputs, because of the definitions used, since, for the subset of the total transaction volume selected as relevant to the calculation, the total of product sales MUST BE EQUAL to the total purchases. This makes possible, for example, a consolidation according to which the value of net output is equal to the expenditure on net output, and equal to the factor incomes generated by the output. But this result is obtained exclusively due to the definitions used, and does not exist as such in reality, i.e. it is an abstraction made from reality. 

Oodles of economists, including Marxist economists, often talk very loosely about "inputs and outputs", assuming these to be obvious and non-problematic categories, and they frequently conflate the flow measures of the value of inputs and outputs (sums of money) with the stock (or asset) valuation of those inputs and outputs (also sums of money). In reality, these categories themselves are not unproblematic.

The confusing thing is, when the attempt is made to prove or disprove a value theory with an input-output analysis which in truth itself already assumes a value theory to start off with, THAT is my point (what I mean by a value theory here, is a coherent set of principles about what may count as equivalent value, comparable value, conserved value, value used up/destroyed/wasted, value transferred, and newly created value, i.e. a set of principles which is used for price aggregation and disaggregation to obtain a measure of the gross output or the expenditure on it). 

The input-output analysis made may show brilliant mathematical logic, but if we don't know what we are counting, and the numbers used in it presuppose something about what we try to prove, we are not much further ahead. The fact that we use numbers, gives an appearance of logical rigour and scientific status, but the rigour and status disappear as soon as we ask what the numbers represent, and find that what has to be proved is being assumed already.

What a social accountant regards as the value of inputs and outputs in fact DIVERGES from the price of inputs and outputs of a real business, since a portion of the transaction flows of a real business is disregarded, because unrelated to the accounting definition of production and value added, and because imputations or estimates are added for flows which do not exist as such in the real world, but which conform to a prior concept. I can vouch for this, because in the past I was professionally involved in the design of government survey questionnaires which collect data for SNA and BOP calculations, in which you have to bridge the understanding which a business has of its own operations, and the understanding required from the point of view of the social accounts. They are not the same thing.

The problems are obviously compounded when the attempt is made to test any particular economic theory of value empirically against input-output price data, because effectively, "one theory is tested against the results produced by another theory". 

In his critique of the political economists, Marx tackled this whole problem, noting for example a paradox (in ch. 1 of Cap. Vol. 3):

"if no other element than the value advance of the capitalist enters into the formation of the value of a commodity, it is inexplicable how more value should come out of production than went into it, for something cannot come out of nothing. But Torrens only evades this creation out of nothing by transferring it from the sphere of commodity-production to that of commodity-circulation. Profit cannot come out of production, says Torrens, for otherwise it would already be contained in the cost of production, and there would not be a surplus over this cost. Profit cannot come out of the exchange of commodities, replies Ramsay, unless it already existed before this exchange. The sum of the value of the exchanged products is evidently not altered in the exchange of these products, whose sum of value it is. It is the same before and after the exchange." http://www.marxists.org/archive/marx/works/1894-c3/ch01.htm

In national accounts, this whole theoretical dispute is solved simply by regarding the "excess" (the operating surplus or gross profit from production) as a "factor cost" and by defining the boundaries of production transactions. Once this is done, total "costs" balance against total "sales", and the price of total "inputs" equals the price of total "outputs". 

The point to understand here really is that Marx's chosen procedure in Cap. Vol. 3 ch. 9 is no more or less problematic, than the empirical accounting procedure according to which total inputs are made to equal total outputs, and the value-added is inferred from them. In Marx's theory, the value or price of total outputs sold NEVER equals the total value or price of inputs purchased, just on the ground alone that net new value is created in production, such that the latter must be larger than the former, at least in the normal situation.


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