[OPE-L:3427] RE: Andrew's TSS and value added

andrew kliman (Andrew_Kliman@msn.com)
Tue, 15 Oct 1996 10:48:40 -0700 (PDT)

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First, a couple of comments on Fred's ope-l 3399.

I agree with Fred's interpretation of what I'm saying concerning valuation,
and I think he expresses the issues very well. In particular, I think the
distinction be draws between equalities (or identities) and relations of
determination is precisely the one that is needed here. Thus the questions
Fred raises in connection with Duncan's interpretation are my questions as
well. Duncan *seems* to be inferring TSS relations of determination
backwards, from time of output to time of input. But TSS relations of
determination, because it is temporal, move forward, from time of inputs to
time of output.

Fred writes: "the various components of capital ... are also defined in terms
of money. Andrew has also emphasized this point in earlier works, and this is
the way I have interpreted his derivation of the falling rate of profit. (I
realize that but in recent posts Andrew seems to be emphasizing more the
definition of concepts in terms of labor-time; ....)"

I agree that Marx's values and his prices are *measured* in terms of money.
But I think they are *determined* by labor-time. More precisely, if the
monetary expression of value were to remain constant, they would be determined
solely by labor-time. I think that Marx's important quantitative results, for
instance his results concerning the value/production price transformation and
the FRP, depend on a constant MEV. If there is inflation of the MEV, then
total money price can change for reasons having nothing to do with the total
value produced as measured in labor-time, and the rate of profit measured in
money can differ from the constant-MEV profit rate or, what is the same, the
profit rate measured as a ratio of labor-time magnitudes.

Fred also writes: "Perhaps the unreality of Andrew' conclusion, as implied
by Duncan's question above, is another argument against Andrew's 'historical
cost' interpretation."

Fred is referring to the conclusion that with output increasing 250.a.,
output being a constant 25 0reater than input, and everything being
accumulated, the profit rate (in labor-time, or with a constant MEV) falls to
zero if surplus-value is stagnant.

I have already dealt with this issue, noting that it is not simply a figment
of the temporalist imagination or historical cost valuation. The
simultaneist, "replacement cost" figures in my example imply, very similarly,
that the value of output (also measured in labor-time) is stagnant and that
the rate of accumulation of capital is zero. What my example highlights is the
"Contradiction between Value and Use-Value." To deny the reality of my
conclusion is thus to deny the determination of value by labor-time. I've
discussed this much more fully in a post with that title ("Contradiction
between Value and Use-Value," ope-l 3254). Since that post seems to have
gotten lost amid the many-sided discussion, to have received no comment thus
far, I am reproducing the text of it below.

Andrew Kliman
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This replies to Bruce's latest two posts (ope-l's 3163, 3202), to Duncan's
ope-l 3236, and to the whole value added discussion. I hope to respond in the

near future to some aspects of Bruce's post not addressed below.

In ope-l 3236, Duncan wrote (in part):

"Let me also record my agreement with your [Fred's] earlier posts that pointed

out
how strange the price and profit rate paths in Andrew's examples are when we
interpret them in the light of real capitalist experience. It is hard to
believe that a capitalist economy experiencing steady labor productivity
increases and constant capital productivity would be suffering a catastrophic
and irreversible fall in the rate of profit to zero."

Although by "strange" Duncan at first appears to mean contrary to "real
capitalist experience," the next sentence doesn't seem to refer to empirical
evidence. Instead, "strange" now appears to mean "hard to believe," i.e.,
contrary to theoretical expectations.

I cheerfully acknowledge that, in this 2nd sense, my example is "strange" or,
as I called it, "extreme." It was purposely designed to yield results that
are counter-intuitive from the standpoint of Sraffian corn model thinking and
of what amounts in practice to the same thing, the simultaneist "labor theory
of value."

To what Alan Freeman likes to call the "na´ve" reader of _Capital_, however,
whose "reading is literal but not simple-minded" ("The Psychopathology of
Walrasian Marxism," p. 4, in _Marx and Non-equilibrium Economics_), the
results are not strange in the least, but intuitively obvious. Duncan
presents the scenario in use-value terms, which is fine. But to see how
obvious the results are to the na´ve reader, please put the use-value figures
aside, just for the moment, and consider the exact same scenario in value
terms, as measured in labor-time:

* Surplus-value is a stagnant 100 labor-hours.
* None of the surplus-value is used for capitalists' or workers' consumption.
* Therefore, all surplus-value is invested, along with the original
capital-value advanced.
* Therefore, the value of capital advanced increases (by 100 labor-hours) from

period to period.
* Therefore, the rate of profit falls monotonically and approaches 0.

Na´ve. Literal. And exactly in conformity with Marx's law of the falling
tendency of the profit rate.

I will also cheerfully acknowledge that this is not the last word on the
matter. As the value of the corn falls (in labor-time terms), the existing
capital becomes devalued. Marx argues that this leads to crises, which
manifest the devaluation of capital. So the fall in the profit rate is not
necessarily "catastrophic," nor is it "irreversible," because the foregoing
scenario doesn't take crises into account. Falling values raise the rate of
profit calculated on replacement costs, so that when enough old capital-value
is destroyed, the system can begin again with the replacement cost rate
momentarily reigning (this is a highly overstylized account, of course).

I am incapable of modeling the concrete dynamics of capital accumulation.
Without doing so, some simpler problems concerning capital devaluation can
nonetheless be addressed. For instance, proponents of simultaneous valuation
would have us believe that the "rate of profit" is a constant 25 0espite ---
or because of --- the devaluation of capital. But the devaluation of capital
doesn't raise the rate of self-expansion of capital, or, what is basically the

same, the internal rate of return on investment. In my example, the internal
rate of return, r, is determined by:

capital-value invested at time t = (value realized at time t+1)/(1+r[t,t+1])

The TSS calculations give

400 + 100*t = (500 + 100*t)/(1+r[t,t+1])

or

r[t,t+1] = 100/(400 + 100*t).

So, as t increases, the IRR falls and approaches 0%.

But isn't this just a figment of the temporalist imagination, expressed in an
incorrect measurement of value added and/or constant capital?

Well, let's see. According to the *simultaneist* calculations, again in
labor-time terms, the capital actually advanced at the beginning of every
period (except period 0) is 500 labor-hours. (This is what everyone but Bruce

seems to call the historical value of the capital.) Note that the capital
advanced has to be 500 labor-hours if Alan's condition is met --- the value
received by the seller equals the value paid by the buyer ---since the value
received by the sellers always totals 500 labor-hours.

The simultaneist IRR is thus determined by

500 = 500/(1+r[t,t+1])

so that

r[t,t+1] = 0%

except in period 0.

Thus, simultaneism hides the contradiction between value and use-value by
measuring the "profit rate" as a constant 25%, but it does not make the
contradiction disappear. According to SIMULTANEISM ITSELF, the economy does
not grow in (labor-time) value terms. The value of gross output is a stagnant
500 labor-hours throughout all time. The historical cost of the capital
advanced is a stagnant 500 labor-hours (except in period 0). Ah, but the
proponents of simultaneous valuation want capital to be measured at
replacement cost. Well, replacement cost measurement also yields a stagnant
value of capital advanced, 400 labor-hours. Thus, the rate of accumulation of

value is 0%, even though, as Bruce says, "everything available is being
accumulated in every period." And again, except in the initial period,
capitalists plough 500 labor-hours back into production at time t and get back

500 labor-hours at time t+1. I grant anyone the right to say that the "profit

rate" is a constant 25%, but not to say that this 25 0s measuring the
self-expansion of capital or the rate of return on investment. Simultaneous
valuation itself shows that this falls from 25 0n the initial period to 0%
forever after!

I thus disagree with Bruce when he writes:

"In this example, as near as I can tell, nothing much happens to the situation

of capitalists. Capital grows at a steady rate (25%), and since everything
available is being accumulated in every period, it makes sense to me to say
(as simultaneous calculation does) that capital earns its profit at that same
steady rate of 25%."

The amount of CORN planted surely grows at the steady rate of 25%, the amount

of CORN produced surely grows at the steady rate of 25%, and the excess of
CORN output to CORN input is always a steady 25%. I am happy to accept these
figures as "value" magnitudes in the context of the Dmitriev-Sraffa theory, a
theory in which corn, or the standard corn-modity, is the substance of value,
such that a unit of corn (numeraire) always has a constant value. But in the
context of Marx's value theory, in which labor-time is the substance of value,

and the value of corn (numeraire) is determined by the labor-time needed to
produce it, one simply cannot say that CAPITAL grows at a steady rate.
CAPITAL is a contradictory unity of use-value *and* value, and even according
to the simultaneist calculations themselves, nay, especially according to
them, there is no self-expansion of capital in VALUE terms.

So, no, I do not think Bruce has satisfactorily shown that his theory is "just

as internally consistent and consistent with the elementary reality of
exchange as is your own [temporalist] approach taken on its own terms." Once
it is
stipulated that the value received is equal to the value paid --- in terms of
the immanent measure of value, labor-time --- then simultaneism yields
internally contradictory results: the "rate of profit" is 25 0n every
period, everything available is accumulated, yet the value of capital fails to

self-expand and the rate of return on investment in value terms, not corn, is
zero. The results make sense if one confines one's attention to a given
period, but once one takes the whole expanse of time into account, the results

no longer imply what simultaneist doctrine wants them to imply.

This contradiction is, however, not a curiosum produced by simultaneist
miscalculation. It is present in somewhat different (and consistent) form in
the temporalist calculations as well, because the contradiction is a
contradiction within the commodity itself, within capital itself, the
contradiction between value and use-value.

One can recognize this contradiction and take it to its perhaps
counterintuitive conclusion, as I would submit that Marx and the TSS
interpretation have done. One can deny it, and come up with an internally
consistent theory in which use-value *is* value and the numeraire commodity is

the substance of value, as Walrasianism and Sraffianism have done, and reach
very different conclusions.

But one cannot mix-and-match the two theories and come up with anything
consistent. Value is determined either by labor-time or by the amount of corn

produced in a span of labor-time. Either an hour of labor embodied is the
same amount of value in all periods, or a bushel of corn has the same value in

all periods.

Bruce wants to say that, in terms of my example, an hour of labor embodied in
the last period has only 800f the value of an hour newly embodied in the
present period. Why might this be? BECAUSE IT ONLY PRODUCES 80% AS MUCH
CORN. So we have value being measured in labor-time, but labor-time being
revalued such that, when all is said and done, value is being measured in
corn. The corn calculations make perfect sense, as corn calculations. But
the interpretation of them as labor-time magnitudes does not. Bruce arrives
at what he considers internally consistent and meaningful labor-time figures
*within* each period, but *across* periods, the figures don't make sense.

The reason is that the unit of account, labor-time, is unstable. Bruce, and
the simultaneist "labor theory of value" in general, are measuring with a
rubber ruler. Generally accepted accounting principles, and indeed the very

concept of value (however measured) require a stable unit of account.

In essence, Bruce acknowledges this when he emphasizes that he is doing
"current" labor-time accounting. But any viable dynamics requires continuity,

not a discontinuous sequence of "current" moments that cannot be compared. It

is worth noting that Philip Mirowski, certainly no TSSer, recognized this
several years ago:

"The crystalized-labor method can construct a viable dynamics beased upon an
invariant unit because 'an hour is an hour is an hour'; the real-cost method,
devoid of explicit invariants, can only calculate a sequence of static
equilibria in which the labor-value unit is not comparable from one
calculation to the next" (_More Heat than Light_, 1989, p. 184).

(The "crystalized-labor method" is akin to, but not exactly the same as, my
own; the "real-cost method" is the simultaneist "labor theory of value.")

It is also worth recalling Marx's critique of Bailey. Bailey had written that

"Value is a relation between *contemporary* commodities ..." so that values of

different periods cannot be compared. Now, for Bruce, value is not a relation

between contemporary commodities but between contemporary labor-time and
contemporary commodites. However, Marx's critique of Bailey centers on the
allegedly contemporary character of value: "But what a fool he is! Is it not

a fact that, in the process of circulation or the process of reproduction of
capital, the value of one period is constantly compared with that of another
period, an operation upon which production itself is based?" [TSV III, p. 154,

emphasis in original quote of Bailey]

Andrew Kliman