Gérard Duménil and Duncan Foley wrote
The origins of the Marxian Transformation Problem
i.e. the process of converting values, which are measures of human productive activity, into prices of production. This is easily done- at least in theory. Choose per capita GDP as the labour 'numeraire'. Actually, don't bother. Wave your hands and say it could be done and then proceed regardless.
lie in the differences between two central abstractions of classical political economy, the labour theory of value
which is like the Allah theory of value because only Allah creates value. It is merely a shibboleth.
and the equalization of the rate of profit through competition among capitals.
Again, just say any discrepancy is a reward for risk or else a 'rent' on entrepreneurial ability or something more sinister and oligopolistic.
Marx proposed that these two principles could be reconciled by
hand waving.
distinguishing the production of surplus-value through the exploitation of labour in the process of production from the realization of surplus-value through the price system,
The wage is a price. If you pay a guy less than he earns for you, you have extracted surplus value
and claimed that the equalization of the rate of profit could be viewed as a redistribution of a given surplus-value among sectors.
In which case, profit isn't 'surplus value'. It is something 'redistributed through the price-system'. That sounds like the return to speculation. Another word for speculator is 'market maker'. Thus profits and markets exist independently of labour and surplus value.
Marx's treatment can be seen as a generalization of the discussion of this problem in Smith and Ricardo. Modern criticisms of Marx's discussion claim that the labour theory of value is an unnecessary detour to the determination of prices and profit rates,
no great harm is done by saying Labour or Allah or Disabled Lesbians chopping off dicks are the source of all value. You can always pretend that there is a numeraire based on Labour, or God, or Wokeness or whatever.
and that Marx's claims that total value and surplus-value are conserved when prices equalize profit rates is unfounded.
It can be rendered tautological easily enough.
The Single System Labour Theory of Value (SS-LTV) interpretation maintains Marx’s two fundamental claims in the following formulations: (1) the price of the net product is the expression in prices (price form) of the total value-creating labour expanded during the period,
that's just GDP at factor prices.
and (2) total profits are the price form of surplus-value, determining the value of labour-power as unallocated purchasing power (UPP) on any set of commodities workers can buy from their wages.
Workers can pay kick-backs or bribes to get particular jobs.
These properties hold for any set of prices, not specifically prices of production. The various positions in this controversy are illustrated in a mathematical formalization
No. There is hand-waving. There is no 'mathematical formalization' because there are no well defined sets or functions.
of the circulating capital model of production...Marx consistently distinguishes the notions of value and price, in contrast to contemporary economic language, which uses the term 'value' to refer to prices in a situation of general equilibrium, though the use of the term is rather flexible;
No. There is utility. Some consumers get 'consumer surplus' by being able to buy at a price lower than they would have been prepared to pay.
for example 'value added' is actually the value of net product measured in price terms.
That is an accountancy term useful for calculating the yield from VAT.
For Marx, value is a 'social substance'
just as for a devout Muslim it is what all mighty Allah has decreed
manifested in economic relations in the 'form' of prices, though prices are not necessarily proportional to values as we will see.
Prices are what clear the market- at least in theory. If there is too much of a thing, its price may drop to zero.
Value and surplus-value We first recall Marx's basic concepts (see also Marx's analysis of capitalist production). Central to Marx's framework of analysis in Capital is the labour theory of value (LTV), which defines the value of a commodity as the 'socially necessary' labour time required by its production,
Nobody knows what is 'socially necessary'. One may as well say, 'it is what all mighty Allah has decreed'.
that is, the labour time required by average available techniques of production for workers of average skill.
Nobody knows that 'average'. We can estimate it but different people will arrive at different estimates.
The LTV is central to Marx's theory of exploitation, a term he uses to describe a situation in which one individual or group lives on the product of the labour of others.
When can say this about everybody or anything. The guy digging coal out of the ground by the sweat of his brow is a parasite. He is dependent on the soldiers who defend the country's borders. The soldiers are parasites. They are dependent on the tax-payer. Did you know that billionaires pay more in tax than beggars? This proves we are all parasites on Oligarchs.
According to the LTV, when commodities are exchanged through sale and purchase, no value is created.
This is obviously false. Shop keepers work hard as do 'market makers'.
But this principle does not apply to capitalists' purchase of the labour-power of workers.
Capitalists should stop purchasing labour power. Let workers set up their own enterprises. Actually, that may be cheaper for those with lots of money.
Workers sell their labour-power, that is, their capability to work, to a firm, owned by a capitalist. The buyer uses this labour-power in production to add value to the commodity produced. The value of labour-power is the labour time required by the production of the commodities the worker buys. But the worker can typically work more hours than are on average required to produce this bundle of commodities. For example, the goods the worker can buy may require 8 hours of labour per day, when the labour-day lasts 12 hours.
What about the cost of the machines and other tools used by the labourer? Also, is there to be no reward for the entrepreneur who takes the risk of setting up the factory or enterprise in question? Finally, there is the question of taxes- which are the price we pay for civilization.
The difference, 4 hours, is unpaid labour time. If an hour of social labour on average produces a value whose price form is $10, 4 hours of unpaid labour time results in a surplus-value whose price form is $40, which is appropriated by the capitalist.
Which he uses to pay any rent, interest, dividends, taxes etc.
The rate of surplus-value is the ratio of unpaid to paid labour time,
Nobody knows what that ratio is. One may as well speak of the ratio between what we do and what God does for us.
in this case, 4/8, that is 50%. Marx situates his discussion in the context of the distinction made by Adam Smith and David Ricardo between 'market prices' and 'natural prices'.
Market prices are knowable. Natural prices are not. Speaking mathematically, there is a lack of naturality and unicity in this field. Still, since there are no well defined sets or functions, you only have ad hoc estimates based on arbitrary stipulations.
Market prices are the prices at which commodities actually exchange from day to day in the market. Smith and Ricardo, however, regarded market prices as fluctuating (or 'gravitating') around centres of attraction they called 'natural prices'.
We may speak of these as prices under 'Rational Expectations'- i.e. one where outcomes are equal to the prediction of the correct economic theory.
('Gravitation' means that the economy is in a permanent situation of disequilibrium, though in a vicinity of equilibrium where natural prices would prevail.) In the above analysis, Marx assumes that commodities tend to exchange at their values (at prices proportional to values), that is, in proportion to the labour time embodied in them.
Because he was a polemicist who was pretending that evil Capitalists wearing top hats were stealing money from their workers. But one could equally say that people are only paid by God- because God is the only efficient cause. Thus any worker who is an atheist should be killed for the crime of apostacy. He is effectively stealing that which God has allotted him by falsely claiming it to be the product of his own effort. This theological point of view is superior in that God might actually exist. Atheists may burn for all eternity in hell fire. Marxism is mischievous because it implants a sense of grievance in those who work for a living. Marginalism pointed out that the marginal worker receives his marginal product.
'Tend' means here that deviations are obviously possible, but that such prices will 'regulate' the market, in the sense that if the prevailing set of prices systematically under-compensates the labour used in the production of a commodity, labour will move to the production of better-paid commodities. As a result, the supply of the under-compensated commodity will decline, and its price will rise.
unless demand falls faster. Falling demand is what made the thing 'under-compensated' in the first place.
In reality prices would gravitate around values, which would play the role of natural prices in such an economy. This is the commodity law of exchange.
There is no such law. Demand is exogenous and based on a changing fitness landscape reflective of changing opportunity costs. What it will be, we can only guess. It is this Risk and Uncertainty which causes entrepreneurs to earn a reward over and above any factor input of their own. Get rid of the reward, and enterprises turn into zombies.
In a capitalist economy, however, capitalists buy not only the labour-power of workers (which Marx denotes as variable capital), but also non-labour inputs, such as raw materials, and fixed capital, such as machinery (which Marx denotes as constant capital). If natural prices were proportional to labour inputs, as the commodity law of exchange posits,
then pigs could fly. This is because hard working pigs would be able to buy jetpacks or get Tony Stark to design them an 'Iron-pig' costume. Capitalist oppression of pigs has gravely impacted their aeronautical capabilities. Amartya Sen should protest against this injustice.
capitalists using more constant capital per worker than the average would realize smaller profit in comparison to their total capital advanced, that is, lower profit rates.
Only if their circulating capital earned the same return as less capital intensive firms. This is unlikely. Speaking generally, there is a queue for capital intensive items- e.g. ships or steam engines- whereas labour intensive goods have higher inventory and distribution costs relative to price.
Marx accepts the idea that competition tends to equalize profit rates in various industries,
Profit is equalized on the basis of risk. Thus profit will be greater in the capital goods sector because of the 'accelerator effect' because risk is greater. It will be lower in the wage goods sector because demand is less volatile.
despite differences in capital advanced per worker, which is the capitalist law of exchange.
But 'capital advanced per worker' is highly volatile in capital intensive enterprises. This so called 'law' is nonsense.
Marx uses the term prices of production to describe a system of prices which guarantee to the capitalists of various industries a uniform profit rate.
There can be no such system. Why? Knightian Uncertainty. We don't know what the future will hold. We can guess and take risks but will only do so if the reward is sufficient.
Capitalists will invest more where profit rates are larger,
No. The invest where rates are lower but less volatile. Portfolio Choice theory says you should only gamble with a small portion of your total assets. Furthermore, what is salient is 'expected profit'. But this can be affected by 'animal spirits'.
and conversely in the symmetrical case. They move their capital from one industry to another seeking maximum profit rates,
No. They exit industries which are expected to decline and enter industries which are expected to grow rapidly. Thus people began exiting the coach building industry and entering the automobile industry because they thought the internal combustion engine would replace the horse.
and this movement result in a gravitation of market prices around prices of production.
Because this is a 'steady state' with no innovation or exogenous shocks- e.g. Wars or Revolutions. Marxism is a 'Classical' Economics which lost all relevance after the Industrial Revolution got off the ground. It is merely a paranoid type of polemics which states that workers are being mercilessly exploited. For a Feminist version of this theory, see here. The same argument for abolishing Capitalism can be used for the banning of such dicks as are not exclusively used for homosexual purposes.
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