value and price

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SatanIsMyCoPilot
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Nov 24 2006 14:17
value and price

Hi,

Can any of the Marx people help out with a quick (but probably very complicated) problem?

How is value transformed into price?

I know this relates to the so-called transformation problem in volume 3 (haven't got there yet - still plowing through volume 2), but when asked recently how value becomes price I was deeply embarressed to find that I simply didn't know, or was at least able to give only the most rudimentary answer. Marx establishes a provisional identity between value and price in volume 1, assuming for the sake of clarity that commodities are sold at their real values. ...but value might not be realised in price; I might end up selling my goods for more or less than the value embodied in them.

Now, if I can't demonstrate that labour value really lies behind price, on what basis am I able to defend the thesis of surplus value? How am I able to claim that Marx's entire analysis is anything other than supposition? Sure, he gives us mountains of evidence to prove his points, and there's the deduction that everything is the product of labour right at the beginning - but if I can't come up with a decent answer as to how value becomes price, I'd seem to be standing on rather unsteady ground.

Any suggestions/solutions?

SatanIsMyCoPilot
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Nov 24 2006 14:44

The fact that it becomes a sellable commodity is presupposed in the production of value; why bother producing commodities if they're not going to be sold? I'm interested in the way in which a particular value is transformed into a particular price.

Anarcho
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Nov 24 2006 14:57

This is a non-issue.

The concept of "value" is simply a tool for analysis, an abstraction at a high level to understand a very complex system (any real economy). It does not exist (or, at least, cannot be measured or empirically proven which pretty much amounts to the same thing).

Price, however, does exist. The aim of "value" is to present an understanding of how prices move in the real world. Exchange value is simply the cost of production plus average profit. It is the equilibrium point where supply and demand meet (which rarely happens in reality). In the long term, market price gravitates around this (and technological changes and class struggle change it as time goes on). In the short term, market price changes and does not equal "natural price" (or exchange value).

In volume 1 of Capital, marx assumes that market price equals "exchange value" in order to show that labour is exploited. He assumes the same level of capital investment so that this is the case. While neo-classical economics attacked him for this, they forget that this was only an abstraction and, ironically, their own theory of marginal productivity requires the same assumption. Marx, however, explicitly states that price equalling exchange value is only an abstraction and does not apply in reality.

in volume 3, Marx relaxes the assumption of equal capital and discusses (again at high level) the "transformation problem." But as Paul Mattick notes in "Marxism: the last refute of the bourgeoisie" this is a non-issue as value is a tool for abstraction and analysis.

I was thinking of adding an appendix on this to "An Anarchist FAQ" but I have better things to do!

Here is a good quote by David Schweickart:

Quote:
It is clear that Marx himself, even while composing Capital I, was fully aware that prices would be proportional to values only in the accidental case of equal organic composition of capital.[11] So whatever Marx was doing in his demonstration of exploitation, he was not—as is often alleged—taking over uncritically the prevailing, though erroneous, theory of his day. It is more sensible (and fairer to Marx) to regard the premise that prices are proportional to labor values as merely a simplifying assumption. Though this assumption does not hold in general (simplifying assumptions never do), the implicit claim is that the basic conclusion does not depend in an essential way on this assumption. Marx may be presumed to be arguing thus: if capitalism is transparently exploitative when the equal organic composition of capital obtains, then it must be exploitative in general, for surely the exploitative nature of an economic system cannot depend on so accidental a feature as the organic composition of capital.

There is nothing peculiar about this form of argument. Most arguments that purport to draw conclusions about the world from stylized, simplified models have this structure. Simplifying assumptions are invoked in the formal proofs—which is why they are labelled 'assumptions' — but they are presumed to be inessential—which is why they are merely 'simplifying.'

http://orion.it.luc.edu/~dschwei/cottoncornlabor.htm

SatanIsMyCoPilot
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Nov 24 2006 16:13
revol68 wrote:
SatanIsMyCoPilot wrote:
The fact that it becomes a sellable commodity is presupposed in the production of value; why bother producing commodities if they're not going to be sold? I'm interested in the way in which a particular value is transformed into a particular price.

fuck man that's not really a question that can be answered in some abstract manner. I mean it's a heady mix of factors, from class militancy, inter capitalist competition, wars, cultural tastes and so on.

I mean if you just look at a work of art, is there any inherent connection between it's value and it's price? Furthermore I don't think Marx was trying to develop a theory for prices.

hmmm just realised are you talking about value in that it can be directly exchanged for quantities of other goods and as distinct from price as expressed in money? Because I would say that the universalisation of money has made such a distinction meaningless.

I

Commodities are made in order to create more capital. They can only create more capital if the value implicit in them is realised in exchange. Consequently, producing commodities presupposes the fact that they're going to be sold

SatanIsMyCoPilot
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Nov 24 2006 16:24
Anarcho wrote:
This is a non-issue.

The concept of "value" is simply a tool for analysis, an abstraction at a high level to understand a very complex system (any real economy). It does not exist (or, at least, cannot be measured or empirically proven which pretty much amounts to the same thing).

Price, however, does exist. The aim of "value" is to present an understanding of how prices move in the real world. Exchange value is simply the cost of production plus average profit. It is the equilibrium point where supply and demand meet (which rarely happens in reality). In the long term, market price gravitates around this (and technological changes and class struggle change it as time goes on). In the short term, market price changes and does not equal "natural price" (or exchange value).

In volume 1 of Capital, marx assumes that market price equals "exchange value" in order to show that labour is exploited. He assumes the same level of capital investment so that this is the case. While neo-classical economics attacked him for this, they forget that this was only an abstraction and, ironically, their own theory of marginal productivity requires the same assumption. Marx, however, explicitly states that price equalling exchange value is only an abstraction and does not apply in reality.

in volume 3, Marx relaxes the assumption of equal capital and discusses (again at high level) the "transformation problem." But as Paul Mattick notes in "Marxism: the last refute of the bourgeoisie" this is a non-issue as value is a tool for abstraction and analysis.

I was thinking of adding an appendix on this to "An Anarchist FAQ" but I have better things to do!

Here is a good quote by David Schweickart:

Quote:
It is clear that Marx himself, even while composing Capital I, was fully aware that prices would be proportional to values only in the accidental case of equal organic composition of capital.[11] So whatever Marx was doing in his demonstration of exploitation, he was not—as is often alleged—taking over uncritically the prevailing, though erroneous, theory of his day. It is more sensible (and fairer to Marx) to regard the premise that prices are proportional to labor values as merely a simplifying assumption. Though this assumption does not hold in general (simplifying assumptions never do), the implicit claim is that the basic conclusion does not depend in an essential way on this assumption. Marx may be presumed to be arguing thus: if capitalism is transparently exploitative when the equal organic composition of capital obtains, then it must be exploitative in general, for surely the exploitative nature of an economic system cannot depend on so accidental a feature as the organic composition of capital.

There is nothing peculiar about this form of argument. Most arguments that purport to draw conclusions about the world from stylized, simplified models have this structure. Simplifying assumptions are invoked in the formal proofs—which is why they are labelled 'assumptions' — but they are presumed to be inessential—which is why they are merely 'simplifying.'

http://orion.it.luc.edu/~dschwei/cottoncornlabor.htm

OK, I've got no problem at all with the fact that Marx is simplifying things, abstracting things, proceeding dialectically, etc. Not a problem. Nor do I have a problem with his provisional assumption of an identity between value and price. But:

"...if capitalism is transparently exploitative when the equal organic composition of capital obtains, then it must be exploitative in general, for surely the exploitative nature of an economic system cannot depend on so accidental a feature as the organic composition of capital"

So, if exploitation is visible when we assume an identity between value and price, it must be present when we don't. But this proves nothing; it simply means that we've come up with a theory which fits a particular hypothetical scenario, which we then imagine to relate to every scenario.

I'm also confused by some of your other comments. Sure, value per se is an abstraction - but it's an abstraction of something real, namely the fact that real human beings in real situations produce real objects, and that the value of these objects arises from these conditions. Nor do I think that value exists as a kind of short hand for price; value is the 'reality,' the real conditions underlying the appearances of the commodity, surely?

It seems more sensible to me (at the moment, at least) to just accept the fact that Marx never got to finish his presentation - and that would he have been able to, he would have explained the determinants which cause value not to be realised in an identical quantity of price.

SatanIsMyCoPilot
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Nov 24 2006 16:25
revol68 wrote:
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Commodities are made in order to create more capital. They can only create more capital if the value implicit in them is realised in exchange. Consequently, producing commodities presupposes the fact that they're going to be sold

and you are telling me this why?

Because you wrote this: "Do you mean how it becomes a particular price or just how value becomes a sellable commodity at all?"

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AndrewF
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Nov 24 2006 16:38

Somewhere (in thought I think) is a long thread called something like Reading Groups, Wages Price and Profit in which this and a lot of related issues are argued at length.

SatanIsMyCoPilot
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Nov 24 2006 16:54

This is a little tedious - you asked whether I was enquiring as to how value becomes a saleable commodity. I replied by pointing out that the production of value presupposes that commodities will be sold.

SatanIsMyCoPilot
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Nov 24 2006 17:00
revol68 wrote:
I fail to see why we need to abstract exploitation to such an extent, or rather why we continously ponder why the abstract doesn't fit the concrete. I mean the basis of exploitation is class, the seperation of labour from the means of it's own reproduction, mediated vis a vis capital and laws of value. These laws might well be quasi independent in that they can't be reduced to conscious actions by particular historical agents but they are nevertheless ontologically grounded in the actions and social relations of billions of people.

The abstract can't fit the concrete - it's an abstraction, a simplification. As Marx says in Methodology of Political Economy (at the beginning of the Grundrisse) we might start off by wanting to talk about a particular society. Where to start? We might think about starting with the population - but that's an abstraction unless we understand social division, which is an abstraction unless we understand economic issues, which are an abstraction unless we understand production and consumption, which is an abstraction unless we understand wage labour, which is an abstraction unless we understand value. Once we've got to this core concept we then need to work back out from the abstract to the concrete (opposite of Hegel working from the abstract to the concrete and then back to the abstract)

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Well value in the sense of X tonnes of A is equivalent to Y litres of B can be said to be based on socially necessary labour time, but this itself is based on the notion that all labour time is interchangeable, which means it's fundamentally just a primmitive form of price or money the universal commodity.

OK - if we assume some hypothetical barter society in which everything is exchanged based on labour time that would work. But in capitalism we're looking at something far more complex, in which the real relations of production become obscured by appearances: value, as a derivative of this real production, becomes obscured by its appearance in price.

SatanIsMyCoPilot
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Nov 24 2006 17:02
revol68 wrote:
i.e. commodities are produced on the basis that they will be sold at a certain price

That's just it, the basis of my question (and confusion): commodities are produced on the basis that they will be sold at a certain price, i.e. a price corresponding to their value - but they very rarely are. Value doesn't match up to price, it isn't necessarily realised in price

RedHughs
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Nov 25 2006 08:28

Interesting topic,

This is hotly discussed in literature on Marxian economics but more heat than light is often shed. I also have had some discussion on US board "anti-politics" about this.

Prices certainly can be put in terms of labor value in even a fully general model but this is quite complicated - Bortkiewicz created a matrix-based system to "fully solve" the transformation problem. The problem is that this doesn't leave us with a particularly enlightening theory. Paul Mattick Jr. and others have attacked this model apparently for trying to give an exact idea of how the system worked (http://www.ucm.es/info/bas/ec/textos/mattick1.htm) but I feel they should instead have made a critical analysis that acknowledges the problems that Marx's original formulation had (the falling rate of profit involves a model of the economy whatever Mattick Jr. might say). I think the direction to go here is to look at the assumptions needed to make Marx's original theory work.

Skimming it, the SCHWEICKART article seems to give a reasonable idea of the issues involved. Prices as equal to value can be seen as just a convenience for *some* of Marx's analysis - commodity fetishism etc.. In other analyses, the assumption is more necessary. The falling rate of profit is in the later category. If prices don't correspond to values, the "rate of exploitation" in labor-terms doesn't necessarily mean anything when translated into money terms, thus the labor-denominated rate of exploitation might be able rise to compensate for any increase in the organic composition of capital in some models of an economy.
However, if we assume that some of the industries required for human survival - farming, clothing, housing increase only marginally or slowly in productivity, then the rate of exploitation can only increase to a finite degree whereas we can see the organic composition of capital increasing tremendously.

Red (from Against Sleep And Nightmare - Hullo anyone I might know "out there")

afraser
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Nov 25 2006 23:58
Quote:
How is value transformed into price?

Value (defined as socially necessary labour time) is not transformed into price - except in the special case of equal compositions of capital. And that never happens in the real world: modern manufacturing uses vastly more capital goods than do service industries, for example. Which makes Schweickarts defence weak: simplifying assumptions are only useful if they are realistic, and compositions of capital have been massively unequal since classical times.

Quote:
Now, if I can't demonstrate that labour value really lies behind price, on what basis am I able to defend the thesis of surplus value?

Well you can still say that labour (plus natural resources) creates that which has value, and that that part of the product appropriated by people other than labourers (and legitimate owners of the natural resources used in its production) is a surplus, appropriation of which is exploitation.

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Any suggestions/solutions?

Pass over Marxian analysis. It really doesn't add anything for the socialist project.

mikus
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Nov 26 2006 07:33

I'm unclear as to why SatanIsMyCopilot has decided that "It seems more sensible to me (at the moment, at least) to just accept the fact that Marx never got to finish his presentation - and that would he have been able to, he would have explained the determinants which cause value not to be realised in an identical quantity of price," considering that SatanIsMyCopilot hasn't gotten to the end of the presentation that Marx did write, thus making it impossible for him to conclude that Marx didn't complete his project.

I completely disagree with the interpretation of Capital which claims that Marx "assumed" equal organic compositions of capital until his explicit discussion of the transformation of values into prices of production. Marx never mentions such an assumption, and if you understand his transformation procedure you see that such an assumption would be entirely arbitrary and unnecessary; as others have noted, his conclusions derived from such an assumption simply would not apply to a case in which organic compositions of capital are unequal.

The key thing to understand is that total value and total price are equal at the level of the total social capital, and that total surplus-value equals total profit (abstracting from interest and rent). Thus, any laws that he developed (such as the laws of the mass of surplus-value developed in Vol.I, or the laws on the relation of the organic composition of capital to the rate of profit developed in the first part of Vol. III) still apply, albeit now at the level of the social capital rather than at that of the individual capital. So retroactively you see that Marx's object of analysis throughout Capital Vol. I and II were the total social capital rather than individual capitals. It's not until Vol. III of Capital that Marx distinguishes between capitals and gives accounts of how this total mass of surplus-value is divided up between industrial capital, money capital, commercial capital and landed property. This is not to say that Volumes I and II do not describe individual capitals at all. It is to say, rather, that they describe only the characteristics which they all share in common with each other, ommitting characteristics which differentiate capital from itself through the process of competition.

As for the actual process by which values are transformed into prices, I'm sorry to say that I would have to rewrite Capital to describe this process, which would be entirely superfluous. You'll get to it in Vol. III.

A comment on Red's post:

Botkiewicz's solution to the so-called "transformation problem" is based on a supposed "error" he discovered in Marx's own transformation problem. You should note that Marx did not think there was such a "transformation problem", or rather he thought it was a problem for the Ricardian school, Marx being the first person to demonstrate that the law of value is compatible with the phenomena of capitalist society. Before Bortkiewicz could substitute his own procedure for Marx's, he first has to "prove" that Marx made a fundamental "error." Once it is shown that Marx made no error, Bortkiewicz's "correction" is shown to be not a "correction" but an entirely different theory (which is ultimately identical to that of the "surplus approach"). A disproof of Bortkiewicz's "proof" can be found here, in a paper entitled "One System or Two?"

I should also note, Red, that if you accept Bortkiewicz's "solution" to the "transformation problem," you also must accept the "proof" provided by numerous authors (Tugan-Baranovsky, Okishio, Roemer, and apparently Bortkiewicz himself although the paper is not available in English) that Marx's law of the tendential fall in the rate of profit is incorrect, since this necessarily follows from his "solution" to the "transformation problem" (this solution depending, as it were, on equal input prices solved in a system of simultaneous equations).

As for "afraser," his comments only show how ignorant s/he is of both "Marxian analysis" and "the socialist project." Any other theory ultimately reconciles the working class to capitalist reality. If labor does not produce value, but only the product that has value, then it is obvious that it will be objected that the past conditions of labor ("capital", for the economists) also produce the product which possesses value. Thus the owner of that past labor is entitled to the portion of the social product denoted by "profit", and profit is a return to the capitalist of his personal contribution, etc. In other words, a return to the illusion that labor = wages, capital = profit, and land = rent.

Mike

SatanIsMyCoPilot
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Nov 27 2006 12:11
mikus wrote:
I'm unclear as to why SatanIsMyCopilot has decided that "It seems more sensible to me (at the moment, at least) to just accept the fact that Marx never got to finish his presentation - and that would he have been able to, he would have explained the determinants which cause value not to be realised in an identical quantity of price," considering that SatanIsMyCopilot hasn't gotten to the end of the presentation that Marx did write, thus making it impossible for him to conclude that Marx didn't complete his project.

...because I'm impatient? Because I'm confused? Because I'm eager to know the answer? Because, as I think I alluded to in the first post in this topic, I found myself in an argument and without the answers that I needed?

Don't think that I'm being dismissive of Marx's project, or that I'm making proclamations about Capital without havind read it all. If I understood or knew what was going I wouldn't ask questions; I'm simply trying to figure things out on the basis of my understanding so far. I very much hope that when I finally make my way to the end of Volume 3 the clouds will part, I will be bathed in pure light, and whilst singing hosannas I will be transfigured in the rapture of Absolute Knowing. but until such time I am forced to content myself with asking questions of those of you who have had the rare privilege of experiencing such an epiphany.

Quote:
I completely disagree with the interpretation of Capital which claims that Marx "assumed" equal organic compositions of capital until his explicit discussion of the transformation of values into prices of production. Marx never mentions such an assumption, and if you understand his transformation procedure you see that such an assumption would be entirely arbitrary and unnecessary; as others have noted, his conclusions derived from such an assumption simply would not apply to a case in which organic compositions of capital are unequal.

well that's confused me. I'll defer to your greater knowledge, largely because I can't be arsed to go hunting through the book for quotations, but i was under the impression that Marx explicitly assumes an identity between value and price in volume 1 for the sake of clarity. This is something that I'd also picked up from reading Felton Shortall's The Incomlete Marx (although perhaps I misread it? ).

Quote:
The key thing to understand is that total value and total price are equal at the level of the total social capital, and that total surplus-value equals total profit (abstracting from interest and rent). Thus, any laws that he developed (such as the laws of the mass of surplus-value developed in Vol.I, or the laws on the relation of the organic composition of capital to the rate of profit developed in the first part of Vol. III) still apply, albeit now at the level of the social capital rather than at that of the individual capital. So retroactively you see that Marx's object of analysis throughout Capital Vol. I and II were the total social capital rather than individual capitals. It's not until Vol. III of Capital that Marx distinguishes between capitals and gives accounts of how this total mass of surplus-value is divided up between industrial capital, money capital, commercial capital and landed property. This is not to say that Volumes I and II do not describe individual capitals at all. It is to say, rather, that they describe only the characteristics which they all share in common with each other, ommitting characteristics which differentiate capital from itself through the process of competition.

OK - so you're claiming that we've got an identity between total social value and total price - which I suppose makes sense in relation to the average social worker who creates this value in the first place. I'm also happy with the claim that the account given of individual capitals describes laws that will relate to the total social capital, as that makes sense in terms of the dialectical mode of presentation.

But if the total social value is equivalent to the total social price, how can it be the case that value might fail to be realised in price? If there is a strict identity between the two, how can that happen? Say I sell the commodity that I've produced at a price below its 'real' or implicit value. Does this mean that someone else must sell their own at a price above this value? If so, we're talking about a kind of displacement of price in which the identity between the two totals is maintained. So doesn't that mean that crisis must always be limited, i.e. price can never completely collapse?

Help, please, I don't understand.

Quote:
As for the actual process by which values are transformed into prices, I'm sorry to say that I would have to rewrite Capital to describe this process, which would be entirely superfluous. You'll get to it in Vol. III.

Far be it from me to ask you to re-write the entirety of Capital. All I ask for is a very simple sketch

mikus
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Nov 27 2006 18:16

SatanIsMyCoPilot,

I didn't mean to be a dick, and there's nothing wrong with asking your question; this question drove me nuts the first time I tried to read Capital and I read a lot on the topic before I even began Vol. I. I just found it rather strange that you would pass judgement on what Marx did and did not accomplish before you had read everything that he did accomplish. That's all.

There has actually been some debate on the topic of whether or not Marx assumed the equality of value and price throughout Vol. I. I think the correct answer is that he assumes the equality of values and prices beginning in Chapter 5, footnote 24 (also reread the last paragraph of the chapter). There he comments that value and what Adam Smith calls "natural price" (which Marx will later call "price of production") are not the same thing, but that he will take them to be the same thing in order to analyze the origin of surplus-value.

This reading makes the most sense to me, not only because this is the first point at which Marx explicitly refers to the equality of values and prices, but also because there is no reason for Marx to have assumed an equality of value and price in chapters 1-4, since it in no way affects his argument there. It is true that he seems to identify value and price in the first chapter of Vol. I, but even there he generally uses the word "appears", since he was of course already conscious of the fact that value and price were almost never equal. Furthermore, if Marx explicitly comments that he's assuming value/price equality at certain points (he also does this in the Resultate and at the beginning of Vol. II), it seems fair to assume that he's not assuming value/price equality when he doesn't explicitly say so. Otherwise his statements that he's assuming value/price equality would be entirely superfluous.

But I want to stress that the assumption of value/price equality does not imply an assumption of equal organic compositions of capital. Certainly if one assumes equal organic compositions, then one also assumes value/price equality. But the converse does not hold.

The problem stems from viewing value as a set of equilibrium prices, or what prices would be under such and such sets of circumstances (whether organic compositions of capital are equal, or there is no capital movement, or "simple commodity production", or whatever). This is how economists (from Sweezy to Dobb to Meek and the whole tradition of "Marxist economists") have generally read Marx. But Marx never says anything of the sort. There is simply no textual basis for this. Marx's discussion of value always centers around the fact that value is a social relation of production in which social labor manifests itself as propery of the universal equivalent (money). So when Marx assumes value/price equality all he's assuming is that the abstract labor which is the substance of value manifests itself in an amount of money which represents an equal amount of abstract labor.

As for the possibililty that commodities remain unsold and value remains unrealized, this is true. But Marx generally assumes that all value is realized. Marx notes on pg. 971 of Vol. III (Penguin edition):

"In any case, even if a portion of surplus-value not expressed in the price of the commodity is omitted from the price formation process, the sum of average profit plus rent can in its normal form never be greater than the total surplus-value, though it can be less."

I hope these comments help you read Capital. If you want to understand the transformation of values into prices of production, just read Chapters 8-10 of Vol. III. It's not terribly long. Just make sure you reread it when you get back to Vol. III.

By the way, did you ever see Felton Shortall's debate with Michael Lebowitz in Historical Materialism? I thought Lebowitz destroyed one of the central theses of Shortall's book. Not that it's relevant for the present discussion, since Shortall's discussion of Capital (especially the first Volume) is rather good.

Take care,
Mike

SatanIsMyCoPilot
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Dec 2 2006 12:12

Is it not rather more simple than all this? Supply and demand cause prices to fluctuate above and below their value. But as every commodity experiences these factors equally they can be seen to cancel each other out, meaning that we are left with commodities possessed of differing values. Hence Marx's claim that their proportional values can only be derived from the difficulty in producing them, i.e. the labour expended on doing so.

...and what was the major thesis of Shortall's book that this guy 'destroyed'?

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Felix Frost
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Dec 2 2006 16:30
SatanIsMyCoPilot wrote:
Supply and demand cause prices to fluctuate above and below their value. But as every commodity experiences these factors equally they can be seen to cancel each other out, meaning that we are left with commodities possessed of differing values. Hence Marx's claim that their proportional values can only be derived from the difficulty in producing them, i.e. the labour expended on doing so.

In theory, yes, but this assumes an ideal economy with perfect competition, which you won't find in real life. In particular, Marx assumes here that labor power can be treated like any other comodity. That is, that competition among workers will push down the price of labor power to "the cost of producing it".

Quote:
What, then, is the cost of production of labour power?

It is the cost required for maintaining the worker as a worker and of developing him into a worker.

The less the period of training, therefore, that any work requires, the smaller is the cost of production of the worker and the lower is the price of his labour, his wages. In those branches of industry in which hardly any period of apprenticeship is required and where the mere bodily existence of the worker suffices, the cost necessary for his production is almost confined to the commodities necessary for keeping him alive and capable of working. The price of his labour will, therefore, be determined by the price of the neccssary means of subsistence.

If we on the other hand assumes that the price on labor power will vary widely from occupation to occupation, and from country to country, then individual prices can't be derived solely from the amount of labour expanded making the products.

So the answer to how values are transformed into price, will depend on whether you are talking about the idealized economy that Marx and the classic economists started out from, or if if you are asking how actual prices on particular products are set.

SatanIsMyCoPilot
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Dec 2 2006 17:28
Felix Frost wrote:
or if if you are asking how actual prices on particular products are set.

OK, I'm asking

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Felix Frost
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Dec 2 2006 17:54
SatanIsMyCoPilot wrote:
Felix Frost wrote:
or if if you are asking how actual prices on particular products are set.

OK, I'm asking

Then you have to take into consideration the effects of the strength of unions and working class resistance, scarcity of resources, monopolies, government taxes and subsidies, imperialist power relations, advertising and branding, and a whole lot of other factors. The so-called "transformation problem" is probably the least of your problems.

RedHughs
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Dec 2 2006 18:01
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If we on the other hand assumes that the price on labor power will vary widely from occupation to occupation, and from country to country, then individual prices can't be derived solely from the amount of labour expanded making the products.

One argument is that an occupation that commands a high wage (skilled craftsperson) might involved more labor to educate such workers. Indeed, in the US, student loans let folks mortgage their possibly of higher future earnings, pushing effective wages for the relatively skill down again closer to survival.

-- edit

But I agree that the "real economy" has many random deviations that fall outside a perfect Marxian schema.

Red

mikus
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Dec 2 2006 19:02
SatanIsMyCoPilot wrote:
Is it not rather more simple than all this? Supply and demand cause prices to fluctuate above and below their value. But as every commodity experiences these factors equally they can be seen to cancel each other out, meaning that we are left with commodities possessed of differing values. Hence Marx's claim that their proportional values can only be derived from the difficulty in producing them, i.e. the labour expended on doing so.

No. I guess I'll give up and explain the transformation of values into prices in my own words, although I warn you that this will raise more questions and in the end you'll be better off reading the first two parts of Capital, Vol. III.

Take a society which produces two commodities, a few different capitals producing each commodity. Also assume that the rate of surplus-value is 100%. The figures I'm working with here are the average for the sector in question

Commodity A's cost-price is $50 constant capital and $50 variable capital. The mass of surplus-value is $50. The value of the commodity is thus $150.

Commodity B's cost-price is $75 constant capital and $25 variable capital. The mass of surplus-value is $25. The value of the commodity is thus $125.

Therefore, assuming prices equal values, the rate of profit on commodity A is $50/($50+$50), or 50%.

The rate of profit on commodity B is $25/($75+$25), or %25.

Notice that the cost-price of both commodities are the same ($100), while the organic compositions of both capitals vary ($50/$50 for the first capital and $75/$25 for the second).

But how can this situation be? Capitals don't care that the rate of surplus-value is equal. They invest based on the rate of profit. So why would anyone produce commodity A? If there was some rule by which value had to fluctuate around price, then commodity B would never be produced.

What would happen is that some producers move out of the production of commodity B to A. Supply of commodity B falls while the supply of commodity A rises. The price of commodity B thus rises while the price of commodity A falls.

To what level does it fall? Until the rates of profit equalize, which will only occur when prices equalize. In this, that price is $137 case that rate of profit is 37%.

Obviously rates of profit never equalize for all capitals in society. But there is an unceasing tendency for capitals to move based on variations in the rate of profit in different industries. The prices Marx arrives at are what prices would be if this fluctuation halted. But this finally reconciles the law of value with reality, in which prices don't fluctuate around prices.

Quote:
...and what was the major thesis of Shortall's book that this guy 'destroyed'?

To make it very short, Shortall always is making two contradictory claims: that Marx is "incomplete" and that Marx could not have finished his product because of the low level of development of the working class. The debate goes over specific topics (such as Marx's view of the tendency of real wages) to show that Shortall contradicts himself. Unfortunately I don't have a pdf version of the debate. But Lebowitz's original review/criticism is available here:

http://www.anti-politics.net/forum/viewtopic.php?p=11570&sid=083854d3975...

RedHughs
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Dec 2 2006 19:14

I should also reply to Mike's earlier comment.

I would agree that Marx didn't assume an equal organic composition of capital in Capital. Rather, he assumed the simple criteria that the value of the inputs was equal to the price (something Kliman would agree - except I imagine he would say "was the price"). From there, you can go to the Kliman approach attempting salvage every word of Capital by assuming that prices are not in equilibrium. That is fine except it is easy to see that most prices over a relatively short period (or often medium) of time today are in equilibrium (If not, they are rising with a relatively constant inflation factor, which is another kind of equilibrium). One might guess that whether Marx gave textual evidence or not, he took that relative stability into account and I believe there are a number of places where Marx does give reference to the tendency of the market to equalize prices - as close to stability as a discussion without complex mathematics is likely to get (I will give a more complete critique of Kliman at a later date.)

The equations that Bortkiewicz derived are necessary to allow an exact numerical relation between value and price in equilibrium. I derived similar equation independently when I was in college. So I would say that these equations don't require the falling rate of profit to be discarded. They do imply that Marx's positions implied certain assumption... the assumption in particular that the value of labor is a reasonable approximation to the price of price. This reasonably easy to see as true - some labor still needs to go create a laborer while the productivity and interdependence of capital has gone through the roof. I think that this actually gives concrete meaning to Marx, meaning that is clearly relevant.

I mean, it is worth looking at a productive system that wouldn't follow this pattern. Suppose a factory was able to produce so much of a universal good that it could directly see to its workers' survival using an infinitesimal percentage of the output produced by their labor time. In this situation, the factory owners could stay fat and happy while paying his or her workers a very small wage. The problems of real, present day capitalism clearly come when interpedence of production rises more quickly than the ability of technical changes to reproduce labor (though both rise) - which is to say when the value of labor remains a relatively good approximation of the price of labor.

Unlike the Kliman explanation, the discussion I give above has a logical sense that be understood without reference to mystical constructs.

Red

mikus
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Dec 2 2006 19:25
Felix Frost wrote:
In theory, yes, but this assumes an ideal economy with perfect competition, which you won't find in real life. In particular, Marx assumes here that labor power can be treated like any other comodity. That is, that competition among workers will push down the price of labor power to "the cost of producing it"... If we on the other hand assumes that the price on labor power will vary widely from occupation to occupation, and from country to country, then individual prices can't be derived solely from the amount of labour expanded making the products.

No, Marx is at pains to show that neither the price level nor value are determined by the level of wages, and I think he successfully shows this in Volumes I and III. The level of wages doesn't really have any bearing on the issue.

mikus
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Dec 2 2006 19:52

Red,

I'm sorry to not be more specific here, but most of the things you said have already been demonstrated to be incorrect in other writings on Kliman's site. See especially his essay "Physicalist Approach to, and Critique of, Marx", in which he shows that the simultaneous valuation inherent in the use of simultaneous equations necessarily reverses every important conclusion in Capital, including the main point that all value is created by labor and that all surplus-value comes from unpaid labor. Bortkiewicz's critique of Marx is an intimate part of this and if one agrees with it, one is forced to reach vastly different conclusions. Okishio already showed that if you value input and output prices simultaneously then the rate of profit simply cannot fall due to the rising productivity of labor. It thus seems obvious that Marx did not value input and output prices simultaneously.

Also, you are assuming that the terms "equilibrium" (by which you mean static equilibrium) and "equalization" mean the same thing, which they don't. There is no reason to think that the equalization of profit rates has anything to do with the reaching of static equilibrium.

Quote:
I would agree that Marx didn't assume an equal organic composition of capital in Capital. Rather, he assumed the simple criteria that the value of the inputs was equal to the price (something Kliman would agree - except I imagine he would say "was the price").

This doesn't really make sense. In order to assume that the value of inputs are equal to price one has to assume that values and prices are equal. So all you're saying here is that Marx assumed that values and prices are equal, which is something I already addressed.

Quote:
From there, you can go to the Kliman approach attempting salvage every word of Capital by assuming that prices are not in equilibrium. That is fine except it is easy to see that most prices over a relatively short period (or often medium) of time today are in equilibrium (If not, they are rising with a relatively constant inflation factor, which is another kind of equilibrium).

See the above. If you assume that Marx is speaking of static states of equilibrium then pretty much everything Marx says was wrong and makes no sense. So it is a matter of "every word", although in a different sense than the one you've given it. And no, it doesn't make sense to say that prices are ever in equilibrium. Productivity is always increasing even though these increases are relatively small.

RedHughs
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Dec 2 2006 22:42
Quote:
I'm sorry to not be more specific here, but most of the things you said have already been demonstrated to be incorrect in other writings on Kliman's site.

Sorry to boorishly refuse to accept everything based on a reference. Obviously I don't really accept the evidence - Kliman's "temporal single system" whose "non-equilibrium" assumptions seem to be able to prove just about anything. I do have to protest your tendency to enter debate with the tone "here are the references that you should have already been convinced by" - it is possible that those involved in the discussion don't necessarily accept the reasoning of those you reference. And in the case of Kliman, I'd say that the difficulty of making his points understandable says something about their coherence (not that all difficult points are wrong but certain things are dubious). I am skeptical you (or anyone else) could come up with a simple, convincing numerical example illustrating Kliman.

Red Earlier wrote:
I would agree that Marx didn't assume an equal organic composition of capital in Capital. Rather, he assumed the simple criteria that the value of the inputs was equal to the price (something Kliman would agree - except I imagine he would say "was the price").

Mikus wrote:
This doesn't really make sense. In order to assume that the value of inputs are equal to price one has to assume that values and prices are equal. So all you're saying here is that Marx assumed that values and prices are equal, which is something I already addressed.

Key word - inputs. The price of the inputs is equal to value (of the inputs). The output don't necessarily match. This seems fairly straightforward.

Mikus wrote:
Also, you are assuming that the terms "equilibrium" (by which you mean static equilibrium) and "equalization" mean the same thing, which they don't.

In the case of the equalization of rates of profit, equalization is tendency to move towards a point of equilibrium. The point of Equlibrium is the point around-which a value tends to revolve and be attracted to. In the case of Bortkiewicz's value balancing equations, all that is assumed or required is that the equations balance - that inputs and outputs match over a short period of time.

But even lesser requirement can be relaxed. If you assume that both sides only approximately balance, that there is small value seperating them, the form of the solution would only be modified by this small value. And being fairly stable, the solution required to balance the equations would remain fairly similar.

Certainly, the basic reasoning doesn't a require "static" equilibrium - any kind of equilibrium will do. The obvious situation is that the forces that act on prices, supply, demand etc, clearly act far more quickly than productivity changes, even if productivity is "continually changing".

Mikus wrote:
. And no, it doesn't make sense to say that prices are ever in equilibrium.

Well, if prices aren't in a local equilibrium, what force keeps them fairly constant? I'm not say perfect equilibrium but prices clearly remain fairly stable in capitalism, especially compared to changes in productivity, which happen relatively slowly. And remember, the value balancing equations require an approximate equality on both sides of the equations, not low term static equilibrium (which would indeed be an unlikely situation, even if such a situation is logical situation to use in a model since it is fairly simple and despite Kliman's claims).

Red

mikus
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Dec 3 2006 03:46
RedHughs wrote:
Sorry to boorishly refuse to accept everything based on a reference. Obviously I don't really accept the evidence - Kliman's "temporal single system" whose "non-equilibrium" assumptions seem to be able to prove just about anything. I do have to protest your tendency to enter debate with the tone "here are the references that you should have already been convinced by" - it is possible that those involved in the discussion don't necessarily accept the reasoning of those you reference. And in the case of Kliman, I'd say that the difficulty of making his points understandable says something about their coherence (not that all difficult points are wrong but certain things are dubious). I am skeptical you (or anyone else) could come up with a simple, convincing numerical example illustrating Kliman.

I referenced a specific text which demonstrated the points at stake better than I could in a small post here. It's not too long of a text. And much of these claims you've made have been addressed ad infinitum in the appropriate literature, in ways better than I can express. My math is just good enough to follow the debates; it's certainly not good enough to make my own demonstrations on the spot. And in any case there is no reason to reinvent the wheel -- Andrew Kliman has already made the demonstrations necessary to my argument.

Also, I don't know what you don't find "understandable" about Kliman. His main point is rather simple: simultaneous valuation negates all the important points Marx makes it Capital. You haven't even addressed this, let alone attempted to refute it. Give me a numerical example of falling profits due to rising productivity while simultaneously valuing inputs and outputs and I'll be inclined to listen to what you have to say. John Roemer and Nobuo Okishio have already proved that this is impossible. If you wish I can cite the appropriate references (I have a copy of Okishio's paper in PDF format) so you can see this for yourself. No one has ever disproved them while accepting simultaneous valuation and it's generally accepted that their proofs are correct. Kliman has refuted them, but this is due to the fact that he has repudiated simultaneous valuation. If you don't do this you won't be able to. And if you do do this you won't be able to accept Bortkiewicz.

Red wrote:
Key word - inputs. The price of the inputs is equal to value (of the inputs). The output don't necessarily match. This seems fairly straightforward.

Now this is really strange. If indeed Marx assumes that input prices equal input values, but does not assume that output prices equal output values, what evidence do you have for this? Marx assumes explicitly at the end of Chapter 5 of Vol. I that prices equal values. How can you then say that "the output [values] don't necessarily match [the output prices]"? And why would Marx assume that input prices equal input values if he never explicitly makes this assumption or even addresses the issue that input prices and input values can differ until Vol. III? It seems that you should support this with evidence if you are to make such claims. Otherwise what you're saying is entirely empty.

Red Hughs wrote:
Mikus wrote:
Also, you are assuming that the terms "equilibrium" (by which you mean static equilibrium) and "equalization" mean the same thing, which they don't.

In the case of the equalization of rates of profit, equalization is tendency to move towards a point of equilibrium. The point of Equlibrium is the point around-which a value tends to revolve and be attracted to. In the case of Bortkiewicz's value balancing equations, all that is assumed or required is that the equations balance - that inputs and outputs match over a short period of time.

Now you're really confusing things.

You haven't at all addressed my point that equalization and equilibrium are not the same thing. In fact your first sentence assumes that they are the same thing, even though you have not even attempted to demonstrate this. Andrew Kliman has demonstrated in the essay I sent you a link to (entitled "One System or Two?") that the rate of profit can be equalized without the economy reaching a state of (static) equlibrium. Thus your first sentence, which states that "equalization is tendency to move towards a point of equilibrium" is false, assuming you mean "equilibrium" in the same sense as Bortkiewicz (namely, static equilibrium, where input prices and output prices are equal). If you do not mean equilibrium in the same sense as Bortkiewicz, then what you're saying is no defense of Bortkiewicz since you are simply changing the terminology around.

Equalization of rates of profit does not at all imply static equilibrium (Bortkiewicz is of course trying to say that it does). If you can't refute Kliman's numbers then there is nowhere for this debate to go, since he has proved my claim by his numerical example.

Your last sentence, that "In the case of Bortkiewicz's value balancing equations, all that is assumed or required is that the equations balance - that inputs and outputs match over a short period of time", is also incorrect. Bortkiewicz's equations assume that values and prices equal each other during each production period, by definition. Simultaneous equations don't allow anything else. They don't allow the slightest change within a period. And these slight changes make a difference, as is shown by the fact that you can't refute Okishio or Roemer if you use simultaneous equations, while you can refute them if you do. I invite you to try this for yourself.

Quote:
But even lesser requirement can be relaxed. If you assume that both sides only approximately balance, that there is small value seperating them, the form of the solution would only be modified by this small value. And being fairly stable, the solution required to balance the equations would remain fairly similar.

Why assume anything? If you allow productivity to change at all, then one should assume that one should allow prices to change to the same degree, given a constant value of money. Or, given a falling value of money (as is the case of inflation), then rising productivity should at least slow the rate of inflation. Andrew Kliman has also shown that the rate of profit can fall in this case, although to my knowledge this has not been demonstrated in any of the papers on his website, so I can't hold you to this point in the same way as the others. The main point, in any case, is that only the rate of inflation needs to fall, not prices themselves.

In any case, it is precisely this "small [difference in] value" that destroys all of Bortkiewicz's premises. If you don't think this small difference in value matters, I again invite you to demonstrate this with some numbers, showing that the rate of profit can fall due to rising productivity even when input and output prices are equal.

Quote:
Certainly, the basic reasoning doesn't a require "static" equilibrium - any kind of equilibrium will do. The obvious situation is that the forces that act on prices, supply, demand etc, clearly act far more quickly than productivity changes, even if productivity is "continually changing".

Since Bortkiewicz is using simultaneous equations which value input and output prices simultaneously, then yes, his equations do imply that input and output prices do not vary at all. Your attempt to say that input and output prices simultaneously vary and don't vary is a "mythical construction" if I've ever heard one! The idea that input and output prices are equal because they vary only slightly sounds sounds similar to the tale of the woman who said that she was "only a little bit pregnant". The same variable is used on both sides of the equation (input and output), so mathematically what you're saying doesn't make sense. And if you allow input and output prices to vary at all, then you're agreeing with Andrew Kliman, so there's no disagreeing there.

And what kind of equilibrium are you referring to besides static equilibrium? If you're speaking of moving equilibrium, then you're back at what Kliman has already proved and your critique of him is no critique at all.

And if you're deriving changing prices not from produtivity but from supply and demand changes, then you're not deriving a falling rate of profit from productivity but from supply and demand changes. Now that's fine, in a sense, but don't pretend that this has the remotest thing to do with Capital, and don't pretend that you have somehow salvaged Bortkiewicz's theory as an interpretation of Marx.

Red Hughs wrote:
Mikus wrote:
. And no, it doesn't make sense to say that prices are ever in equilibrium.

Well, if prices aren't in a local equilibrium, what force keeps them fairly constant? I'm not say perfect equilibrium but prices clearly remain fairly stable in capitalism, especially compared to changes in productivity, which happen relatively slowly. And remember, the value balancing equations require an approximate equality on both sides of the equations, not low term static equilibrium (which would indeed be an unlikely situation, even if such a situation is logical situation to use in a model since it is fairly simple and despite Kliman's claims).

To the first sentence: Slowly rising productivity and the counter-acting force of inflation. But by allowing input and output and prices to very by even the slightest amount, you're not using Bortkiewicz's theory any longer.

And what in the world do you mean by "low term static equilibrium"? As I noted, Bortkiewicz is valuing inputs and outputs simlutaneously, there there is no room for any difference between input and output prices. If by "low term static equilibrium" you mean something like "not quite static equlibrium" then you're disagreeing with Bortkiewicz and agreeing with Kliman, since Kliman has never made claims that the value/price of inputs and outputs varies greately. So please explain yourself.

And to turn your initial comment back on you, I apologize if I don't boorishly accept your claims about simultaneous valuation without proof. If you think that you can salvage Marx's theory of the tendential fall in the rate of profit while using simultaneous valuation, please put some numbers on this and prove it, thus changing the history of economic thought -- OR stop making those claims. That's the only way decisive way to settle the issue. It's time to back your claims up with some proof. People have been saying that they can save Marx's theory without repudiating simultaneous valuation for the better part of the last century. I'm sorry if I find your claims somewhat doubtful.

Mike

Felix Frost's picture
Felix Frost
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Dec 3 2006 08:43
mikus wrote:
Felix Frost wrote:
In theory, yes, but this assumes an ideal economy with perfect competition, which you won't find in real life. In particular, Marx assumes here that labor power can be treated like any other comodity. That is, that competition among workers will push down the price of labor power to "the cost of producing it"... If we on the other hand assumes that the price on labor power will vary widely from occupation to occupation, and from country to country, then individual prices can't be derived solely from the amount of labour expanded making the products.

No, Marx is at pains to show that neither the price level nor value are determined by the level of wages, and I think he successfully shows this in Volumes I and III. The level of wages doesn't really have any bearing on the issue.

If you are talking about the general level of wages, then you are correct. However, if wages in one sector of the economy is higher than in other sectors, then prices in this sector will also be relatively higher.

SatanIsMyCoPilot
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Dec 3 2006 12:37
mikus wrote:
SatanIsMyCoPilot wrote:

No. I guess I'll give up and explain the transformation of values into prices in my own words....

Sure, I follow the examples of the two capitals with different rates of profit - I had that in mind when I wrote the post to which you replied. Capital will move from one branch to another, depending on profitability, and the prices will change.

In Wages Price and Profit Marx writes that:

"You would be altogether mistaken in fancying that the value of labour or of any other commodity whatever is ultimately fixed by supply and demand. Supply and demand regulate nothing but the temporary fluctuations of market prices. They will explain to you why the market price of a commodity rises above or sinks below its value, but but they can never account for that value itself."

...so is it not the case that the value of a commodity is 'set' by labour (obviously this changes as new means of production etc. are introduced), but that the price of this commodity will fluctuate as capital is transferred from one branch to another in accordance with supply and demand issues? That's what I had in mind when I wrote the previous post, and yet you told me I was wrong...?

mikus
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Dec 3 2006 13:53

SatanIsMyCoPilot,

The problem with what you said earlier is that it implies that price fluctuates around value. This isn't the case. Price fluctuates around price of production, which is equal to cost-price plus the average rate of profit (rather than cost-price plus surplus-value produced, which is value). Of course, value is still determined exclusively by labor-time. But now we see that value sets the general price level and the general rate of profit rather than particular prices.

Also, in "Wages, Prices and Profit" (frequently entitled "Value, Price and Profit"), Marx does say that price fluctuates around value. But this is assumably because he is greatly simplifying the theory for his debate with Weston. Notice, for example, that Marx is constantly apologizing for the complexity of the debate and keeps reminding the listeners that he is simplifying as much as possible. Since the speech was given in 1865, Marx was already aware that prices did not fluctuate around values. He had first understood and theorized this in 1863 (possibly earlier) in the 1861-63 economic manuscripts (the same manuscripts which Theories of Surplus-Value is a part of). So that statement about the relation between value and price is the one misleading one in an otherwise excellent speech/pamphlet.

mikus
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Dec 3 2006 13:58
Felix Frost wrote:
If you are talking about the general level of wages, then you are correct. However, if wages in one sector of the economy is higher than in other sectors, then prices in this sector will also be relatively higher.

Ah, I see. I do agree. I was speaking of the general price level. Any change in wages, even if completely general, will affect particular prices. It is the general price level that remains constant since the changes will balance each other out.

Marx has an interesting discussion of this in Part 2 of Vol. III where he shows how a general change in wages affects particular capitals of varying organic compositions. It was counter-intuitive for me and I never would've guessed at the result before I had read it.

RedHughs
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Dec 5 2006 21:03

Hmm,

Well, coming up with a "simple" numerical example is indeed a bit harder than I thought but with a bit of spreadsheet work, I'd say I've got one working reasonably well

See here (Sorry if the labels and numbers don't align perfectly)

Naturally, this approach differs from the assumptions of Okishio and stays quite close to what I get out of Marx. And yes, I am not terribly concerned whether I am absolutely exactly characterizing Marx's approach. What I see as the useful kernel of Marx's approach is that which can be grasped fairly clearly and simply - simple is relative but I am happy to say that this model implies the excesses of "non-equilibrium" modeling are not necessary for a declining rate of profit.

I just as much think it is important to see that the rate of profit doesn't decline for all situations but for situations which involve reasonable assumptions about the capitalist production system - that interdependence rises more quickly than absolute production.

Best,

Red