I wrote: >>>Marx's "law of value" is first and foremost NOT a theory of
prices.<<<
Brad ripostes: >I was responding to Doug Henwood's statement that: >>Any
sense of how representative these sorts of goods are? I'd guess that gains
from IP [intellectual property] are merely redistributions of SV
[surplus-value] - it can't explain an increase in the profit rate in the
macroecomy. Nike's gain is some other capitalist's loss, no? << <
and adds: >If you want to say that Doug is in error: because the labor
theory of value is not a theory of prices, you cannot reason from surplus
value to profits, then we agree.<
1. Actually, I'd _agree totally_ with Doug's statement -- unless the rise
of IP has changed the ability of capitalists to depress real wages via
monopoly pricing (i.e., unless somehow the rise of IP strengthened the hand
of capital in its battle with labor). I doubt this, partly because the rise
of IP corresponds to a decline in other kinds of barriers to entry, partly
because I see a general rise in competition (at least in the US) from the
1950s to the 1990s, and partly because I'm not convinced by the Baran &
Sweezy argument about monopoly pricing. (see
http://csf.colorado.edu/mail/pen-l/2000II/msg02450.html)
2. BTW, I'm not upset that this conclusion is not 100% certain. After all,
even supply and demand don't always give 100% certain answers. I don't
think there's any theory in political economy or economics that produces
100% certain results. In fact, a theory that gives us 100% certain results
(with no ceteris paribus clauses or the like) might simply be a dogma. It's
like those Chicago-school types who start with the conclusion that
differences in "human capital" explain all income differences and then
bring in unmeasurable kinds of "human capital" such as personal character
to explain the many deviations between their theory and empirical reality
and to save their theories.
A valuable theory gives us questions to ask about empirical reality (rather
than preconceived definite answers) while helping us to interpret the
answers we get from studying empirical reality. From this, we can develop
new working hypotheses that can be rejected and/or changed in view of new
evidence, new insights, or practical experience.
>But in that case, if the LTV has nothing to do with the actual prices we
see, what good is it? Why should we care about it?<
1. Why should we care about "it," Marx's law of value, the LoV? Not being a
hard-core NC economist, I care about things besides prices. I would guess
that you (Brad) care about other things besides prices, too. (For example,
Brad seems interested in Jared Diamond's book _Guns, Germs, and Steel_,
even though it says little if anything about prices.) So even if it didn't
say anything about prices, it might be important.
My point was that _first and foremost_ the LoV is not a theory of prices.
As Michael P. says, its purpose "is to understand, first and foremost, how
capitalist economy functions at the most abstract level." I'd say that the
LoV is the most abstract statement of the Marxian alternative to the
dominant orthodoxy in economics, i.e., NC economics.
2. As such, it involves certain core propositions -- to use Lakatos' phrase
-- that cannot be falsified by empirical research. Further, "value" is on
the theoretical level of a point in geometry: it's definitional. But it has
an important basis if one accepts Marx's view that people create history
though not exactly as they please. (I see this proposition as the central
proposition of his materialist conception of history; "matter in motion"
materialism seems irrelevant to his work.) Labor is simply a specific kind
of human practice (creation of history).
Having non-falsifiable or definitional concepts at the center of one's
paradigm -- or accepting a specific view of history -- is no mark of shame.
All "scientific research programs" have their hard cores. The hegemonic NC
school of economics is very similar (though because it is dominant in the
economics profession, its practitioners are seldom forced to confront the
philosophical basis of their theory). The proposition that people are
"rational" or "maximize utility" is non-falsifiable, for example.
("Rationality" usually asserts consistence of goal-seeking, but that
consistency disappears when we realize that people may have a taste for
variety. Changing tastes and the common-sense realization that time plays
an important role in human affairs also undermines the role of consistency.)
Also, NC economics has a clear historical metaphysic that they cling to:
following authors like Hicks (his THEORY OF ECONOMIC HISTORY) they see the
market and exchange as the natural state of human society, often obscured
or blocked by hangovers from previous eras (custom, systems of command), so
that empirical reality is marked either by progress toward the
presumed-efficient natural state (encouraged by the IMF, the CIA, etc.) or
by regress (encouraged by irrational populists and the like). I think that
Marx's insight, which I can't find, that modern economists treat previous
economic systems the way the Church Fathers treat pre-Christian religions
is quite apt. The NC theory that dominates the IMF, for example, seems to
emulate the Inquisition in its ideological fervor.
The only issue left within this historical vision concerns the extent to
which "public-private partnerships" (state help for the Invisible Hand,
guided by technocratic wisdom) is needed to create the best of all possible
worlds -- or we should simply let the market go "free," as the Chicago
school would have.
I am sure that there are NC economists who would reject the purity of this
vision (i.e., those who don't fit the definition of an ideal-type NC
economist). However, it is the starting-point for their analysis. The
market (i.e., the idealized Walrasian market) is the measure of all things.
Missed in all this is the fact that the market itself is a human-created
institution, often created at high cost to people.
BTW, even though I used the word "paradigm," I don't believe in the popular
view among social scientists that the conflict between paradigms can never
be solved. I think Marxian political economy can critically appropriate and
use valid ideas from NC economics. In fact, I think that all of the valid
insights of NC economics -- e.g., the role of supply and demand within
market institutions -- can be incorporated as part of Marxian political
economy. Just as Einsteinian physics incorporates Newtonian physics as a
special case, Marxian political economy can "swallow" neoclassical economics.
3. Anyway, the Marxian LoV does have something to say about prices. It's
not like David Ricardo's general equilibrium theory of "natural" prices
(what Marx called prices of production), though a Ricardian 98% labor
theory of value doesn't hurt.[*] The LoV is not like the utopian
Walras-Arrow-Debreu theory of prices or even the practical Marshallian
supply-and-demand theory of prices. It's more about the _role_ or the
_meaning_ of prices than about the mechanical, economic, or mathematical
determination of prices. It's also about the socioeconomic _objective
conditions_ on the macroeconomic which limit and shape the operation of
supply and demand and similar microeconomic processes.
*[Rather, this theory of value only hurts 2%, which ain't bad. It's better
than irrationally assuming an aggregate production function, the way people
like NC icons like Greg Mankiw or David Romer do. Further, my friend Ed
Ochoa as shown that if we calculate vertically-integrated values (uniting
all the parts of value-added chains) using input-output tables, there's a
damn strong correlation with empirical prices of production. See his
article in the CAMBRIDGE JOURNAL OF ECONOMICS, 1988, vol. 13, pp. 413-30.
My summary here is quite crude and is based on incomplete memory. However,
it does indicate that a Ricardian theory of prices of the sort that Marx
was dialoguing with, has quite a lot to say about prices. That theory
doesn't have much to say about the social relations of production, though.]
Again, the LoV (as I summarized it
at http://csf.colorado.edu/mail/pen-l/2000II/msg02532.html) says something
about prices. For example, in volume I, ch. 25, of CAPITAL, Marx talks
about the way in which the dynamic of capitalist accumulation (by creating
unemployment) "confines the field of action of this law [of the demand for
and the supply of labor-power] within the limits absolutely convenient to
the activity of exploitation and the domination of capital." This is
talking about the determination of real wages (a very important price) and
fits well with recent empirical research on the "wage curve" (by
Blanchflower & Oswald) which contradicts the established NC theory of
real-wage determination. The Marx-posited tendency for the rate of profit
to be equalized between sectors says something about price determination,
though unlike in Ricardo, Marxian political economy is also quite conscious
of the counter-tendencies such as the concentration and centralization of
capital which prevent equalization. (The role of "countertendencies" is not
a sign of mysticism, BTW, since it fits with any theory that has a _ceteris
paribus_ clause.)
It's common to argue that the LoV says nothing about practical economic
behavior. One key point is that capitalists _act on_ the fetishism of
commodities (which I see as central to the LoV). They, like some NC
economists, care about only prices, price-type categories (like money
profits), and the common-sense surface of society, eschewing looking at the
societal totality. For example, they see the ownership of capital goods as
"producing" profits, when in fact all that ownership of such goods can do
is allow one to appropriate part of the societal surplus-value. Acting on
this perception, they invest like crazy (encouraged by the fact that their
fellows are doing it too), so that they over-invest, driving down the rate
of profit. It's true that real investment eventually raises labor
productivity and ceteris paribus the rate of surplus-value, but the fact
that there are profitable kinds of real investment that do not promote
labor productivity growth and the fact that there can be "too much of a
good thing" so that even socially-fruitful investment can't be used
profitably at full capacity suggests that in many cases capitalists will
foul their own nest, driving the profit rate down despite individual
intentions.
Brad also seems to be referring to my views when he writes (in a different
missive):
>If the LTV is true--if surplus-value is a kind of *stuff* that, once
created, is subject to some kind of conservation law, and bears some
relationship to profits--then this is a cogent, coherent, and correct
argument.<
I would liken labor not to "stuff" but to the conscious expenditure of
human energy counteracting the second law of thermodynamics (using energy
input from outside the system) to create order, i.e., making desirable or
useful things for people. The creation of those use-values which can be
sold on the market at a profit also creates value and exchange-value. The
creation of that value limits the money revenues and (given the wage rate)
the property income that can be realized.
As central part of its core, NC economics starts with the idea that we are
dominated by natural scarcity (though the constraints arising from this
scarcity change over time). Marxian political economy doesn't reject the
notion of scarcity as much as adding that there human-created,
institutional, bases for scarcity (which sometimes mean that natural
scarcity is irrelevant). The key human-created institution today is of
course, capitalism, which sets the rules of the game that limit the
creation of a social surplus-product and decree that this surplus-product
takes the form of surplus-value. The scarcity of surplus-value (at any
given time, since as with NC economics, the constraints change) sets the
limits within which the many capitalists compete over the distribution of
property income (profits, interest, rent). Of course, the size of the pool
of surplus-value that exists at any one time depends on the state of class
struggle (the ability of the workers to gain real wages relative to labor
productivity), which in turn depends on the dynamics of accumulation. (Part
of the latter is the institutionally-necessary existence of the reserve
army of labor, which means that labor-power isn't scarce in the natural
sense of the word. Rather, it's jobs that are scarce, institutionally
scarce.)
The "conservation law" that total surplus-value at any specific time limits
the total realized property income might be tautologically true. If so, the
neoclassical assertion of natural scarcity is also tautological.
Justin writes:
>So the whole transformation problem was a big mistake? <
Right. the idea of mathematically calculating prices from given values was
a big mistake. It gets us into endless debates, all of the time assuming
that values and prices are totally independent phenomena, so that one
(values) can be used to derive the other (prices). On top of that, we get
into emphasizing market equilibrium conditions (such as the equalization of
profit rates between industries), even though markets are seldom, if ever,
in equilibrium. (Marx was right to see markets as always changing, often
due to endogenous shocks.)
I'd say that each commodity has a value and a price. The latter represents
how it's "valued" by individuals in the market, while the former represents
how it's "valued" by the societal factory representing capitalism as a
whole. (When a worker's socially-necessary abstract labor time "produces
value," it is contributing to the capitalist system following that system's
own standards.) The two are connected, but not following some formula
connecting each individual price (of production) to a vector of values
presumed to be ontologically prior. (Neither prices nor values is
ontologically prior.) Rather, at any one time, the total net product of
society sold through the market (the NDP of capitalism as a whole) equals
the total S+V, while the total surplus-product in money terms equals the
total surplus-value, given the value of money or what Duncan Foley terms
the "monetary equivalent of labor time" to translate between different
units of measurement. At any one time, value categories constrain price
categories, but actions in the economy based on price categories change the
nature of value categories over time.
On these issues, I'd again recommend Foley's recent RRPE article and my own
1990 article in RESEARCH IN POLITICAL ECONOMY. I'd also recommend the work
of Himmelweit and Mohun (who often publish in CAPITAL & CLASS) or John Weeks.
Again, I have to restrict myself to one missive on this subject today,
because I go on and on, wasting my time and yours.
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
["clawww" or "liberalarts" can replace "bellarmine"]
