Dear Fred,
Thank you for your reply. I'm glad that you concede, that if we assume the total mass of surplus value is given by the fact that a given quantity of surplus labour is performed, that in that case, a "grand average" producer's profit rate exists, already before we consider how the mass of surplus value is distributed through competition. I have always thought that Marx's procedure is reasonable enough, and in that sense I see no reason to dispute with you about that. It was merely that I interpreted you as saying that the grand average rate of profit on production capital "emerges only in competition". Logically that cannot be the case, if the total mass of surplus-value is already given and fixed. Because in that case, assuming the famous aggregate identities, an average rate of profit already follows from the fact that a given total capital stock results in a given yield of surplus value. The issue of "ontological priority" raises some problems which I cannot discuss full length here. The issue there is that the mass of surplus value is, in reality, not something like a fixed "blob" or a "chunk", since we are talking about a process across time, which results in a flow of new product-value during an interval of time, which is priced in various ways "ex post" in the marketplace. In reality, we can talk about a fixed quantity of surplus value only as an "after the fact" result, at the endpoint of a chosen accounting interval. As Marx himself states, surplus value is not directly observable, it is an inferred magnitude just like value-added is. I suppose that the more substantive point would be, in Marx's view, that even if the mass of surplus value (or the mass of surplus labour-time) is given, this does not automatically mean that the social account would, even in theory, exactly balance in price terms, such that total mass of surplus labour = total mass of surplus value = total mass of profit in price terms. That is only an idealized assumption he makes, for analytical purposes. The way Marx notes this explicitly in Cap. 3, chapter 49 is, for example, as follows (Penguin translation): "The sum of average [producers'] profit plus ground-rent can never be greater than the quantity of which these are parts, and this is already given before the division. Whether the entire surplus-value of the commodities, i.e. all the surplus labour they contain, is realized in their price or not is therefore immaterial as far as we are concerned here. [emphasis mine - JB] In actual fact the surplus-value is not completely realized, for since the amounts of socially necessary labour required for the production of a given commodity are constantly changing owing to the constant changes in productivity of labour, one section of commodities are always produced under abnormal conditions and must therefore be sold below their individual value." Since in fact commodities are constantly being sold above and below their value, for various reasons, and since perfect competition does not exist, there can never be an exact match between the total of production prices and product-values, even in theory. There exists no mechanism in the capitalist economy which would ensure such a perfect match. Some interpreters of the transformation problem would regard this as a problem, but all that matters in econometrics is that there is a stochastic relationship, such that there is a definite positive correlation between the mass of gross profit and the mass of surplus labour. If the mass of surplus labour increases, the mass of gross profit increases, and vice versa, if the mass of surplus labour decreases, the mass of profit decreases. So the point of the aggregates is not really to make an accounting consolidation, but to illustrate the dynamics of a process. Marx's terminology in his manuscript is, I would add, not always very clear or consistent. He had various ways of talking about an overall profit rate: a statistical grand "average rate of profit"; a "general (or dominant?) rate of profit"; and a "minimum acceptable rate of profit." I suppose that the way in which the grand average appears in competition is, that producers and investors are aware of a minimum acceptable rate of profit, below which production is not a commercially viable or attractive proposition. As I have tried to explain simply in a Wikipedia article http://en.wikipedia.org/wiki/Prices_of_production , the concept of production prices is really a bit more complicated and problematic than (I would say) most Marxists have thought about it (that article may one day be overhauled and corrected). Marxists generally assumed that Marx's production prices were the same as the Smithian or Ricardian natural prices. In truth, I argue, Marx's production prices are not at all the same as Smithian or Ricardian "natural prices", in the first place, because Marx's concept of production prices is substantially a criticism of the concept of natural prices. In other words, there was nothing "natural" about the natural prices. The concept of natural prices was, essentially, a metaphysical (scientifically untestable) concept, a mystification. Marx's criticism was (I think), basically, that: (1) the natural prices suggest a gravitation toward equilibrium, without any substantive proof or explanation of how that equilibrium could be formed, or come into being (it is implicitly and vulgarly assumed to be a natural result of the operation of the law of supply and demand), and (2) that, in reality, production prices as average price levels will exist, quite irrespective of whether an equilibrium (or the tendency toward it) exists or not. So really the natural prices are merely the mystified name given to the appearance-form of observable longrun average price-levels for commodities (or "price norms"). Faced with the problem of why the average prices for different commodities should settle at a given level and not any other, the classical economists really had no rigorous and consistent answer. They certainly believed that those prices reflected average labour-costs (a labour cost structure), but they could not explain how that worked exactly - in such a way that their labour theory of value would be consistent with their theory of capital distributions. They postulated a "natural" price level, only because they had no other way of explaining that price level. So I think Marx's achievement there was, to indicate for the first time the actual causal sequence of events involved in the formation of the so-called "natural" prices. I think it is true that Engels for the most part stayed as close to what he considered to have been Marx's intention in his manuscripts. But as Engels suggested himself, he could not know for sure how Marx would have re-edited his drafts, if Marx had had the chance, or how Marx would have finally arranged the sequence for publication. Best regards, and thank you for your patient explanations, J.
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