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This is the second installment of my response to Ajit's (3741). It
focuses on what I understand Marx's rationale to be for taking constant
capital and variable capital as given quantities of money-capital at the
beginning of his theory. One more installment to come on the key
variable m in Marx's theory, the "money new-value produced per hour". I
will also try to find the time to respond to more recent posts (my classes
start tomorrow).
Ajit wrote:
"[Fred] takes C in money terms as *given* for the total economy as a
whole. But who gives this C to Fred is what I don't understand. All Fred
has to tell is that this is his logical method. What kind of logical
method takes something as given without being able to explain how it is
given."
1. Marx just assumes that this quantity of money-capital is a known
quantity (it is "postulated", "presupposed", etc.). We know that in a
certain period of time a certain amount of money-capital is invested to
purchase means of production and labor-power. This amount of
money-capital is in principle observable; it is an empirical given. This
is a perfectly acceptable logical procedure. All theories have to begin
with some initial givens. Ajit seems to think that the only legitimate
givens for an economic theory are the physical quantities of inputs and
outputs, i.e. the Sraffian initial givens. But surely this is not the
only possible way to begin an economic theory. I argue that Marx started
his theory with given quantities of money-capital, the initial quantities
of money-capital used to purchase means of production and labor-power in
the first phase of the circulation of capital.
2. Ajit argues that it is better to explain these quantities of
money-capital than to simply take them as given.
Yes and no. It is certainly better to provide an explanation than to
NEVER provide an explanation. However, that explanation does not
necessarily have to come at the beginning of the theory; it could come at
a later stage in the theory (i.e. at a lower level of abstraction), as
long as it eventually comes.
That is what I think Marx did with the inputs of constant capital and
variable capital. Marx first took the magnitudes of money constant capital
and variable capital as given, and then later provided an explanation of
these magnitudes. As I have argued in recent posts, the reason why Marx
initially took these initial quantities of money-capital as given is that
their full explanation involves the equalization of profit rates across
industries, which, according to Marx's logical method, cannot yet be
explained at this early stage of the analysis. Before the equalization of
profit rates can be explained, the total amount of surplus-value and the
general rate of profit must be determined (which is the main task of
Volume 1).
However, the magnitudes of money constant and variable capital are
eventually explained in Volume 3 as equal to the price of production of
the means of production and means of subsistence, respectively. So an
explanation is eventually provided, but it is not presented at the
beginning of the theory, but rather at a later stage of the theory.
In Volume 1, Marx presented a partial explanation of the magnitudes of
money constant capital and variable capital. He assumed that these
magnitudes are proportional to the labor-time embodied in the means of
production and means of subsistence, respectively. But Marx knew that
this assumption is not true, or only partially true. The labor-time
embodied in the means of production and the means of subsistence is the
most important determinant of these magnitudes of money-capital, but it is
not the only determinant. These magnitudes of money-capital are also
affected by the equalization of profit rates across industries.
Therefore, and here is the crucial point, this partial explanation of the
magnitudes of money-capital does NOT DETERMINE these magnitudes in Volume
1. These magnitudes are taken as given and only partially explained, not
determined as the "direct prices" of the given means of production and
means of subsistence. This logical procedure is not obvious in Volume 1
(although there are many passages, as I have documented, in which Marx
states that these initial quantities of money-capital are "given",
"presupposed", "postulated", etc.). But it becomes more clear in Volume
3, after the determination of prices of production, where Marx states a
number of times (discussed in my new solution paper and in (3698)) that
the cost-price (the sum of constant capital and variable capital) is equal
to the price of production of the means of production and means of
subsistence, and that this cost-price IS THE SAME for both the
determination of values and the determination of prices of
production. The same cost-price is taken as given at both stages of the
analysis.
Furthermore, even though the money constant capital is taken as given in
Volume 1 (and only partially explained), Marx's theory is still able to
explain the determination of the total price of commodities and the total
surplus-value produced. The total price is equal to the sum of the given
constant capital and the new-value produced (i.e. P = C + NV), and the
surplus-value is equal to the difference between the new-value produced
and the given variable capital (i.e. S = NV - V). The value transferred
to the price of the output is equal to the actual constant capital
invested in the purchase of means of production, even though this actual
constant capital has not yet been fully explained, and whether or not this
actual constant capital is proportional to the labor-time embodied in the
means of production. Similarly, the variable capital subtracted from the
new-value produced to determine surplus-value is the actual variable
capital invested in labor-power, even though this actual variable capital
has not yet been fully explained, and whether or not this actual variable
capital is proportional to the labor-time embodied in the means of
subsistence (this point is an important point of agreement with the "new
interpretation").
The standard interpretation of Marx's theory does not take the initial
money constant capital and variable capital as given, but instead
determines these magnitudes as the "direct prices" of the given physical
quantities of the means of production and means of subsistence (or, even
worse, as the labor-times embodied in the means of production and the
means of subsistence. However, these "direct prices" are NOT equal to the
ACTUAL quantities of money constant capital and variable capital invested
in the purchase of means of production and labor-power. Rather, they are
HYPOTHETICAL magnitudes, derived from the given means of production and
means of subsistence. Therefore, as is well-known, when the theory moves
from Volume 1 to Volume 3 and attempts to explain actual prices and the
actual quantities of money-capital, the magnitudes of constant capital and
variable capital WILL HAVE TO CHANGE from the hypothetical "direct
prices" of the means of production and means of subsistence to their
prices of production (or to the actual quantities of money-capital), and
then all the other variables determined in Volume 1 (and especially
surplus-value) will also have to change. The standard critique of Marx is
of course that, although Marx recognized the need for these changes, he
himself did not make these changes in his own determination of prices of
production in Chapter 9 of Volume 3. Therefore, according to this
standard critique, Marx's own determination of prices of production has to
be "corrected".
According to my "macro-monetary" interpretation, on the other hand, the
magnitudes of constant capital and variable capital DO NOT CHANGE when the
analysis moves from Volume 1 to Volume 3. The same magnitudes are TAKEN
AS GIVEN at both stages of the analysis, and then later explained after
the determination of prices of production. The same constancy applies to
all the other variables determined in Volume 1 (especially the total
surplus-value and consequently the general rate of profit). Therefore,
the quantitative conclusions of Volume 1 do not have to be revised when
prices of production are determined, as in the standard interpretation,
but rather the conclusions of Volume 1 are the basis on which prices of
production are determined in Volume 3.
As I argued in (3697), I think the constancy of the key aggregate
variables between Volume 1 and Volume 3 is a significant advantage of my
"macro-monetary" interpretation of Marx's theory over the standard
interpretation. Volume 1 is not about hypothetical variables, whose
relation to the actual money variables is unclear (and some would argue
"redundant"). Rather, Volume 1 is from the beginning about actual money
variables, especially the aggregate dM, or the total
surplus-value. Volume 3 is then about the division of this aggregate dM
into individual parts (average profit, interest, rent, etc.), with the
aggregate dM taken as predetermined by the prior analysis of the total
social capital in Volume 1.
This advantage of the "macro-monetary" interpretation seems to me to be
much greater than the alleged advantage of the standard interpretation,
which is that the latter determines constant capital and variable capital
right away at the beginning of the theory, rather than taking these
magnitudes as given (and explaining them later). But what are determined
in the standard interpretation are not the actual quantities of
money-capital, but rather hypothetical "direct prices", which then have to
be changed (or abandoned) in Volume 3. What kind of advantage is this?
I look forward to continued discussion. I think (and hope) that the
issues are becoming clearer.
Comradely,
Fred
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