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I believe that the transformation problem is important for Marxist
crisis theory, but not in an algebraic sense. I read Marx as saying
that prices must stay in line with values, but without any exact
transformation, in order for the economy to coordinate itself that all.
Over the course of business cycle, prices lose their connection with the
underlying value system, allowing the economy to get out of whack. In
the process, large amounts of fictitious value accumulate, only to be
destroyed in the next downturn. The fact that prices lose their
connection to values makes a crash more likely and more extreme.
John Ernst wrote:
> I think Michael and I are agreed that placing Marx's
> transformation procedure in a static context is unfair
> to Marx. Michael pointed this out by noting that in times
> of rapid technical change it becomes impossible to estimate
> the life time of fixed capital.
>
> I claimed that since Marx considered moral depreciation as
> part of the overall depreciation charge, he assumes that
> the economic life time of fixed capital is less than its
> physical life time. If we are considering an economy
> at a point in time, it is impossible to know those economic
> life times without knowing the prices. But if we are deriving
> prices of production for such a system, then we need to know
> the prices of production. Thus, a solution to the transformation
> becomes impossible if we work within the usual framework. Put
> antother way, the usual manner of correcting Marx tacitly assumes
> that moral depreciation is to be ignored as one transforms values
> into prices of production.
>
> I find no evidence that Marx changed his way of looking at
> depreciation in order to transform values into prices of
> production. Unlike Paul, I find no problem with computing
> an average rate of profit at a point in time for an economy
> in which technical change is taking place. Further, the only
> way Marx's transformation procedure makes sense is with the
> assumpiton that at least some of the inputs are already
> transformed. Thus, Marx seemed to recognize that you could
> not derive prices of production from values but could only
> explain the relation between prices of production and values if
> you wanted to proceed with an examination of an economy in
> which technical change and the consequent moral depreciation
> takes place.
>
> John
--Michael Perelman Economics Department California State University michael@ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901
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