Duncan, I'll say ahead of details that if the following is all we disagree on with respect to this issue, it's not going to cost me much sleep one way or the other. At the end of the day, though, I'm still left wondering in what sense my assessment of Marx's labor theory of value misses the forest for the trees. Here's why: even granting entirely the possibility that Marx, and subsequently Marxists, historically required the labor theory of value to arrive at their particular insights about the nature of capitalist profit or the quantitative determination of its rate, it does not follow that the labor theory of value is needed *now*. Maybe it once provided the scaffolding around the structure of a critical analysis of capitalism. But why can't we pull down the scaffolding now that the structure is in place, and the flaws in the scaffolding are [fairly] well known? Anyway: comments preceded by (>>>) or (>) are Duncan's, by (>>) or (no arrows) are mine. >>>Doesn't this kind of miss the forest for the trees? I think Marx's >>>point was that capitalist societies operate on the basis of money >>>value calculations, particularly profitability calculations, and that >>>the basic macroeconomic determinants of profitability are the ratio >>>of the value of output to the value of capital (what Tom Michl and I >>>call the "productivity" of capital) and the ratio of profit to total >>>value added (which is a transformation of the rate of exploitation). >> >>>I take the essence of Marx's theory of value to be the observation >>>that you can't change the rate of profit in the macroeconomy without >> >changing one or the other or both of these variables. >> >>... >>If I read it correctly, the ratio product that Duncan emphasizes here >>corresponds to the identity between the average rate of profit for the >>economy and the productivity of capital times the profit share of net >>product, or something very close to that. But you certainly don't need a >>labor theory of value to perceive or express any such macro >>identity--manifestly it can be stated, is stated, in monetary terms, and >>many non-Marxian theories deal with macro entities represented in monetary >>terms. >OK, I'll bite. What are the non-Marxian theories that determine the >profit rate by starting from this identity? You might not "need" the >labor theory of value to get to this way of thinking about the profit >rate, but in fact it's the only path anyone has ever taken to it, as >far as I know. Not to split hairs, but I didn't say there *necessarily* were non-Marxian theories that actually began from this identity, I said you don't in the logical sense need a *labor* theory of value to arrive at this expression of the identity, especially given that it is expressed in monetary rather than labor-value theoretic terms. Now, of course, it *may* be that as a psycho-historical matter, one had to begin from a Marxian value-theoretic perspective to see the particular relevance of this way of expressing the profit rate. But it is equally plausible that a theory of capitalist crisis based on the level of the profit rate, quite independent of a labor-based approach to value, could have arrived at such a formulation. Alternatively, a story beginning with the determination of wage *share* (which is given, for example, by mainstream bargaining theories whose developers didn't read much if any Marx, I'm pretty sure) might lead one to formulate the profit rate in this way. In any case, it seems to me that the burden of proof is with the party who insists on the *necessity,* historical or otherwise, of an evidently circuitous detour through labor values in order to arrive at this macro expression in purely monetary magnitudes. Especially in light of the following point, to the effect that Marx's value theory itself doesn't particularly lend itself to this formulation: >> Thus a labor theory of value would have a particular claim of >>relevance with respect to this expression only if it offered some special >>insight into the determination of the ratios on the right-hand side of the >>expression. > >Which it does. It leads you to start thinking about how the wage >share is determined, and about the dynamics of changes in the >productivity of capital (closely related to Marx's theories of >relative surplus value and technical change). I question the notion that "it leads you to start thinking about how the wage share is determined;" Marx never mentions wage share in Volumes I (where he gives what there is of his theory of wage determination, N.B.) and II, and treats it only indirectly in his falling rate of profit story in Volume III. *Marx's* value theory naturally leads one to thinking how the wage *rate* is determined, not the wage *share.* Now, if his value analysis featured a bargaining theory of wage determination, per my comments above, he might be said to have at least an implicit story about wage share. But it doesn't, and indeed he would have been very hard pressed to reconcile a bargaining story with his V. I Ch. 25 immiseration analysis or his repeated claim that commodities exchanging at their values represents the "pure" case of commodity exchange. I'd more readily believe the claim that latter-day Marxists, responding to certain apparent inconsistencies in Marx's analysis, starting looking to a story about wage *share* in order to repair defects in his value analysis. Certainly that reading is consistent with the ways in which latter-day Marxists have focused on wage share. But even there I'd say the driving force was Marx's theory of crisis, not his theory of labor values per se. Second, Marx's *value* analysis leads one uniquely to think about trends in capital productivity only with respect to his value-based story about *biased* technical change, not about trends in capital productivity *per se*. One can find dynamic stories about increased (labor and) capital productivity through innovation, without the detour into the concern about biased technical change, in Smith, Ricardo, Malthus, and Mill, just to name a few. So maybe it's because Marxists had these other stories in the back of their minds that they were led to thinking about capital productivity, without particular reference to the specific factor biases that *Marx* is led by his value theory to focus on. Can it be shown otherwise? >>...Given this emphasis on determination of the wage *rate* rather than the >>wage *share*, one would logically get a more direct insight about the >>determination of the profit rate, the left-hand side variable, from >>something akin to the Sraffian wage-profit frontier, rather than the macro >>expression Duncan isolates above. > >I agree that this is a problem in Marx, because he oscillated between >his own early version of the Ricardo-Malthus view that wages would be >pushed down to subsistence and a later version (expressed in the >falling rate of profit analysis in Volume III of Capital) that >emphasizes a relatively constant value of labor-power (i.e., wage >share). I think there are problems with this interpretation, not the least being that the Volume III story is not really "later" than the Volume I story: as we now know, Marx wrote the published version of Volume I *after* he wrote the material now available to us in Engels' edited version of Volume III. So the "finished product" of his value analysis gives a story about wage rates, not shares. But concerning that Volume III story, doesn't Marx posit constant rate of surplus value s/v as something like a ceteris paribus condition, rather than as a positive theoretical result about wage share determination? Evidence for this assessment is found in the chapter following his analysis of "the law itself," where he only talks about factors affecting the wage *rate,*, never the wage *share*. Given this reading, my earlier assessment is apropos: if one's theory emphasizes the wage *rate*, it is more direct to generate a story about the profit rate through something like a wage-profit frontier, rather than the macro identity that you pose (and Marx never quite does). Having said this, I grant that Marxists contemplating Marx's Volume III representation of the value rate of profit (i.e., the rate of surplus value relative to the organic composition of capital) might naturally be led to thinking about wage share determination, in particular factors that might maintain a constant wage share. But again, this comes from reacting to apparent weaknesses in Marx's own value analysis, not the value analysis itself. >The Sraffian approach to this problem undoubtedly yields some >insights that are worth following up, but it isn't the only >interesting path. I agree. I never said it was. I only said it was the most *direct* path to the determination of the profit rate if your theory has you start from the wage *rate* rather than the wage *share*. > For example, Goodwin's model of the labor market is >another, as is Marx's theory of induced technical change. Subject to the caveats noted above, I agree. >> >>On the latter issue, the main claim about capital productivity that Marx >>derives from his value analysis is the rather indirect one that the drive >>for *relative* surplus value leads capitalists to favor capital-using, >>labor-saving technical innovations (i.e. those that increase the organic >>composition of capital for a given wage rate). But this does not follow: >>first, individual capitalist firms would logically adopt any innovation >>(product or process) that promised to increase profits, no matter what >>doing so implied for the organic composition of capital; and second, there >>is no reason to think that capital-using, labor saving innovations would >>necessarily tend to predominate over other forms, e.g. innovations that >>were *both* capital- and labor- saving (a reasonable assessment of the >>effects of the computer revolution on many forms of production). > >As Dumenil and Levy point out (Metroeconomica 1995) there is a close >relation between the wage share and the bias of technical change, >even if the underlying pursuit of cost minimization is completely >neutral between capital-saving and labor-saving. It's not as easy to >save both labor and capital as it is to save one by using the other. I don't remember that article, so I'll have to check it before I can fully answer this point. But one comment seems justified: this claim treats innovation as a "long run" process, in which one can speak meaningfully of cost *minimization* because innovations are effectively assumed to be drawn from a *known* "innovation production function." But true innovation is by its nature a "very long run" process, in which it is exactly the fact that the "supply function" of innovations is *not* known. And if the supply function of innovations cannot be known, I don't know how one arrives at conclusions about the relative "ease" of alternative innovation paths. I do know this: it is virtually meaningless to compare contemporary capital stocks with capital stocks even 35 years ago to arrive at unambiguous conclusions about whether innovations "saved" or "used" capital. On average, the technology is just entirely different. And this doesn't even bring in the complications from introducing variations in "human capital" (e.g., the average real return to a college education in the US has increased significantly). >>...I don't see how Duncan infers that the stated identity "was Marx's [main?] >>point" in developing his value theory, or that a story about the behavior >>of the right-hand side ratios constituted "the essence of Marx's value >>theory." There is so much else that Marx emphasizes as fundamental >>implications of his value analysis. I count at least five substantive >>(albeit in some cases highly problematic) claims that are emphasized by >>Marx yet not directly reflected in Duncan's formulation: >> >>1) The notion that that commodity prices are somehow "regulated," >>"rationalized (i.e. rendered non-"imaginary")" or at least in some >>meaningful sense undergirded by corresponding labor values, measured by >>socially necessary labor time, a notion that Marx twists himself into >>logical knots to defend under conditions of pure competition in V.III, >>Chapter 10. A corollary of this is his attempt to establish the aggregate >>"transformation" identities in Ch. 9. > >Where does Marx "emphasize" this? Here is a partial count: Volume I (references are to page numbers in the Penguin edition): 156, 168, 182, 188, 196, 269 (footnote, where he makes the point emphatically because he needs it to justify his inference about the salience of price-value equivalence at the end of Ch. 5), 476; Volume III, throughout chapter 10, 478 (where he contrasts the determination of the interest rate with the determination of typical commodity prices), 774-775, 1020; Grundrisse, 136-138; and Marx's famous letter to Kugelmann. There are few ideas one encounters more repetitiously in Marx's later political economic writing. I'll bet if I worked at it I could find additional emphatic statements to this effect in Value Price and Profit and Contribution to a Critique of Political Economy. >>2) The notion that surplus value, and therefore exploitation, is the >>fundamental basis of capitalist profit. [This idea is so fundamental to >>what Marx argues in Capital that I'm surprised it finds no direct >>reflection whatsoever in Duncan's representation of "Marx's point."]... > >This is precisely the point I was making, as far as I can see. Where? Your aggregate identity is stated in strictly monetary terms. There is nothing I can see in the identity that establishes a relationship between profit and surplus value, much less between profit and exploitation. It's not enough that the identity is *consistent* with this story; you claimed that this identity represented the *essence* of Marx's theory of value, which suggests to me the claim that it contains everything essential to Marx's value analysis. But it strikes me that your macro identity concerns the *quantitative* determination of the profit rate, not the *qualitative* question of the systemic basis for profit in a capitalist economy. It strikes me further that in Volume I Marx was concerned with the latter (including the systemic basis for the dynamic persistence of surplus value) rather than the former. >>3) The notion that the primary significance of the labor/labor power >>distinction lies in accounting for the possibility of surplus value given >>the "pure" case that all commodities exchange at their respective values (a >>fallacy I expose in an as yet unanswered thought experiment in OPE-L 3538). > >I've read your extensive critique on this point, which I think makes >some good points. On the other hand, maybe Marx was just trying to be >pedagogically effective, and was particularly worried about his >audience getting the idea that profit could come from just "marking >up" costs in price. In his preface to the French edition of Capital V. I, Marx warns that he has sacrificed easy readability and simplicity for the rigors of explicating "the truth." So the evidence is rather that he put the issue this way due to the dictates of "science" rather than pedagogy. This judgment is backed up by his claim in Value Price and Profit that "if you cannot explain profit upon this supposition [of price-value equivalence], you cannot explain it at all." But one of the central points of my critique is that this assessment is exactly wrong: the existence of surplus value, and thus profit, has *fundamentally* to do with the fact that a *certain* class of commodities acting as capital *do not* exchange at their embodied labor "cost," precisely because they are scarce relative to existing demand. If they *weren't* scarce in this sense, profit (and interest) *could not exist*, whether capital and labor transacted through markets for labor power, capital goods, or finance capital. So invoking the labor/labor power distinction in this context necessarily obscures both the systemic basis for profit and the real substantive significance of the distinction. "Marking up," insofar as it suggests price-setting power, is beside the point here. >>4) The notion, alluded to above, that the desire for relative surplus >>labor leads capitalists to adopt predominantly capital-using, labor-saving >>technical innovations, leading to persistent unemployment and the >>"tendential" immiseration of the working class. >>Marx uses this argument to account for the persistence of capitalist >>exploitation in the face of capital accumulation. Its validity requires >>some strong assumptions that are obscured by Marx's value-theoretic >>analytical framework. > >I don't think we completely understand these interactions even now, >but Marx's analysis of endogenous technical change provides a >perfectly good starting point for working through them. Perhaps it does. My first point is that there is a significant distance between the "starting point" he asserts in V. I Ch. 25 and the monetarily valued aggregate identity you describe as the "essence" of his value theory. One searches Volume I (and in particular Ch. 25, which is what point 4 above alludes to), in vain for even an indirect statement of this "essential" claim. I have continuing doubts that Marx's analysis provides a "perfectly gooding starting point" for dealing with the systemic logic of capitalist technical change and its consequences, but I concede that this is a subjective judgment. >>5) The notion that the bias in technical innovation mentioned in (4) is >>sufficient to establish a "tendency" for the rate of profit to fall. >>Incidentally, Marx's falling profit rate story is not based on an analysis >>of the relative behavior of the ratios that Duncan isolates. > >I'd dispute the last point. It seems to me that's exactly what he's >talking about, even though he uses slightly different language. And per my previous comment, I readily concede that one could tease out your identity from his Volume III story, even though it does not invoke capital productivity per se and offers no positive theory about wage share. But it can't be "*exactly* what he's talking about": starting from the ratio s/C, Marx proceeds by dividing top and bottom by v, which is necessarily completely extraneous to your identity, which divides top and bottom by net product. Conversely, your identity can only indirectly reflect changes in organic composition, which Marx's story takes as *fundamental.* So I don't see how the difference is simply a matter of "language," rather than a basic difference in the identification of substantive theoretical connections. And last but not least, let's not forget the final point of my post: the basic raison d'etre for a Marxist theory of profit rate determination, such as suggested by your macro identity, is as a component of a theory of capitalist crisis. **But since the labor theory of value is constitutionally incapable of distinguishing returns to "opportunity costs" from "economic rents," it is constitutionally incapable of explaining why a given fall in the profit rate (so long as it remains [even infinitesimally] positive) would create a crisis.** This seems like sufficient reason in itself to question the relevance of value theory to the analytical project your identity suggests. Gil
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