[OPE-L:7373] Re: RE: Re: interpreting Marx; a reply to Fred

From: Fred B. Moseley (fmoseley@mtholyoke.edu)
Date: Mon Jun 10 2002 - 10:49:29 EDT

This is a reply to Gary's (7368).  Gary, thanks very much.  I think this
is a very interesting discussion.  

On Sun, 9 Jun 2002, mongiovg wrote:

> A brief reply to Fred on the following:
> >> The simultaneous equation formulations of Marx's value theory don't take a
> >>stance on the temporal priority of determination: they simply maintain that
> >>if the real wage is given the profit rate cannot be explained INDEPENDENTLY 
> of
> >> prices of production.
> >
> >This proposition is NOT TRUE, even according to the simultaneous equation
> >(i.e. matrix algebra) interpretation of Marx's theory, as I understand
> >it.  This interpretation is a system of n equations in (n+2) unknowns (n
> >prices, plus the real wage and the rate of profit).  Therefore, there are
> >two degrees of freedom in this system.  It is indeed true that, if the
> >real wage AND ONE PRICE are taken as given, then the rate of profit cannot
> >be determined independently of the (n-1) relative prices (which are not
> >the same concept of Marx's prices of production), as you say.
> >
> >However, if no price is taken as given and absolute prices (which are
> >closer to Marx's concept of prices of production, but still not the
> >same) are determined, rather than relative prices, then both the real wage
> >and the rate of profit could be determined independently of the n absolute
> >prices.
> >
> >Gary, isn't this correct?
> We seem to agree that Marx regarded the real wage as given in some sense that 
> is consistent with elimination of one of the degrees of freedom
> contained in a 
> simultaneous system formulation of the value analysis.  

Gary, please note that I am talking in the paragraphs quoted above about
the "simultaneous equation" interpretation of Marx's theory, not about my
own "macro-monetary" interpretation.  I have argued in several papers that
I do not think that Marx took the real wage as given.  Instead, I argue,
along with the "new interpretation", that Marx took the money wage as
given.  (I also go further - and more consistently I think - and argue
that Marx also took the money constant capital as given, not the technical
conditions of production).

> But there appears to 
> be a point of contention over whether Marx's theoretical outlook is
> consistent 
> with closing the system by designating one of the commodities as
> numeraire and 
> fixing its price to unity.
> I have the impression that Marx would not object to this procedure: in
> certain 
> contexts he treated gold as commodity money, and hence as a standard of
> value, that is, a numeraire.  

Gary, what exactly is a "price" (i.e. an absolute price), according to the
"simultaneous equation" interpretation of Marx's theory (or, according to
Sraffa's theory, since the two are essentially the same)?  What is the
unit of measure?  (Any references would be appreciated.)

In Marx's theory, the "price" of a commodity is defined as the
*exchange-ratio between that commodity and the money commodity*,
e.g. gold.  At the high level of abstraction of Volume 1, the price of a
commodity is determined by the relative quantities of labor-time required
to produce that commodity and a unit of gold.  

Marx's concept of price is analogous to the Sraffian concept of "absolute
price".  It is not a "relative price", in the sense of a ratio of prices
(Px / Py).  Gold has no price in Marx's theory.  Gold has a value in
Marx's theory (determined by the labor-time required to produce it), but
not a price.  Gold cannot have a price, because a price is an exchange
ratio with gold.  Gold has no exchange ratio with itself.  

A "relative price" in Marx's theory would be a ratio between two "absolute
prices", i.e. a ratio between two exchange-ratios with money.  Therefore,
a "relative price" in Marx's theory is a ratio of exchange between two
commodities *other than the money commodity* (e.g. the exchange ratio
between wheat and cloth).  I don't Marx was not much interested in such
"relative prices".

In Sraffa's theory, on the other hand, I am not sure what an "absolute
price" is.  It does not appear to be an exchange-ratio with
money.  Instead, since the money-commodity is chosen as the numeraire,
exchange-ratios with money are "relative prices", rather than "absolute
prices" (as in Marx's theory).  

Marx's prices of production in Volume 3 are still defined in terms of
exchange-ratios with gold, but prices of production are no longer
proportional to labor-times, because of the redistribution of
surplus-value.  Marx's prices of production are still "absolute prices",
not "relative prices".  They are determined not as the ratio of two
prices, but as input costs + the average profit, i.e. similar to
"absolute prices" in Sraffa's theory.

> Strictly speaking, the mathematics don't so much 
> require that a particular commodity's value or price be given; rather they 
> require that we recognize that the equations can only determine relative 
> prices. 

Gary, I don't think it is strictly true that the system of equations can
only determine relative prices.  It seems to me that the equations
determine only relative prices ONLY IF one price is taken as
given.  However, as I argued in my last post, if instead the real wage and
the profit rate are taken as given, then absolute prices can be determined
from these same equations.  You may only be interested only in relative
prices, but that is not strictly required by the equations themselves.  

> So maybe we should recalibrate the question.  Did Marx understand, as 
> Ricardo did, that the problem of determining prices of production was a 
> problem of explaining RATIOS of exchange as opposed to absolute prices? 

Please see my remarks above on Marx's prices of production.  Marx's prices
of production are "absolute prices", not "relative prices", in the sense
of a price ratio.  

> I think he must have, since this was a well-established and
> uncontroversial 
> result of classical political economy.  

Ricardo defined price similar to Marx - as a ratio of exchange with the
money commodity.  Again, Ricardo's price is not a "relative price" in the
Sraffian sense; i.e. it is not a ratio of prices, but is instead an
"absolute price", i.e. an exchange ratio with money, that is determined by
relative quantities of labor-time.  

Ricardo was of course concerned about changes in the value of money
(i.e. the labor-time required to produce the money commodity) and the
effect of such changes on the prices of commodities.  It was in this
context that Ricardo stated that he was mostly concerned with relative
prices.  Ricardo argued that, since changes in the value of money affect
the prices of all commodities proportionally , such changes do not affect
"relative prices", i.e. the exchange-ratios between commodities other than
money.  The main "relative prices" that Ricardo was interested in was the
price of wheat (corn) to the price of manufactured goods.  

In Sraffa's theory, "relative prices" are exchange-ratios with
money.  This is exactly what Ricardo was explicitly NOT interested in!

> A trickier question is whether Marx 
> meant his VALUE analysis to be concerned mainly with relative or absolute 
> values. I won't venture a position on this since (a) I'm much less
> immersed in 
> Marx's text than most listmembers; (b) my general impression is that Marx was 
> alternately concerned with absolute and relative vlaues at different
> places in 
> his writings; and (c) I don't think it matters much for his account of 
> capitalism, in view of my interpretation of his value analysis as a
> substitute 
> for an unavailable simultaneous equation determination of the profit rate.

Marx was mainly concerned with the question of the origin and magnitude of
surplus-value (delta M) for the economy as a whole.  This is a question
that can only be answered in terms of absolute prices (in Marx's
sense).  A certain amount of money, M, is invested as capital, and at the
end of the circulation of capital, more money, M + dM, is
recovered.  Marx's main question was:  what determines the magnitude of
dM?  This question gets lost entirely in the Sraffian interpretation of
Marx's theory, or in Sraffian theory.

> Fred also writes:
> >And Gary's proposition is certainly not true for my
> >"monetary-macro" interpretation of Marx's theory.  According to this
> >interpretation, the total surplus-value and the general rate of profit is
> >determined by Marx's analysis of capital in general in Volume 1, and then
> >taken as given in the determination of prices of production in Marx's
> >analysis of the competition among capitals in Volume 3.
> >
> >
> No disagreement here.  I agree with Fred that this is what Marx did (though I 
> don't see that it has anything in particular to do with money).  

My paragraph above only has to do with the "macro" aspect of my
interpretation of Marx's theory.  The "monetary" aspect is that the
initial givens in Marx's theory - the inputs of constant capital and
variable capital - are taken as given in terms of quantities of
money-capital advanced to purchase means of production and
labor-power; i.e. the initial givens in Marx's theory, contrary to
Sraffa's theory, are NOT the physical quantities of the technical
conditions of production and the real wage (please see above).

> The question 
> is whether, in following this procedure, Marx gave an erroneous
> explanation of 
> the profit rate.  I think he did. The next question would be, well, why
> did he 
> make that mistake?  I think the answer is that he didn't have at his disposal 
> the mathematical tools required to get it right.  So in the end we are
> back to 
> the question of how is Marx's project related to Ricardo's.

I think Marx was quite clear on the difference between his theory of the
determination of the rate of profit and Ricardo's determination.  Marx
argued (for example in Theories of Surplus-value, Volume 2, Chapter
10) that Ricardo never actually provided a theory of the rate of
profit; he just took is as given in his explanation of prices.  Marx, on
the other hand, had a very clear and explicit theory of the rate of
profit, which is equal to the ratio of the total surplus-value, which is
determined in Volume 1 of Capital, divided by the total capital invested,
which is taken as given.  

Marx emphasized that Ricardo failed to provide a theory of the rate of
profit precisely because he failed to follow the correct logical method
(i.e. Marx's logical method) of (1) first determining the total
surplus-value and the general rate of profit and (2) then, at a lower
level of abstraction, determining prices of production.  		

Gary, I look forward to further discussion.


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