[OPE-L:2888] RE: Duncan's [2812] Okishio 3 of 4

Alan Freeman (A.Freeman@greenwich.ac.uk)
Tue, 27 Aug 1996 15:34:40 -0700 (PDT)

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More in HOPE than Expectation:
Ideality, Reality and the notion of fetishism
==============================================

In the last two posts I argued that the postulate which I
described as the 'Equilibrium is Real' (postulate E) is false, in
the sense that no system described by it can have the quality of
reality. I argued that reality must necessarily conform to what I
described as the 'Reality is Dynamic' postulate.

I now want to turn to an important aspect of the role of these
concepts in Marx.

Postulate (D) is the explicit basis of Marx's method whereas (E)
is the hidden basis of neoclassical or vulgar economics,
including the vulgar reconstruction of Marx as a Walrasian. This
is demonstrable by reference to texts, which for this purpose
serve as data.[1]

All modern 'refutations' of Marx rest on attributing (E) to Marx
and reconstructing his thinking on this basis. These are thus not
refutations of Marx, but postulate (E).

Why, therefore, do we find in Marx references to conceptions,
such as the equalization of supply and demand, or the formation
of a general rate of profit, which *appear* to come from a
framework based on (E). How do (E) concepts appear in a (D)
world?

In my view the clue is given by the following very precise
wording which Marx uses to speak of the general rate of profit:

"Between the spheres more or less approximating the average
there is again a tendency towards equalisation, seeking the
ideal average, i.e. an average that does not really exist."
CIII p173

This mode of expression is, I think, a direct counter to (E)
which I will term the 'Equilibrium is Ideal' theorem, namely:

Equilibrium is Ideal:
(I) as a result of the operation of (D) in a market economy,
perceptions of reality corresponding to (E) appear in the head
of the capitalists. This is a consequence of the real
functioning of the capital relation, which determines all the
conditions necessary for its own reproduction including the
subjective preconditions.

Capitalists act on the expectation that investment will raise the
general profit rate because that is the way it appears to them.
Capitalists act on the assumption that there is an actually equal
rate of profit because - via the medium of the rate of interest,
which seems to them to be the cost of the 'commodity' capital -
this is the way reality presents itself to them. They act as if
the market were a mystical clearing-house for things even though
the market actually allocates not things but labour - a definite
and objectively-given pool of past and present human labour - to
the owners of money, itself only the formal representative of
command over this labour.

In the hands of the vulgar economists this vague but fetishised
general 'commonsense' becomes a definite body of theory which
expresses the pure form of the fetishised view of the capitalist.
(E) is the Ideal world of capital. (E) thus explains the
perceptions (expectations) of the capitalists, but not the
actual working of the economy. It is not simply a 'distorted'
representation of reality; it is irredeemably inadequate, that
is, false (like, for example, the idea the sun goes round the
earth).

Ideality does not necessarily have to be unreal. A proper
scientific theory is an adequate concept of reality, the idea of
what it describes.

Marx's point is that the capitalists' ideas are not an adequate
idea of capitalism. They are an irrational, fetishised expression
of capitalism; ideas without reality, unreal ideas. This is what
postulate E actually is: an unreal idea produced by capitalist
reality.

We can deduce that in a market economy, agents' expectations can
neither be realised (literally) nor explain the actual movement
of the economy. To the capitalists the world is an endless
surprise: the one stable fact of the modern economy is that their
economists never get it right.

The fundamental error which is made in the twentieth-century
reconstruction of Marx is to take Theorem (I) to be postulate
(E). Thus, it completely inverts Marx's thinking. Marx
establishes the forms of thought which a market economy gives
rise to and proves they are necessarily irrational; modern
economics reconstructs Marx on the basis of these necessarily
irrational forms of thought. Having expressed its own
irrationality in 'Marxist' language, it then proclaims Marx to be
irrational.

But there is a second and equally profound consequence. (I)
asserts that the capitalist apprehension of reality must
necessarily be irrational; that is, they cannot actually
understand what is happening to them. The reason for this is
that, as I have demonstrated, postulate (E) is finite and
bounded, and postulate (D) is infinite and unbounded. The
capitalists' apprehension of reality via postulate (E) is always
a reduced, cropped version of reality which omits essential
aspects of reality. In Einstein-Podolsky-Rosen's terminology
their theory of reality is *incomplete*[2]. They *cannot* get it
right.

This means that the project of any form of expectation theory
cannot succeed. Hence the project of subjective economic theory
in general cannot succeed. The underlying idea of all subjective
theory is that we may find in the minds of agents sufficient
information to explain the movement of the economy. But what Marx
establishes is that the real movement of the economy
systematically implants in these minds a self-falsifying image of
the economy. There is, therefore, simply *more* in the economy
than we will find in the minds of its agents, an ironical verdict
on the 'socialist calculation' critique proposed by the
Austrians.

The premise of Rational Expectations is particularly absurd; the
economy cannot *possibly* behave as the capitalists think it
does, precisely because of fetishism, precisely because reality
presents itself to them in a form which denies complete access to
this reality.

But adaptive expectations, or any theory that attempts to explain
the movement of the economy in terms of the *subjective* feelings
and desires of agents, is in my opinion equally doomed, which is
why I would locate the superiority of Marx's dynamics over, say,
Post-Keynesian or Austrian dynamics in its concept of
objectivity. Marx's concept of the objective-subjective
distinction is squarely located in his concept of historical and
temporal succession. I would not say it is confined to this, but
*without* this no sense can be made of it.

In Marx (as in any viable concept of reality I can conceive of)
the *past is objective*. It is a given datum for all agents which
they cannot change and which is in principle accessible to them.
Agents can (in principle) learn how much labour is in their
products but cannot learn for how much money these products in
the future will sell; and to the extent that they form
expectations of these future prices, these expectations are bound
to be wrong. Quite apart from all else, the very formation of
their expectations modifies the object of the expectations.
Prices are quite simply *not predictable*.

By this I mean something very precise which I do not want
misunderstood. I do not mean that prices are intrinsically
unknowable, or that the universe is inherently probabilistic so
we may only measure their statistical properties, or that it is
so chaotic that we cannot actually measure them, or any such
mystical claptrap.

I mean something quite down-to-earth and understandable: I mean
that the agents in a capitalist economy cannot predict the future
prices of a capitalist economy. This is not a statement about
prices, nor a statement about the economy, nor a statement about
knowledge in general. It is a statement about the consciousness
of agents. It is in the nature of capitalism that it cannot exist
except and unless the consciousness of its agents is fetishised.
A capitalist who fully understood the future of capital would
cease to be a capitalist. If all workers fully understood the
future of capital they would overthrow it. The theories of
reality which agents hold in a capitalist economy are a
necessarily incomplete representation of that reality. They may
escape this, but only by overthrowing capitalism.

Marx puts the relation between objectivity, subjectivity, time
and labour very prettily in what is known as the 'Ur-Text' or
first draft of the Kritik (MEGA II/2, original emphasis):

"At present, money is *materialised labour* in the form of
money or commodities. The capitalist does not confront the
objective modes of existence of labour, since he can adopt any
one of these modes of existence by metamorphosing money into
commodities and vice versa.

"The only element opposed to *objectified labour* is *non-
objective labour*, that is *subjective labour*. In other
terms, to labour which is present in space and past in time,
is opposed living labour which is present in time as
possibility, labour-capacity or labour-power. To capital -
labour which is materialised, autonomous and existing-for-self
- only living labour-power can be opposed; the only exchange
through which money can become capital is hence that which
activates the possessor of capital with the possessor of
living labour-power, that is the worker.

"Exchange-value as such can only, in summary, become
autonomous in opposition to use-value properly termed. It is
only in this relationship that exchange-value can become
autonomous and function as a process"

(I haven't seen this in English anywhere so excuse the
translation. There is an almost identical passage on p272 of the
Grundrisse)

The capitalists do not directly confront that part of the labour
which they indirectly use, that part objectified in their
constant capital. But in the process of objectifying itself, this
labour loses all aspects of its definition except the quality of
serving as medium of exchange. In the course of translating
itself into the minds of the capitalists, *information is lost*.
Vital elements of objective reality are absent from the Ideal
picture that forms in the minds of the capitalists. This
precisely means that causal factors which determine the movement
of the economy, are not represented in the minds of the
capitalists and if we therefore attempt to explain this movement
*starting* from what is in the minds of the capitalists, we
cannot hope to get it right.

Who can get it right? Precisely the independent subjective
element in the situation, namely, living labour-power. But by the
Eleventh Thesis the appropriation of the true reality of
capitalism is achieved only in the process of transforming it. It
is not a purely passive operation to be realised with the aid of
books and E-Mail.

Hence expectation theory in all forms including even its dynamic
forms is inferior to Marx's objective, temporal logic.

In a final post I will try to illustrate and substantiate the
argument of the last three posts more formally

Notes
=====

[1] These two assertions, *pace* Paul C, are independent from
each other. The tests I suggest could equally show that Marx
claims (D) but is wrong, that he claims (D) and is right, that he
claims (E) but is wrong, or that he claims (E) and is right.

[2] Einstein, Podolsky and Rosen submitted in 1935 a famous
criticism of the Copenhagen interpretation which Hughes (1989)
describes as follows:

"The relation their account suggests between physical reality,
on the one hand, and its mathematical representation by a
theory, on the other, is this. Theoretical physics employs
mathematical models. Of these models only certain elements
represent existing features of the physical world. Ptolemaic
astronomy, to take a historical example, used a complex array
of rotating circules mounted one on another. Yet (for Ptolemy
at any rate) not all the points on those circles represented
elements of reality, but only those points which represented
the Sun, the Moon, Mercury, Venus and so on. EPR looks at the
mathematical model supplied by quantum theory and gives us a
sufficient condition for an element of that model to represent
an element of reality:

'If without in any way disturbing a system, we can predict
with certainty (i.e. with probability equal to unity) the
value of a physical quantity, then there exists an element of
physical reality corresponding to this physical quantity.'"

On this criterion postulate E is clearly incomplete; it gives a
prediction of all prices and all profits based only on the
technology in the economy, with absolute certainty, but this
prediction clearly conforms to no element of physical reality.
Postulate D does not fall to this attack because as we have
stressed many times it does not *propose* to be a complete model
and does not *of itself* produce any particular predictions. It
is a template, a matrix, for more concrete theories which
themselves predict various aspects (but not all!) of reality, eg
the mass of realised profit in terms of labour-time, which Marx's
theory does predict (in each period) with certainty, and is an
element of reality.

References
==========

Alberro, Jose and Joseph Persky (1979), `The Simple Analytics of
Falling Profit Rates, Okishio's Theorem and Fixed Capital',
Review of Radical Political Economics, Vol 7, Spring.

Bortkiewicz (1907) Wertrechnung und Preisrechnung im Marxschen
System', Archiv fuer Wissenschaft und Sozialpolitik,
September 1907

Brewer, A. (1995) 'Marx as an economist', History of Political
Economy 27:1 pp113-145

Ernst, John R. (1982), 'Simultaneous Valuation Extirpated: A
Contribution to the Critique of the Neo-Ricardian Concept of
Value', Review of Radical Political Economics 14(2):pp85-94.

Foley, Duncan(1986a), Understanding Capital: Marx's Economic
Theory. Cambridge, Mass.:Harvard University Press.

Foley, Duncan(1986b), Money, Accumulation and Crisis, Chur:
Harwood

Foley, Duncan. (1982), `The Value of Money, the Value of Labour
Power and the Marxian Transformation Problem', Review of
Radical Political Economics, 14(2).

Freeman, A(1996) 'The Psychopathology of Walrasian Marxism' in
Marx and non-Equilibrium Economics, (eds Freeman and
Carchedi), London and Vermont: Edward Elgar

Hughes, R. I. G. (1979) The structure and Interpretation of
Quantum Mechanics, Cambridge Mass and London: Harvard.

Kliman, A. (1988), 'The Profit Rate Under Continuous Technologi
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Morishima M. (1973), Marx's Economics: A Dual Theory of Value and
Growth, Cambridge University Press, Cambridge, (1977).

O' Driscoll, G and Rizzo, M (1985). The Economics of Time and
Ignorance, London and New York: Routledge

Okishio, Nobuo. (1961), `Technical Changes and the Rate of
Profit', Kobe University Economic Review 7. pp 86-99.

Ormerod, P(1995). The Death of Economics. Harmondsworth: Penguin

Sweezy (1942), The Theory of Capitalist Development. New York:
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Weintraub, E. Roy (1990). Stabilising Dynamics: Constructing
Economic Knowledge. Cambridge: CUP

The fourth part of this, mathematically illustrating some points
in the last three posts, will be delayed
-Alan