This is a response to Duncan's (3322), continuing our discussion of Andrew's
interpretation of value added.
First of all, I want to clear up an apparent ambiguity in my earlier posts
with respect to my definition of money value added. Duncan stated in (3322):
Here we have a semantic problem. I use "money value added" to refer to the
accounting that we see at actual prices in the economy, whereas you and
Andrew want to use it to mean "living labor expended". Since in my
interpretation of the LTV these two concepts are proportional, this doesn't
create a problem for me, but it does create some potential confusion in
language.
I don't know how I have given Duncan the wrong impression, but one of the
main emphases in my work for a long time has been that capital is defined as
money (as money that becomes more money) and that therefore the various
components of capital (constant capital, variable capital, value-added,
surplus-value, etc.) are also defined in terms of money. Andrew has also
emphasized this point in earlier works, and this is the way I have
interpreted his derivation of the falling rate of profit. (I realize that
but in recent posts Andrew seems to be emphasizing more the definition of
concepts in terms of labor-time; I will let Andrew speak for himself on this
issue; but I don't think this issue significantly affects the disagreement
between Duncan and me over Andrew's concept of value added.)
The main issue between Duncan and me is not whether or not money value added
is defined in terms of money or labor-time, but precisely how this money
value added is DETERMINED. This issue is explored further below.
A. DUNCAN'S LOGIC
It seems to me that the logic of Duncan's critique of Andrew theory of the
falling rate of profit is essentially the following:
1. We start by taking the input prices and the output prices as given. I
will emphasize below that the conclusions drawn by Duncan depend on this
assumption of given output prices and that Andrew's logic in his derivation
of the falling rate of profit is very different from this (essentially the
opposite).
2. With these given prices of inputs and outputs, one can then define MVA in
two different ways:
Duncan: MVA(t) = p(t)X(t) - p(t)aX(t)
Andrew: MVA(t) = p(t)X(t) - p(t-1)aX(t)
According to this logic, the magnitudes of these two definitions of MVA will
be different. With given output prices which are assumed to be the same,
and given input prices which are assumed to be different (historical costs
and current costs), then the two definitions of MVA will yield two different
magnitudes. The difference between these two magnitudes is the IVA (see # 3).
3. Andrew's definition of MVA is then decomposed into two parts:
p(t)X(t) - p(t-1)aX(t) = p(t)X(t) - p(t)aX(t) + ((p(t)aX(t)-p(t-1)aX(t))
The first term on the right-hand side is Duncan's definition of MVA and the
second term is the IVA. Duncan concludes from this equation that Andrew's
MVA is affected by the IVA, i.e. that Andrew's MVA is determined in part by
the IVA.
4. Finally and most importantly, Duncan concludes that, because Andrew's
MVA depends in part on the IVA, his derivation of the falling rate of profit
also depends in part on this effect of the IVA on Andrew's MVA. Duncan
emphasized this main point of his critique in (3322):
The important implication of (Andrew's) examples is that the money profit
rate would fall to zero with a constantly rising labor productivity and a
constant ratio of output to capital invested. I'm trying to establish that
this result depends crucially on equating p(t)X(t)-p(t-1)aX(t), which is
standard money value added plus the IVA to m(t)l(t)X(t).
B. ANDREW'S LOGIC
My response to Duncan is that the above logic of the determination of prices
and the MVA is completely different from Andrew's own logic in his
derivation of the falling rate of profit. Therefore, Duncan's critique is
not valid. As I understand it, the logic of Andrew's derivation of the
falling rate of profit is the following:
1. Prices are not taken as given, but are instead determined by the equation:
p(t)X(t) = p(t-1)aX(t) + MVA(t)
where ap(t-1) is taken as given as the historical costs of inputs
and MVA is determined in #2 below.
2. Andrew's MVA is not determined as a residual as the difference between
given output prices and input prices, but is instead determined by the
product of current labor (L) and the monetary expression of value (m); i.e.
MVA = m L
3. Andrew's MVA does not depend on an IVA. The magnitude of Andrew's MVA
is determined solely by the amount of current labor (and the monetary
expression of value). MVA remains the same (100) period after period,
determined by a constant amount of labor (100 hours).
THE KEY POINT IS THIS: Andrew's MVA can be "equated" with the difference
between output and input prices and this difference can be decomposed into
two components, one of which is an IVA, as Duncan does. However, this
equating and decomposition of Andrew's MVA does not mean that Andrew's MVA
is determined in this way, i.e. it does not change the relations of
determination between output prices and the MVA which are assumed by Andrew
into their opposite. Andrew's MVA continues to be determined by current
labor and the monetary expression of value. Andrew's MVA would depend on
an IVA only if his MVA were determined as a residual, as in Duncan's
contrary logic.
Duncan seems to be making an illegitimate logical leap, that because
Andrew's MVA can be EQUATED with the price residual, Andrew's MVA must be
DETERMINED by this price residual (and its two component parts). Duncan
seems to be suggesting that there are really two methods of determination of
Andrew's MVA, one of which is explicit and which I have summarized above as
"Andrew's logic", and the other of which is implicit and which I have
summarized above as "Duncan's logic". But I argue that Duncan's second
method of determination is not implicit in Andrew's logic, at least as I
understand it The fact that Andrew's MVA can be "equated" with the price
residual does not mean that the MVA is now determined by this price residual
in addition to (and indeed in contradiction to) the prior method of
determination by current labor.
4. The trend in the rate of profit derived by Andrew does not depend on a
negative effect of an IVA on the MVA. This is the main point that Duncan
wishes to establish and I do not think he has succeeded in doing so.
Duncan's argument is based on the opposite assumptions regarding the
determination of prices and MVA than the assumptions made by Andrew in his
derivation of a falling rate of profit. Duncan has not shown how, according
to Andrew's own logic of determination, Andrew's conclusion of a falling
rate of profit depends on the effect of an IVA on the MVA.
Duncan's argument that Andrew's derivation of the falling rate of profit
depends on the effect of the IVA on the MVA seems to imply that this effect
reduces the MVA more and more each period below the initial starting point
of 100, which is determined by 100 hours of labor, and that this increasing
deduction of the IVA from the MVA is why Andrew's rate of profit falls.
But this is not true. In Andrew's example, the amount of MVA remains the
same, period after period, = 100, as determined by 100 hours of labor.
Within Andrew's examples, the MVA defined in terms of historical costs is
exactly the same quantity as the MVA defined in terms of current costs (both
are equal to 100). The rate of profit falls in Andrew's example not because
of an increasing deduction from MVA (the numerator in the rate of profit),
but because the cost of inputs (the denominator in the rate of profit)
defined in terms of historical costs increases more and more from period to
period while the amount of MVA remains constant (because the amount of
current labor remains constant). This is clear from the following table
which presents some of Andrew's results (I hope this table comes out readable):
VALUE ADDED COST OF INPUTS
period hist current hist current
costs costs costs costs
0 100 100 400 400
1 100 100 500 400
2 100 100 600 400
3 100 100 700 400
4 100 100 800 400
Therefore, the magnitude of the MVA is exactly the same in both the
historical costs and the current costs interpetations. Andrew's derivation
of a falling rate of profit does not depend on a negative effect of an IVA
on the MVA, but instead depends on an ever-increasing costs of inputs in
terms of historical costs along with a given amount of MVA.
Duncan asks at the end of (3322):
Do you think a capitalist economy with a constant positive rate of labor
productivity increase and constant ratio of output to capital would
experience a fall in the money rate of profit to zero?
My answer: it depends on WHICH definition of the rate of profit one is
talking about. If the rate of profit is evaluated at historical costs and
the value of money is held constant, then under Andrew's further
assumptions, the rate of profit would fall as in Andrew's example. However,
as explained above, this result does not depend on the effect of an IVA on
the MVA, but instead on the definition of the cost of inputs in the
denominator of the rate of profit in terms of historical costs.
However, as I have argued (and will continue to argue), I do not think that
the historical rate of profit is not the appropriate rate of profit either
in Marx's theory or for an analysis of the limits of capital accumulation.
Therefore, although I think that Duncan's particular critique if invalid, I
still disagree strongly with Andrew's "historical cost" intepretation of
Marx's theory, for reasons that I will continue to try to explain in future
posts. Perhaps the unreality of Andrew' conclusion, as implied by Duncan's
question above, is another argument against Andrew's "historical cost"
interpretation.
Comradely,
Fred