[OPE-L:4238] RE: TSS transformation procedure

andrew klima (Andrew_Kliman@msn.com)
Mon, 17 Feb 1997 12:06:18 -0800 (PST)

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A reply to Alejandro Ramos' ope-l 4236.
In ope-l 4230, I had written:

"it is *impossible* that Marx's transformation disrupts the equality of
supplies and demands by letting prices change over time. Hence, there is
nothing arbitrary or 'cooked' about our illustrations of the transformation.
If we wish to show 'transformation' of input prices, we do need to specify
some output-input relations, but we could assume *any* output-input relations,

as long as they let supplies = demands (again we have to assume supplies =
demands because it is necessary for uniform profitability). And once we do
so, the equality of monetary supplies and demands, and of each sector's sales
and purchases, follows as the night the day. The 'transformation problem' is
a non-problem.

"Bortkiewicz tried to disprove this. But, as Ted and I have noted,
Bortkiewicz's alleged disproof is fatally flawed: he assumes that the 'C' and

the 'V' at the *start* of the period 'buy back' the means of production and
wage goods produced at the *end* of the period. If that were the case, then
equality of supplies and demands would indeed require stationary prices. Yet
Marx's schema of expanded reproduction show that this underconsumptionist
'buying back' concept is wrong: it is the advance of capital in the *next*
period that purchases the means of production and wage goods produced in
*this* period. As Anwar Shaikh has rightly noted, the 'buying back' concept
would make accumulation impossible!"

Ale asks for the references. They are

(1) Bortkiewicz, "Value and Price in the Marxian System," _International
Economic Papers_ No. 2, 1952, p. 9. He writes "The sum of wages [110,
advanced at the start of the period -- AJK] has not altered. ... The workers
should therefore be able to acquire for this sum the goods produced [at the
end of the period! -- AJK] in I and V, neither more nor less. These goods,
however, now have a price of 92 + 37, _i.e._ a total of 129 [whereas their
value is 90 + 20 = 110 - AJK]. The workers must go short, or, put in another
way, some of the goods made in I and V find no outlet. In this regard,
therefore, the price model breaks down; nor is it correct with regard to the
capitalists' consumption goods and to producer goods. We find a total profit
of 110, as against the figure of 102 for the price of the goods in sphere II;
whilst, for the producer goods, we get the figures 202 by taking the total
constant capital used up in all the spheres of production [of the start of the
period - AJK], and 191 by taking the price of the goods made in III and IV [at
the end of the period! -- AJK].

"We have thus PROVED that we would involve ourselves in INTERNAL
CONTRADICTIONS by deducing prices from values in the way in which this is done
by Marx [emphases added]."

This nonsense is Bortkiewicz's alleged "proof" of internal contradiction. It
is the *whole* of the "proof." When people keep repeating that Bortkiewicz
"proved" that Marx made an error, they are referring precisely to this idiotic

(2) Bortkiewicz, " On the Correction of Marx's Fundamental Theoretical
Construction ...," in Boehm-Bawerk, _Karl Marx and the Close of His System_.
I have the Orion Editions (Philadelphia, 1984) edition. The paper runs from
pp. 197-221. The relevant part is pp. 212-13. Bortkiewicz attempts to show
that, in his "corrected" two-system price table (Table 9), "in the case of
each group of capitalists the sum of the prices at which commodities are
bought is the same as the sum of the prices at which commodities are sold.
Table 10 [Marx's "incorrect" single-system price table - AJK] would show a
different picture .... Here the capitalists of Departments I and III would
take in less than they pay out, while contrariwise the capitalists of
Department II would take in more than twice what they pay out."

This alleged demonstration proceeds by asserting that the sales of Dept. I are
the sum of the other departments' constant capital, that the sales of Dept. II
are the sum of the other departments' variable capital, and that the sales of
Dept. III are the sum of the other departments' profits. Purchases are
figured the same way. E.g., Dept. I is alleged to purchase an amount equal to
its variable capital from Dept. II, and an amount equal to its profit from
Dept. III. This is total nonsense, because sales are made and profit accrues
at the *end* of the period, while the constant and variable capital were
advanced at the *start*.

In our 1988 C&C paper, and again in our paper in _Marx and Non-equilibrium
Economics_ (and again in the conference paper to which Allin has referred),
Ted and I show that all sales equal purchases once the calculation is done
correctly. Given Bortkiewicz's 3-Dept. example, the correct understanding of
sales and purchases is this: sales of Dept. I of *this* period are the
constant capital advances of the other depts. in the *next* period; sales of
Dept. II of *this* period are the variable capital advances of the other
depts. in the *next* period; and sales of Dept. III of *this* period are the
expenditures of capitalist revenue (m) of the other depts. in the *next*
period. Once this is understood, the calculations work out and must always
work out exactly.

(3) Shaikh, "An Introduction to the History of Crisis Theories," in _U.S.
Capitalism in Crisis_, URPE, 1978, pp. 219-41. All of section III (pp.
222-31), dealing with underconsumptionism, is relevant. This section,
significantly, is entitled "Capitalism as Incapable of Self-Expansion."
Shaikh notes clearly that the early underconsumptionists' arguments implied
that accumulation was impossible and that Marx's schema of expanded
reproduction entirely destroyed their argument. He (Shaikh) very correctly
notes the importance of *time* in understanding how purchases and sales are

"the producer goods used up ... cannot be bought out of this year's
production, because the first finished producer good[s] which derive from
production *started* in this year won't roll off the assembly line until the
end of the year. Similarly, workers employed during this year cannot 'buy
back' the consumer goods resulting from their current activities because these
goods won't be ready till the end of the year; nor can capitalists consume
what is not yet available." (p. 226)

He goes on to note that when the problem is posed correctly, one sees that
"*the effective demand originates entirely with the capitalist class*." (p.
226) Their advances of C and V, and their m, at the start of the year are
directly or indirectly the source of all demand for the products of the
preceding year. "Last year's production provides the capitalist class with
the commodity-supply available for sale during this year; this year's
expenditure by the capitalist class on gross investment and personal
consumption determine the effective demand for that commodity supply." (pp.

It should be noted that the TSS interpretation portrays matters in exactly
this way, and that it is therefore incompatible with the "buying back"
argument that underlies underconsumptionism (and Bortkiewicz).

Andrew Kliman