I was too busy to participate in recent exchange between Allin and Andrew
about Andrew's interpretation of the "transformation problem" and in
particular to Allin's argument that Andrew's interpretation is "nothing
other than an iterative approximation to the Bortkiewitz solution." But I
want to add a belated response.
This exchange revives a discussion we had last spring, mainly between Allin,
Andrew, and myself. I of course agree with Allin's conclusion, but for
different reasons, as I have tried to explain. I would like to first
briefly summarize the key points of the prior debate, as I understand them
(points 1- 4 below), and then present some new additional criticisms of
Andrew's interpretation (points 5-7)
that I have been thinking about recently.
1. In their original (1988) paper, Kliman and McGlone (KM hereafter)
presented an interpretation of Marx's theory of the transformation of values
into prices of production ("the transformation non-problem") with the
following characteristics (among others; this list is not exhaustive):
a. the transformation takes place over 13 periods, beginning with constant
capital and variable capital proportional to the labor-times embodied in the
means of production and means of subsistence, respectively, and ending with
"long-run" equilibrium prices, in the sense that, if technology and the real
wage remained constant, then these equilibrium prices would also remain
constant.
b. the "long-run" equilibrium prices reached at the end of this
transformation process are exactly equal to the equilibrium prices reached
by the "neo-Ricardian" interpretation of Marx's transformation procedure.
Also, over the whole transformation process, only one of Marx's two
aggregate equalities is valid and the rate of profit changes, as in the
neo-Ricardian interpretation. I have argued that the reason KM's
transformation procedure arrives at the same quantitative results is that
their underlying logical method is essentially the same as the neo-Ricardian
interpretation; that is, the initial givens (that remain constant over all
the 13 periods) are the physical quantities of the technical conditions of
production and the real wage and the magnitudes of constant capital and
variable capital are derived from these given physical quantities.
c. I (and Allin and others) have argued that the KM interpretation is
essentially the same as Shaikh's "iterative" procedure, except that the
"iterations" are understood to be real historical periods and not just a
logical sequence taking place in a single historical period.
2. My main criticism of this original KM interpretation is that THERE IS
ABSOLUTELY NO TEXTUAL EVIDENCE in all of Marx's writings that the
transformation from values to prices of production takes place over multiple
periods.
3. In more recent work, KM have de-emphasized this complete transformation
of values into prices of production taking place over a number of periods.
In this more recent work, the transformation process is illustrated with two
period examples, and KM have argued that the transformation process is
"complete"
after each period. It is not true, they say, that their interpretation of
the transformation takes place over multiple periods. They argue that their
transformation is "complete" after each period because two conditions are
satisfied:
a. rates of profit are equal across departments
b. supply equals demand in each department.
4. I argued in OPEL posts last spring that KM's transformation procedure
cannot be "complete" after each period, because in subsequent periods the
transformation procedure must continue, determining new equilibrium prices
and a new rate of profit; otherwise the rates of profit across departments
would not be equal. KM's transformation process must continue in the next
period in the sense that new prices of production are determined and a new
rate of profit is determined (new and different in relation to the previous
period). If new prices of production and a new rate of profit are not
determined in the next period, then rates of profit would not be equal in
the next period. Prices of production and the rate of profit have to change
in the next period, not because of a change in technology, but instead
because of a continuation of the process of equalization of profit rates and
a continuation of the tendency toward long-run equilibrium prices such as
those determined in period 13 of KM's original illustration. It is in this
sense and for this reason that KM's transformation is not "complete" in each
period and must continue in the next period, until finally the long run
equilibrium price of production and rate of profit are determined, as in
KM's original illustration.
I still think that my arguments are valid and do not think that they have
been adequately answered by KM.
5. Now I would like to add some additional criticisms of KM's argument that
the transformation according to their interpretation is "complete" after
each period and of their interpretation in general. My main point is that
KM's argument utilizes DIFFERENT CONCEPTS FROM MARX'S OWN CONCEPTS.
Therefore, whether or not their transformation is "complete" after each
period in terms of its own logic (which I would still argue as above that it
is not) their interpretation is a misinterpretation of Marx's theory of
prices of production. There are two main differences that I would like to
emphasize here, which will be discussed in turn.
a. KM's equilibrium conditions for the departments of social production are
different from Marx's own equilibrium conditions.
b. Marx's concept of "price of production" is a long run "equilibrium"
price in the classical sense of a "center of gravity" around which actual
market prices fluctuate and KM's concept of "price of production" is not
such a long run "center of gravity" price.
6. KM's equilibrium conditions for the departments of social production are
different from Marx's own equilibrium conditions in two ways:
a. Marx's equilibrium conditions are defined entirely in terms of variables
of the CURRENT period, and KM'S equilibrium conditions are defined as a
relation between the output of the CURRENT period and the money spent in the
NEXT period.
Marx's analysis of the reproduction schemes in Part 3 of Volume 2 (and in
the various earlier drafts of this part) is presented entirely in terms of a
SINGLE period, which Marx generally assumed to be one year. All the
magnitudes in Marx's reproduction tables refer to this CURRENT period.
There are no time subscripts on any of the magnitudes or variables. Nor is
there any other indication that these magnitudes or variables refer to the
next period or to any other period. Therefore, Marx's equilibrium
conditions are between variables that refer solely to the CURRENT period.
All the various "exchanges" discussed are exchanges between quantities of
money and commodity prices that refer to the CURRENT period; e.g. the means
of production produced during this period are purchased with the constant
capital component of the price of all commodities produced this period and
the means of subsistence produced during this period are purchased with the
variable capital and surplus-value components of the price of all
commodities produced during this period (in the two department schema).
There is no hint or suggestion anywhere in Part 3 (or the earlier drafts)
that Marx's equilibrium conditions are defined ACROSS different periods of
production, or between the supply of the current period and the demand in
the next period.
b. Marx's equilibrium condition for department 3 is that the SURPLUS VALUE
spent by capitalists to consume surplus goods is equal to the price of the
surplus goods, where surplus-value is defined as the difference between the
total price of the commodities produced in the current period and the cost
of producing these commodities in the current period. By contrast, KM's
equilibrium condition for department 3 replaces surplus value on the demand
side of the equation with an entirely new and different concept, which they
call "REVENUE" but which has nothing to do with Marx's concept of revenue or
with Marx's theory in general.
KM define "revenue" as the difference between the price of the commodities
produced in the CURRENT period and the cost of producing these goods in the
NEXT period. There is nothing like this concept of "revenue" in Marx's
theory. Marx himself used the concept of "revenue" in two different senses,
neither of which is KM's concept. One of Marx's uses of the term revenue"
was really the concept of the classical economists, and especially Adam
Smith, which refers to what we would call today "value added" or "total
income", and which is equal to the sum of the different types of income,
e.g. wages + profit + rent. This was Marx's sense of revenue in Part 7 of
Volume 3 of Capital, which is entitled "REVENUE and Its Sources".
Marx's own concept of "revenue" is defined as a part of the total
surplus-value, and in particular to that part of surplus-value that is spent
on consumer goods, rather than accumulated as additional capital (see e.g.
Chapter 24, Section 4, of Volume 1 of Capital, which is about "the division
of surplus-value into capital and REVENUE.". This concept has to do with
the division of surplus-value into revenue and additional capital, which is
important in Marx's analysis of the reproduction schemes and in his analysis
of accumulation.
Neither of these concepts have anything to do with KM's concept of "revenue"
as the difference between the price of the commodities produced in the
current period and the cost of producing these goods in the next period.
Marx never defined revenue in this way, nor did he define any other concept
as this particular inter-period difference.
7. Finally and most fundamentally, I argue that Marx's concept of prices of
production refers to LONG-RUN EQUILIBRIUM PRICES, and KM's interpretation of
"prices of production" are not long run equilibrium prices.
By "long-run equilibrium prices," I mean prices that are the "CENTERS OF
GRAVITY" around which actual market prices tend to fluctuate and which would
remain constant as long as technology remains constant.
This does not mean that Marx believed that these long-run "centers of
gravity" are ever actually reached, or that competition functions smoothly
to actually equalize profits. But I think that Marx did think that there
are strong tendencies toward a rough equalization of profit rates, and that
the long-run equilibrium prices determined by equalization are the "centers
of gravity" around which actual prices fluctuate. But no matter what Marx
thought about the actual equalization of profit rates, Marx's theory of
price of production in Part 2 of Volume 3 is still at a very high level of
abstraction, as indeed is all of Volume 3. Marx was not trying to explain
actual market prices in Part 2, but was first explaining these long-run
center of gravity prices on the abstract assumption that profit rates are
perfectly equalized, and as the basis for a further analysis of actual
market prices.
An important indication that Marx's concept of price of production refers
to long-run "centers of gravity" prices is that Marx explicitly stated in
several places that his concept of price of production was the SAME AS
SMITH'S AND RICARDO'S concept of "natural price." It is well known that
Smith's and Ricardo concept of "natural price" referred to such long-run
centers of gravity. At the end of Chapter 10 of Volume 3 of Capital, Marx said:
What we call the price of production is in fact the SAME THING
that Adam Smith calls "natural price", Ricardo "price of production"
or "cost of production", and the Physiocrats "prix necessaire",
though none of these explained the difference between price of
production and value. (C.III. 300; emphasis added)
Similarly, in an important letter in August 1862, in which Marx explained to
Engels for the first time his theory of prices of production (which he was
calling at this time either "average prices" or "cost prices"), he concluded
as follows:
Price regulated in this way = the expenses of capital + the average
profit ... is WHAT SMITH CALLS THE NATURAL PRICE, cost price, etc.
It is to this average price that competition between the different
trades reduces the prices in different trades (by transfer of capital or
withdrawal of capital). (Selected Correspondence, p. 122;
emphasis added)
Further evidence that Marx's concept of price of production referred to long
run center of gravity prices and was essentially the same Smith's and
Ricardo's concept of "natural price" or "cost price" comes from Volume 2 of
Theories of Surplus-value, especially Chapter 8 on Rodbertus' theory of rent
and Chapter 10 on Ricardo's and Smith's theory of "cost price." In these
chapters, Marx is developing for the first time his own theory of prices of
production, as a result of his critical examination of the theories of rent
and "cost price" of Smith, Ricardo, and Rodbertus. Marx wrote these
chapters in 1862, around the time of the above letter to Engels.
Marx's main criticism of Smith and Ricardo in these chapters is that they
were unable to provide an explanation of these long-run center of gravity
prices.
Marx's critique is NOT that Smith and Ricardo were trying to explain the
wrong phenomenon, i.e. that they should have been trying to explain some
prices other than these long-run center of gravity prices. Marx's theory
of price of production succeeded where Smith and Ricardo had failed: Marx
provided an explanation of these long-run center of gravity prices, based on
the labor theory of value. There is no indication at all in these chapters
that Marx's concept of price of production applies to a different
phenomenon from Smith's and Ricardo's concept. The problem with Smith and
Ricardo, according to Marx, is that they did not explain how the profit
equalizing "natural prices" are determined, not that they were asking the
wrong question. This problem was the main "stumbling block" of Ricardian
economics. Marx overcame this stumbling block by correctly solving
Ricardo's problem, not by changing the nature of the problem altogether.
Further evidence that Marx's concept of price of production refers to long run
"center of gravity" prices comes from Chapter 10 of Volume 3. In this
chapter, Marx first assumed that commodities exchanged at their values, in
which case the values of commodities would function as the "centers of
gravity" around which market prices fluctuate.
The assumption that commodities from different spheres of production
are sold at their values naturally means no more than that this value is
the CENTER OF GRAVITY around which price turns and at which its
constant rise and fall is balanced out. (C.III. 279; emphasis added)
The exchange or sale of commodities at their value is the rational,
natural law of equilibrium between them; this is the basis on which
divergences have to be explained, and not the converse, i.e. the law
of equilibrium should not be derived from contemplating the
divergences. (C.III. 289)
Marx then discussed the determination of "market values" as the average of
the individual values in a particular branch of production. Market values
are also defined as the "centers of gravity" around which market prices
fluctuate.
... the market value, which forms in turn the CENTER around which
market prices fluctuate. (C.III. 279; emphasis added)
Thus if supply and demand regulate the market price, or rather the
departures of market price from market value, the market value in turn
regulates the relationship between demand and supply, or the CENTER
around which fluctuations of demand and supply make the market price
oscillate. (C.III. 282; emphasis added)
Marx stated further that once prices of production are determined, then
these prices of production replace market values as the "centers of gravity"
around which market prices fluctuate.
What we have said here about market value holds also for the price of
production, as soon as this takes the place of market value.
(C.III. 280)
In contrast to Marx's concept of price of production, KM's interpretation of
price of production are not "centers of gravity" around which actual market
prices fluctuate. Instead KM's prices of production change from period to
period, even though technology and everything else remains constant. KM's
prices of production change from period to period solely due to the
equalization of profit rates, which continues from period to period, as
discussed above. The only prices of production in KM's interpretation that
are long run center of gravity prices are the final prices of production
reached in period 13 of KM's original example. But, as I have argued
before, KM's interpretation of this long-run center of gravity price assumes
that it is determined by a real historical process that consists of multiple
periods and there is no evidence in all of Marx's writings of such a
multiple period determination of prices of production.
8. Therefore, I conclude that KM's interpretation of Marx's theory of
prices of production is a misinterpretation of Marx's own theory, in the
important respects discussed above (and also in other respects that I have
discussed previously, especially the assumption that the fundamental givens
that remain invariant from period to period are the physical quantities of
the technical conditions of production and the real wage, rather than
quantities of money capital).
I have already said and written a number of times that I very much
appreciate Andrew's and Ted's pioneering efforts to break out of the
dominant neo-Ricardian interpretation of Marx's theory, and I gladly repeat
that acknowledgment here. I think that they have made very valuable
contributions to the current reexamination of the fundamentals of Marx's
theory. However, I still think that they have not been completely
successful in these efforts to break out of the neo-Ricardian
interpretation. Their interpretation still contains important elements of
the neo-Ricardian interpretation, which leads them to similar conclusions.
I look forward to further discussions and to further combined efforts to
challenge the dominant Sraffian interpretation and to develop a better
understanding Marx's theory and of contemporary capitalism.
Comradely,
Fred