1. In their original (1988) article, Andrew and Ted (hereafter A&T)
presented a numerical illustration of their interpretation of Marx's
transformation of values into prices of production. In this illustration,
there are 14 periods. In all these periods, the quantities of inputs and
outputs remain the same. In other words, productivity and the real wage
remain the same in all these periods.
2. In their period 1, the input prices are assumed to be equal to the
values of the given means of production and wage goods and output prices
(prices of production) are then determined which are different from the
input values due to the equalization of profit rates.
For the next 12 periods, (i.e. through period 13), a new set of prices of
production are determined in each period. In other words, prices of
production change every period even though productivity and the real wage
remain constant in these periods.
In the 14th period, the prices of production remain the same as in the
13th period. From this point forward, if productivity and the real wage
were to remain constant, then the prices of production would also remain
constant. In other words, A&T's sequence finally reaches long-run
equilibrium in period 13 which would remain constant unless there is a
change of productivity or the real wage.
3. In my view, this interpretation is clearly contrary to Marx's
determination of prices of production. Marx emphasized that prices of
production change if and ONLY IF productivity or the real wage changes.
If productivity and the real wage remain constant, as in A&T's
illustration, then Marx's prices of production would remain constant.
Marx's theory of prices of production is about the long-run equilibrium
prices of production that are reached in period 13 of A&T's illustration,
not about A&T's short-run transitory equilibrium prices that change every
period even though productivity and the real wage remain constant.
4. John has tried to rescue A&T's interpretation by arguing that the
changes in prices of production that occur in periods 1 through 13 of
A&T's illustration are really the delayed effects of a change of
productivity that occured immediately prior to A&T's period 1. To make
his story consistent with A&T's interpretation, John has to assume that in
the period prior to A&T's period 1, the composition of capital in all
industries are equal, so that prices of production are equal to values.
Then, right before A&T's period 1, there is a huge change of productivity
that makes the composition of capital in all industries different. After
that, no further change of productivity or the real wage occurs in A&T's
14 periods. John argues that this change of productivity immediately
prior to period 1 sets in motion the sequence of changes on prices of
production that occur for the first 13 periods in A&T's illustration.
Therefore, John argues that the changes of prices of production in A&T's
illustration are indeed the result of changes in productivity, but in this
sense of delayed effects.
5. However, John's defense is invalid, for the following reasons:
In the first place, A&T say nothing in their articles about their changes
of prices of production from period to period being due to a change of
productivity prior to their period 1. Instead, A&T emphasize the opposite
- that prices of production in each period will be different, even though
productivity and the real wage remain constant, which is clearly contrary
to Marx's concept of prices of production. In their original (1988)
article, they state on p. 70:
As will be seen, however, many DIFFERENT sets of prices
can at DIFFERENT times fulfill conditions (a) and (b),
EVEN WHEN TECHNOLOGY AND THE REAL WAGE
REMAIN CONSTANT. (emphases on "different" in the original)
[conditions (a) and (b) are S=D and equal rates of profit]
Nothing is said in A&T's articles about these changes in prices of
production being due to a change of technology immediately prior to period
1. A&T's articles never once consider the question of the effects of a
change of productivity on prices of production.
Furthermore, their 14 period illustration is intended to explain the
GENERAL TRANSFORMATION of values into prices of production. This general
transformation does not depend in any way on a change of productivity, and
especially does not depend on the particular type of productivity change
suggested by John. A&T's prices of production change every period because
of their particular interpretation of this general transformation from
values into prices of production, not because of a change of productivity
prior to period 1. If this particular type of productivity change
immediately prior to period 1 did not occur (which is surely the general
case), values would still have to be transformed into prices of
production. And A&T's 14 periods would still illustrate their
interpretation of this transformation, with prices of production changing
every period even though productivity and the real wage remained constant.
6. Secondly, A&T present their interpretation as a continuation of what
Marx did in Part 2 of Volume 3. According to A&T, what Marx did was
essentially their period 1. But this one period does not answer
Bortkiewitz' criticism about the conditions of simple reproduction, so A&T
continue Marx's determination of prices of production into future periods
in order to answer Bortkiewitz' criticism. Therefore, if the changes of
prices of production in A&T's 13 periods are to be explained by a change
of productivity immediately prior to period 1, then such a change of
productivity must also have been Marx's assumption.
But Marx himself of course never said anything remotely like this. Nor do
A&T claim that he did. The prior change of productivity is an invention of
John's imagination.
7. Finally, and most importantly, John's introduction of this prior
change of productivity confuses two distinct questions and contradicts
Marx's logical method. The two separate questions are:
(1) how are prices of production determined?
(2) what causes changes in prices of production, or what are the effects
of changes of productivity or real wages on prices of production.
The first question is the more fundamental question and the one to which
Marx devoted by far the most of his attention. It is also the only
question that A&T's articles address. This question is analyzed by both
Marx and A&T ON THE ASSUMPTION THAT THE FUNDAMENTAL DETERMINANTS OF PRICES
OF PRODUCTION - PRODUCTIVITY AND THE REAL WAGE - REMAIN CONSTANT.
The second question is a secondary question and is discussed much less by
Marx and not at all by A&T. To analyze this second question, Marx assumed
that prices of production have already been determined for a given level
of productivity or the real wage, and then examined the effects of a
change of one of these fundamental determinants on prices of production.
Marx criticized Ricardo for focusing all his attention on a version of the
second question - the effects of a change of wages on prices of production
- without first explaining the prior, more fundamental determination of
prices of production. At the end of Chapter 11 of Volume 3, Marx stated:
In this entire chapter, we have assumed that the establishment
of a general rate of profit, an average profit, and thus also the
transformation of values into prices of production is a GIVEN
FACT. All that has been asked is how a general rise or fall in
wages affects the prices of production of commodities, prices
we have assumed to be GIVEN IN ADVANCE. This is a
very secondary question, compared with the other important
points we have dealt with is this Part. Yet it is the only
question Ricardo deals with ... (emphasis added;
And from TSV.II, pp. 195-96:
In fact, he [Ricardo] shows by his illustrations, in the first
place, that it is only the general rate of profit that enables the
different combinations of types of capital ... to differentiate
the prices of commodities from their values, that therefore the
causes of these variations is the general rate of profit and not
the value of labor, WHICH IS ASSUMED TO BE CONSTANT. Then - only
in the second place - he assumes cost-prices [i.e. prices of
production] ALREADY DIFFERENTIATED from values as a result of the
general rate of profit and he examines how variations in the value
of labor affect these. NUMBER 1, THE MAIN POINT, he does
not investigate; he loses sight of it altogether ...
... he only investigates how the cost-prices of commodities can be
altered by a variation in the value of labor, or wages ... The
correct surmise implied by Section IV, regarding the difference
between cost-prices and values is here no longer noticeable.
ONLY A SECONDARY QUESTION IS EXAMINED here,
namely, THE VARIATIONS IN THE COST-PRICES themselves.
This section, therefore, is in fact of hardly any theoretical
interest... (emphasis added; see pp. 193-209 for a further
discussion of this point)
Therefore, we can see that Marx's method of analyzing prices of production
and changes in prices of production was:
(1) first determine prices of production on the basis of a given level of
productivity and the real wage and
(2) then analyze the effects of changes in these fundamental determinants
on prices of production.
Before the effects of a change of productivity on prices of production is
analyzed, the general determination of prices of production is explained
on the basis of a given level of productivity. Marx did not assume a
prior change of productivity in his general theory of the determination of
prices of production. This was in no way necessary would have been
contrary to his method of analysis.
A&T follow Marx's method in this respect. Their entire analysis is about
the fundamental question (1). They are attempting to explain the general
transformation of values into prices of production, on the basis of a
given level of productivity and the real wage. Like in Marx's theory,
their general explanation of this transformation does not depend in any
way on a prior change of productivity. The difference between them is
that, for Marx a given level of productivity determines a unique set of
long-run equilibrium prices of production, whereas for A&T a given level
of productivity exists with many different sets of short-run equilibrium
prices of production that trace out the iterative transformation of values
into prices of production.
Carchedi (Frontiers ...) also follows Marx's method in this respect. In
Chapter 3, Carchedi first analyzes the determination of prices of
production on the basis of a given level of productivity (through p. 80)
and then analyzes the effects of a change of productivity on prices of
production.
However, John's attempted defense of A&T's interpretation does not follow
Marx's method in this respect and is therefore an invalid interpretation.
John does not first determine prices of production on the basis of a
constant level of productivity and then analyze the effects of a change of
productivity on prices of production. Instead, John introduces an
assumption relevant to question (2) - a change of productivity - into an
analysis of the prior, more fundamental question (1), which is based on
the OPPOSITE assumption - a given level of productivity.
Therefore, my conclusion remains that A&T's interpretation of the
determination of prices of production is based on the assumption of a
given level of productivity and real wages, and yet their prices of
production continue to change from period to period, which is clearly
contrary to Marx's prices of production, which change if and ONLY IF
productivity or the real wage changes.
I look forward to further discussion.
Comradely,
Fred