From: Gerald A. Levy (Gerald_A_Levy@MSN.COM)
Date: Wed Apr 21 2004 - 13:22:31 EDT
----- Original Message -----
From: "andromeda246" <andromeda246@hetnet.nl>
Sent: Wednesday, April 21, 2004 8:55 AM
Subject: Marx's concept of production-price
Hi Jerry,
I failed to make one point explicit in talking about "production-prices",
which, to my knowledge was never really discussed much by Marxists. Just
quickly summarising, Marx defined a "sectoral production price" as an
"average cost-price + average profit" per unit of output, or per sectoral
output, which
(i) expressed the market valuation of the consumption of a quantity of
labor-time and materials in producing a new output,
(ii) assumed an existing, relatively stable monetarily effective demand for
which producers compete (a developed market),
(iii) expressed the constraint that production of output is conditional on
accumulation of capital,
(iv) imposed a given cost structure and a given demand structure on
enterprises ("the state of the market"),
(v) assumed a fairly uniform, socially imposed rate of surplus-value.
In my reply to Paul Cockshott on the transformation problem on Marxmail, I
mentioned different types of cost-price (ex ante and ex post) and
distinguished clearly between "capital advanced" and "capital consumption".
But, Marx also argued,
(i) if goods are traded by intermediaries prior to reaching the final
consumer, then the total surplus-value component in the capital value of
those goods is not realised by the direct producers, because part of that
surplus-value is realised by the intermediaries through consecutive
exchanges, prior to reaching the final consumer.
(ii) the market price of an output could change during the temporal interval
between the point at which it has been produced, and the point at which it
has been purchased by the consumer.
(iii) thus, implicitly, although a given Marxian output value was produced
in terms of labor-hours, this value only "regulated" the trend in the market
price of that output relative to other outputs, which could deviate from
that value.
This already establishes that all Marx really does is define what he thinks
are the basic parameters/dynamics of competition and the basic determinants
of relative price movements. However, for the discerning reader, the
question about production-prices then arises, "the average profit of what
exactly ?", i.e. the issue is then whether the "profit" component in the
production-price, as a "regulating average price" which would act as an
economic norm, refers to:
(A) either the total surplus-value component in the Marxian output value of
a sector, or
(B) only that fraction of surplus-value actually realised by the direct
producers of that output, as distinct from the surplus-value realised by
financial intermediaries between producers and consumers through consecutive
exchanges.
In other words, do the regulating "production-prices" of outputs which
industries have to contend with, pertain to:
(a) exclusively the regulation of an average selling price realised by
producer enterprises themselves ("producers' input and output prices") - in
this case, production prices apply only to what statisticians call "producer
goods";
or, does it pertain instead to
(b) the regulation of market prices paid by the final consumers ("final
prices of both producer and consumer goods")
We need to establish this, because:
(a) otherwise we cannot coherently define and explain the basics of the
regulation of market prices over time, and certainly for measuring the trend
in prices, we need to consider the timing of transactions. This is really
the "rational kernel" in Von Bortciewicz query, even although his
simultaneous equations ignored the dimension of time.
(b) it importantly affects our understanding of structural unequal exchange
(founded on differences in the valuation of labor-time which affect
cost-prices
and profit rates).
In Marx's own simple models of the distribution of surplus-values, which he
sketched in the draft manuscript of Vol. 3 of his book, he often just
suggests cavalierly "let's just take three capitals of different
compositions, and then look at what happens to profits" and so on. In doing
so, he really conflates a sectoral distribution of profit in respect to one
type of output, with an insectoral distribution of profit in respect of
different outputs, implicitly suggesting that, from the point of view of the
logic of capital accumulation in general or the reproduction of total social
capital, this difference really doesn't matter very much, because it's all
just the same process operating, the same logic, the "quest for maximum
surplus values" (we aren't even talking here yet about foreign trade).
But the difference obviously does matter, because different use-values and
product-chains are involved, and moreover, interpretations (A) and (B)
mentioned above really imply different ways of looking at the division of
labor, which Marx himself frequently conflates in his draft manuscripts,
even when looking just one output:
(a) from the standpoint of the capital value of the commodity itself
(b) from the standpoint of competing producers who produce, or handle, a
similar or identical output;
(c) from the standpoint of the final consumers of an output.
After all, a product is first produced, and has a capital value at that
point; then it is normally transported, and may be packaged/physically
preserved in wholesaling and retailing, which:
(i) adds a labour-cost to it while modifying the use-value of the product,
and
(ii) adds value to the product
(iii) may change in its price through financial intermediation
(iv) may change in production value due to changes in production conditions
If we looked at the real cost structure of just one new output produced, in
terms of the Marxian capital value that it has at the point of purchase by
the final consumer, then we would obtain a lengthy list of components which
are paid out of newly generated gross income from consecutive sales of the
same product, which might include:
- direct producer's wage-costs
- conserved value of constant capital inputs transferred by labor to new
output (materials used up + real consumption of fixed equipment) in
production
- producers profit
- insurer's profit
- property and land rents
- royalties, license fees and consultancy fees
- creditor's profit
- security company and legal firm's profit
- transporters wage-cost
- transporters profit and wage-cost
- wholesalers profit and wage-cost (in respect of physical preserving or
alteration of use-value in storage)
- other commercial intermediary's profit
- net government taxes, duties and levies
- retailers wage-cost (in respect of physical transformation, physical
display and physical preserving of use-value)
- retailers profit
This way of looking at things shows why the concept of "material use-value"
was so important for Marx in his analysis, because without it, we could not
understand at all, where the product-chain begins and ends. Another way of
putting this is, that the product-chain (the formation process of a
use-value) should really be viewed from the point of view of the final
consumer.
I think that in Marx's value theory, the "average profit" component of the
production-price must be understood to refer to the total of the
surplus-value component in the value of the commodity distributed among the
direct producers, as well as intermediaries between producers and consumers.
I think that this is the only interpretation which is consistent with Marx's
discussion of the reproduction of total social capital in Capital Volume 2,
and that this interpretation is really necessary to understand the systemic
"law of motion" governing competition between private enterprises over the
distribution of surplus-values, for which the capturing of existing real
demand and strengthening relative bargaining position are the means. Thus,
for example, whereas in the competitive process, (i) in the short-term the
saturation of final demand and excess capacity may generate a search for
intermediaries to offload output, (ii) the long-term law of motion is really
the reduction of the scope of that intermediation. (This means that net
output aggregates in national accounts don't really reflect the type of
production prices Marx has in mind, and would have the reconstructed using
I/O tables)
I specifically wanted to note this point about my interpretation of
production-prices, because it brings out, in another way, three aspects of
Marx's theory:
(1) the necessary temporal discrepancy between value and price: from the
point of view of total social capital, whereas a product has a value (c+v+s)
at the point of production, yet, what this value is, cannot be really
manifest until the product is purchased by the final consumer, because of:
(i) the temporal lag between production of output and final purchase of
output,
(ii) differences in productivity growth rates,
(iii) relative growth rates of supply and demand,
(vi) price competition,
(v) monetary and credit policy
Thus, as I have argued oftentimes, total volume of surplus-value produced
even in theory cannot be equal to the volume of profit realised, as Marx
himself admits; instead, the changes in the volumes of surplus-value
produced determine the movements in profit volumes, i.e. the trend in
realised profit/interest/rent income "tracks" the trend in surplus-values
(as suggested by I.I. Rubin's analysis).
(2) that the "vicissitudes" of competition in the intermediation between the
direct producers and the consumers, including monetary policy and foreign
trade, can independently affect the movements of sectoral production-prices
(R. Hilferding). In a more developed market, there are normally more
commercial intermediaries and a more complex commercialised division of
labor (Bohm Bawerk's "roundabout way of production") and in a less developed
market there are normally less commercial intermediaries and a less complex
commercialised division of labor.
(3) the real substance of Marx's discussion of the "tendency towards the
equalisation of profit rates", namely, that from the point of view of the
capitalist system as a whole, what intercapitalist competition is ultimately
about, is increasing private investors' own shares in the surplus-value
component of the capital value of output ("returning value to
shareholders"), even although this seems to take the observable economic
form of enterprises competing for shares of market demand (J. Weeks, A.
Shaikh). In modern parlance, to really understand the overall logic of
capitalist competition, you need to look more at "the investor's viewpoint",
not simply "the functioning manager's viewpoint" - as Marx analyses in
Capital Vol. 2, the investor can invest alternatively in "money capital"
(financial assets - equities, bonds, stocks, securities), "production
capital" (productive assets - labor and labor-services, plant & equipment,
materials) or "commodity capital" (tradeable goods or fixed assets).
If you look at corporate strategy, then you will see that usually
corporations try to control or influence as much of the product-chain as
they can, insofar as it is compatible with acceptable market risk, for the
purpose of obtaining long-term surplus-profits, something which in the
Marxian theory implies an "objective socialisation of labor" that is a
potential foundation for planned economy. Quite simply, the fewer competing
suppliers there are, for a given market demand, (i) the less "market
uncertainty" there is, and (ii) the more the supplier is able to set prices.
And if you look at what really happens in economic crises (recessions,
downturns and depressions), then you will see that it includes the
rationalisation of product-chains through take-overs and mergers, i.e. if
the growth rate of the total volume of profit declines, an attempt is made
to increase profit shares at the expense of other enterprises, through
take-overs, mergers, asset-stripping, and so on (this in addition to an
increase in the rate of surplus-value).
In their book "On the economic theory of socialism", Oskar Lange and Fred
Taylor considered the "parametric character of prices" in their theory of
pricing and price regulation. That is to say, whereas price formation in
markets results from the autonomous decisions of a multitude of different
consumers and producers, in the real world they all behave as if actual
prices with which they are confronted are fairly definite and fixed, a given
datum (or at least can vary only within a very narrow band); the main
exception being the (currently still popular) speculation in the
price-fluctuations of equities, currencies, commodities, and derivatives
(accumulation of capital from price-fluctuations).
The main reason is that for most people, the time and ability they have to
negotiate purchase prices is limited, especially because the bulk of the
unit values of the products and services purchased (ordinary consumer
durables and perishables) is comparatively small. Indeed, most people
actually try to reduce the time they spend on buying and selling (outside of
their professional occupation that is). In Morocco, the average
negotiation-time per person in product sales might possibly be somewhat
higher than in the Netherlands; and, in an less developed market, the total
number of negotiation hours with respect to prices of household goods and
services may be higher than in more developed markets; even so, the limits I
mention describe the basic reality for the vast majority of actual prices.
Thus, price fluctuations within respect to a given market demand must in
reality be seen as the end result of a multitude of responses of producers
and consumers to existing prices which manifest themselves as more or less
"fixed".
This more realistic interpretation of prices is the direct opposite of
neoclassical ideologies about "consumer sovereignity" and suchlike,
according to which every price is:
(a) the outcome of a negotiation
(b) a response to consumer preference
and
(c) consumers have an "encyclopedic knowledge of prices" as Marx puts it
satirically at the beginning of his magnum opus.
This doesn't adequately describe the real situation in modern capitalism
because:
(i) whereas some product and service prices are certainly negotiable or
negotiated in some significant sense (especially more expensive durables),
the majority aren't or are so only within a narrow range - if anything, more
often negotiation concerns "who" should buy them or pay for them;
(ii) the market knowledge which most consumers have of price levels, price
relativities and price changes is limited, and the time and choices they
have in buying products is limited;
(iii) if prices are adjusted, they are adjusted mainly not directly in
response to "consumer preferences" between alternative purchase options, but
in response to a total volume of monetarily effective demand actually
expressed through actual purchases, from which preferences may be inferred
(though not with absolute certainty; hence surveys of the exact motive for
buying decisions);
(iv) what the specific preferences being exercised are, is something
typically known only indirectly and aposteriori through actual prices paid
for products and services;
(v) consumer preferences are investigated through surveys, typically to
assist prediction or development of a future demand for products and
services, complementing projections from the past trends in the actual
volume of purchases.
The objection made here is that if somebody opts to buy good X rather than
Y, he has "implicitly" negotiated through exercising consumer preference
between alternative choices, but the point is that neither the price of X or
the price of Y have themselves been negotiated.
It is this basic economic reality I have described, which justifies the
concept of a "regulating price" or "natural price" as applied by the
classical political economists and Marx, which imposes itself on economic
actors, and which explains why the subjective theories of value don't
adequately describe prices and pricing, never mind explaining them.
Contrary to what vulgar economists say, in socialist-type economic theory
(e.g. Lange, Kornai, Itoh) a much more sophisticated and more realistic
understanding of the functioning of prices emerges than in the standard
neoclassicist textbook vision. Vulgar economists might argue that
socialist-type economies in the past worked badly from the point of view of
satisfying consumer needs, but they typically forget that mostly those
economies:
(i) emerged out of wars.
(i) were launched from a starting-point of comparatively low labor
productivity.
(ii) had political institutions which were often rather despotic and rigid.
(iii) were under constant threat from imperialist aggression.
(v) lacked the experience of developed national markets.
Obviously, very good economic theory can co-exist with very badly operated
economies; that just depends on who happens to be in charge and what
policies are pursued. It would be idealist to think that the best scientific
theory would necessarily always be adopted by politicians, i.e. that
objective truth is always compatible with partisan interests, rather than
that what the objective truth is disputed by partisan interests. Arguably,
the "telecommunications and information technology revolution" means that
prices could in principle be adjusted much faster to consumer preferences
than before. This is technically true, but the real question is whether they
really do, especially under monopolistic conditions and given power
relations. As Prof. Perelman has emphasised, price levels and price
relativities in the real world often have rather a lot to do with "the
capacity to impose prices on buyers" by one means or another.
Speculative bubbles create the possibility for revaluing a perceived "human
capital" of a group of individuals (or even a nation) and thus alter terms
of exchange, but in the last instance:
(i) the "capitalisation of human capital" depends on an already existing
buying power for that human capital (an already existing real demand);
(ii) the speculative bubble is sustained by the extension of credit,
allowing human capital to be overvalued;
(iii) if the increased value attached to the human capital of individuals
(their revaluation as being "worth more") is not matched by any real
increase in output of tangible products and services, it is really to a
large extent a "fictitious capital", which disappears when aggregate demand
growth tapers off or falls, or if competitors produce the same output or a
higher output with producers whose "human capital" was supposed to be lower.
(iv) in an overall sense, price relativities and price levels reflect the
relative bargaining positions and power relationships between social classes
and nations.
(v) Even if modern information technology makes a better adjustment of
supply to demand possible, price relativities and price levels still operate
under the constraint of production-cost and a pattern of distribution of
buying power, if price competition occurs in an open market.
That's all for now.
Regards,
Jurriaan
This archive was generated by hypermail 2.1.5 : Thu Apr 22 2004 - 00:00:01 EDT