Re: [OPE-L] Capital in General

From: Fred Moseley (fmoseley@MTHOLYOKE.EDU)
Date: Wed Oct 19 2005 - 10:28:51 EDT


On Tue, 18 Oct 2005, Paul Bullock wrote:

> Fred,
> Please provide a reference from Marx where he says he is assuming S=D.


Hi Paul, thanks for your question.  My reply below.


1.  Marx assumed throughout Volume 1 (and Volume 2) that commodities are
sold at their VALUES, and that their value is determined by the SNLT in
production.  To take an important example from Chapter 7, which presents
Marx's basic theory of surplus-value, the value of the 20 lbs. of yarn is
= 30 shillings, which is determined by the 60 hours of SNLT required to
produce the yarn.  In other words, Marx assumed that all the value
produced in production is realized through their sale in circulation,
which in turn implies that S = D.

Therefore, every time Marx says in Volume 1 that "it is assumed that
commodities are so sold at their values" he was in effect saying that he
was assuming no realization problems and S = D.  The values of commodities
in Volume 1 are abstract long-run equilibrium prices (abstracting from the
equalization of profit rates).


2.  More explicit statements of this assumption in VOLUME 1 include:

a.  CHAPTER 3, SECTION 2:  on the function of money as means of
circulation at the level of abstraction of the "simple circulation of
commodities".  The first phase of the circulation of commodities is the
SALE of commodities for money, which Marx calls the "salto mortale" of
commodities.  Marx discusses the possibility that too much linen (for
example) has been produced in relation to the social demand for linen.
Marx then states his general assumption:

"Here, however, we have to look at the phenomenon in its PURE SHAPE, and
must therefore ASSUME THAT IT HAS PROCEEDED NORMALLY." (p. 203; emphasis
added)

In other words, even though the relation between production and demand in
the real capitalist economy is a "matter of chance", Marx wanted to
analyze capitalism is its "pure shape".  In the rest of Section 2, Marx
assumes that the 20 yds. of  linen is $2, which is proportional to
socially necessary labor-time, i.e. that the "salto mortale" is
successfully completed.  This is the general assumption that Marx makes
throughout Volume 1 (and indeed all three volumes).

Toward the end of Section 2,  in the subsection on the second phase of the
simple circulation of commodities, the PURCHASE, Marx returns to the
question of the relation between supply and demand, in a brief critique of
Say's Law, according to which supply is always equal to demand ("nothing
could be more foolish").  Marx argues that, because the circulation of
commodities is divided into two phases - sale and purchase - there is
always the possibility that some commodity-owners who have sold their
commodities will choose not to purchase other commodities, i.e. to hoard
money (at least for a while).  In this case, other commodity-owners will
not be able to sell their commodities, and thus a realization crisis could
occur.  Supply will not be equal to demand, but will be greater than
demand.  At the end of the paragraph on Say's Law, Marx states:

"These forms therefore imply the possibility of crises, though no more
than the possibility.  For the development of this possibility into a
reality a whole series of conditions is required, which do not yet even
exist from the standpoint of the simple circulation of commodities."  (p.
209)

The main "conditions" that must be explained before realization crises can
be explained are the production of surplus-value (Vol. 1) and the
distribution of surplus-value (Vol. 3).  And also the "credit system",
which was to be analyzed at a later stage after Vol. 3.

In the meantime, for the rest of the three volumes, in order to analyze
capitalism in its "pure shape", Marx continued to assume that commodities
are sold at their full value, and thus abstracts from realization crises,
which will be explained later.


b.  CHAPTER 5:  At the end of Chapter 5, Marx poses in stark terms the
main question that his theory in Volume is intended to answer, and states
the main assumption on the basis of which his theory will answer this
all-important question:

"The transformation of money into capital has to be developed on the basis
of the immanent laws of the exchange of commodities, in such a way that
the starting-point is the exchange of equivalents. [24]  The money-owner
must buy his commodities at their value, sell them at their value, and yet
at the end of the process withdraw more value from circulation than he
threw into it at the beginning  These are the conditions of the problem.
Hic Rhodes, hic salta."  (pp. 268-69)

Footnote 24 is very important:

"The reader will see from the foregoing discussion that the meaning of
this statement is only as follows:  the formation of capital must be
possible even though the price and the value of a commodity be the same,
for it cannot be explained by referring to any divergence between price
and value.  If prices actually differ from values, we must first reduce
the former to the latter, i.e. disregard this situation as an accidental
one in order to observe the phenomenon of the formation of capital on the
basis of the exchange of commodities IN ITS PURITY   If, therefore, he
were at all interested in disinterested thinking, he would formulate the
problem of the formation of capital as follows:  How can we account for
the origin of capital on the assumption that prices are regulated by the
average price, i.e. ultimately by the value of the commodities.  I say
'ultimately' because average prices do not directly coincide with the
values of commodities, as Adam Smith, Ricardo, and others believe."
(emphasis added)

In other words, the production of surplus-value must be explained on the
assumption that prices are equal to their values, or their average prices,
which assume that S = D (i.e. "the exchange of commodities in its
purity").  This theory of surplus-value ignores "accidental deviations" of
actual market prices from their average prices, as a result of imbalances
between S and D, because these deviations are a secondary matter compared
to the explanation of surplus-value.


c.  CHAPTER 7:  After explaining the all-important phenomenon of the
magnitude of surplus-value in Chapter 7, Marx emphasized again the
assumption that prices = values, i.e. that S = D:

"Every condition of the problem is satisfied, while the laws governing the
exchange of commodities have not been violated in any way.  Equivalent has
been exchanged for equivalent.  For the capitalist as buyer paid the full
value for each commodity, for cotton, for the spindle and for the
labour-power  The capitalist, formerly a buyer, now returns to the market
as a seller,  He sells his yarn a 1s. 6d. a pound, which is its exact
value.  Yet for all that he withdraws 3 shillings more from circulation
than he originally threw into it."  (pp. 301-02)


d.  PART 7:  In the introduction Part 7, Marx repeats that, in his
abstract analysis of the accumulation of capital, he assumes that "capital
passes through its process of circulation in the NORMAL WAY" (i.e. without
realization crises) and that "the capitalist sells the commodities he has
produced a their values."  (pp. 709-10).


3.  Finally, the key concept in VOLUME 3 is price of production, which
assumes equal rates of profit, which in turn assumes S = D.  If Marx
assumed S = D in Volume 3, then surely he also assumed S = D in Volume 1,
which is at a higher level of abstraction than Volume 3.  Marx's analysis
of realization crises and market prices and S not = D was intended to be
in a later book at a lower level of abstraction than Capital.


I do not mean to minimize the importance of capitalism's tendency toward
crises.  I have devoted a lot of years to Marx's crisis theory, especially
the falling rate of profit as applied to the US economy.  However, I have
come to realize that the three volumes of Capital are generally at a
higher level of abstraction than crises.  "Crises and the world market"
was the 6th book in Marx's original 6-book plan.  Capital was only the
first book.  Capital provides the basis for a more concrete theory of
crises, but such a theory is not presented in the three volumes.  Before
concrete crises can be analyzed, the production and distribution of
surplus-value must be explained.  These fundamental questions are
explained in Capital on the basis of the assumption that capitalism is
"functioning normally", i.e. that S = D and price = value or = price of
production.

Comradely,
Fred


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