Sunday, January 31, 2016

The Historical Development of Marxist Interpretations of the Law of Value

In essence, after Marx and Engels’ death Marxists held various positions, as follows:
(1) The law of value in volume 3 of Capital
Many Marxists followed volume 3 of Capital and gave up the view that commodity prices tend to equal pure labour values (which was the theory in volume 1). Instead, they defended the view of volume 3 that the “law of value” only ultimately and indirectly explains prices, and defended Marx’s three aggregate equalities:
(1) the sum of surplus value = sum of profits;

(2) the sum of values = sum of prices, and

(3) the value rate of profit = the money rate of profit.
These aggregate equalities were asserted as true as Marx’s attempt to transform labour values into prices of production.

Böhm-Bawerk later usefully summarised Marx’s various attempts to salvage the law of value in volume 3 of Capital as follows:
“First argument: even if the separate commodities are being sold either above or below their values, these reciprocal fluctuations cancel each other, and in the community itself—taking into account all the branches of production—the total of the prices of production of the commodities produced still remains equal to the sum of their values (III, 188).

Second argument: the law of value governs the movement of Prices, since the diminution or increase of the requisite working time makes the prices of production rise or fall (III, 208, 211).

Third argument: the law of value, Marx affirms, governs with undiminished authority the exchange of commodities in certain ‘primary’ stages, in which the change of values into prices of production has not yet been accomplished.

Fourth argument: in a complicated economic system the law of value regulates the prices of production at least indirectly and in the last resort, since the total value of the commodities, determined by the law of value, determines the total surplus value. The latter, however, regulates the amount of the average profit, and therefore the general rate of profit (III, 212).” (Böhm-Bawerk 1949: 32).
It is curious that many Marxists forgot about the Third Argument: that commodities tended to exchange at their true labour values in pre-modern forms of commodity exchange. This was defended by Engels in his “Supplement and Addendum” to volume 3 of Capital of 1895 (Engels 1991 [1895]), and also defended by a few Marxists after his time as I note here.

At any rate, this interpretation of Marx, from volume 3, dominated Marxist thought both in the West and in Russia until WWII (Nitzan and Bichler 2009: 99).

(2) Simultaneous Dual System Interpretation
A revolution came with the work of Ladislaus von Bortkiewicz (1868–1931), Vladimir Karpovich Dmitriev (1868–1913) and Mikhail Ivanovich Tugan-Baranovsky (1865–1919).

We turn again to Marx’s three aggregate equalities:
(1) the sum of surplus value = sum of profits;

(2) the sum of values = sum of prices of production, and

(3) the value rate of profit = the money rate of profit.
The work of Ladislaus von Bortkiewicz showed that two of the three aggregate equalities defended by Marx in volume 3 of Capital fail, and that the sum of surplus value = sum of profits quality cannot be defended unless under very special assumptions (see Bortkiewicz 1906; 1907a; 1907b; 1907c; English translations in Bortkiewicz 1949 and 1952; see also here). Even worse, Bortkiewicz’s work suggested that the tendency to a falling rate of profit is wrong too (Kliman 2006: 47).

Bortkiewicz’s new model adopted a dual-system view that contended that labour values and prices of production are determined entirely separately, so that the transformation problem is avoided (Nitzan and Bichler 2009: 108).

When the work of von Bortkiewicz was translated and become known in the West, a number of Marxists adopted his view. Paul M. Sweezy (1910–2004), the author of The Theory of Capitalist Development. Principles of Marxian Political Economy (1946, London), was the most influential.

The reformed interpretations of Marx by both Ladislaus Bortkiewicz (1868–1931) and Paul M. Sweezy (1910–2004) have been seen by some as proto-Sraffian and having anticipated aspects of Sraffa’s own re-interpretation of Classical Political Economy (Mongiovi 2002: 395).

However, Ian Steedman (1977), building on the work of Sraffa, demonstrated that labour value itself was not only redundant since physical quantities of commodities can determine the profit rate, but also, in a devastating point, capable of being negative in joint production process even when prices and profit rates are positive (Nitzan and Bichler 2009: 101). The Dual System interpretation, and indeed the very labour theory of value itself, is destroyed under such a critique (Keen 2011: 426–443; Nitzan and Bichler 2009: 101).

(3) Temporal Single System Interpretation (TSSI) Marxism
This emerged in the 1980s as a new generation of Marxists surveyed the wreckage of previous interpretations of Marx’s economic theory.

Temporal Single System Marxists argue that Bortkiewicz’s criticisms of Marx apply only to a Classical long-period equilibrium interpretation of Marx’s value theory, and that this long period interpretation is wrong and a misrepresentation of Marx’s views (Mongiovi 2002: 409).

TSSI also treats factor input prices in a temporal and not simultaneous manner (Nitzan and Bichler 2009: 106). The orthodox “simultaneous” treatment of the prices of factor inputs holds that they should be measured by current prices at the time of final production of the output commodity and not at their prices when purchased. The TSSI instead holds that prices and labour value of factor inputs should be measured at the time at which they were purchased (Nitzan and Bichler 2009: 107).

However, the TSSI simply assumes labour value equal prices, as Nitzan and Bichler argue:
… the single system articulated by the TSSI does not have prices and values. It has prices as values. The distinction is crucial. The conventional Marxist approach argues that labour values are the cause of prices. This causal link is meaningful because the definitions of the two magnitudes are different. Prices are counted in money, whereas values are counted in labour time. The two magnitudes could be used interchangeably – but only if the theory is correct.

The setup of the TSSI is completely different. Here, there is no point in asking whether or not prices are equal to values, simply because values are defined by market prices.” (Nitzan and Bichler 2009: 107–108).
If the TSSI simply defines labour values as equal to price by definition then it badly misunderstands Marx, who derived prices from labour values, whether (1) in volume 1 of Capital where commodity prices tend to equal labour values, or (2) in volume 3 where labour values are transformed into prices of production.

Moreover, Mongiovi charges the Temporal Single System Interpretation with the following flaws and errors:
(1) the concept of labour value, contrary to Marx, is reduced by the Temporal Single System Interpretation merely to price (Mongiovi 2002: 406, n. 20);

(2) the Temporal Single System Interpretation’s attempt to deny that Marx’s economics was in the tradition of long period Classical equilibrium theory is wrong (Mongiovi 2002: 402, 412).

(3) the Temporal Single System Interpretation attempts to defend the propositions that the (1) sum of profits equals the sum of surplus value and (2) the sum of prices equals the sum of values by reducing this to an idiosyncratic and empirically empty pure mathematical identity that is a sleight of hand (in other words, by an analytic mathematical propositions merely true by definition) (Mongiovi 2002: 405–406, 413);

(4) Temporal Single System Interpretation Marxists focus on random passages in Marx and take these passages out of context to prove their own idiosyncratic ideas (Mongiovi 2002: 409–411).
On (2), there seems to be good evidence that Marx really did conceive his economic theories firmly in the Classical long-run equilibrium position. For example, the evidence for how Marx regarded “average price,” “cost-price” or “price of production” as the long run Classical “natural price” is superbly presented in Fred Moseley’s paper “Marx’s Concept of Prices of Production: Long-Run Center-of-Gravity Prices,” which demonstrates how the Temporal Single System Interpretation badly misunderstands Marx’s concept of the “price of production.”

If correct, then TSSI is fatally flawed by its own incompetent misunderstanding of Marx, and reduces to an empty tautological theory with no explanatory power and adds nothing of any importance to economic science.

(4) the New Interpretation (NI) of Gerard Dumenil, A. Lipietz, and Duncan Foley
The New Interpretation (NI) of Marx by Duncan Foley and Gérard Duménil emerged in the 1980s and appears to dispense entirely with any attempt to transform labour values into prices by conflating values with prices.

(5) Michael Heinrich’s “New German Reading of Marx.”
This is presented in Michael Heinrich’s book An Introduction to the Three Volumes of Karl Marx’s Capital (2012).

Heinrich’s interpretation, however, disputes that there is any tendency for the rate of profit to fall in capitalism and seems in some respects to morph into Keynesianism, as analysed here. How Heinrich understands labour values is unclear to me.

Addendum
I am unsure if Anwar Shaikh, Fred Moseley, Alan Freeman, Makoto Itoh and Dominique Levy are also followers of the New Interpretation (NI), but I have read that they share similar views on the transformation problem.

Further Reading
John Barkley Rosser, “He’s Baaack! Karl Marx and The Transformation Problem,” March 2, 2015, Econospeak
http://econospeak.blogspot.com/2015/03/hes-baaack-karl-marx-and-transformation.html

Matias Vernengo, “Sraffa and Marxism or the Labor Theory of Value, what is it good for?,” Naked Keynesianism, August 14, 2012.
http://nakedkeynesianism.blogspot.com/2012/08/sraffa-and-marxism-or-labor-theory-of.html

BIBLIOGRAPHY
Böhm-Bawerk, Eugen von. 1949. “Karl Marx and the Close of His System,” in Paul. M. Sweezy (ed.), Karl Marx and the Close of His System and Böhm-Bawerk’s Criticism of Marx. August M. Kelley, New York. 3–120.

Bortkiewicz, L. von. 1906. “Wertrechnung und Preisrechnung im Marxschen System I,” Archiv für Sozialwissenschaft und Sozialpolitik 23: 1–50.

Bortkiewicz, L. von. 1907a. “Wertrechnung und Preisrechnung im Marxschen System II,” Archiv für Sozialwissenschaft und Sozialpolitik 25: 10–51.

Bortkiewicz, L. von. 1907b. “Wertrechnung und Preisrechnung im Marxschen System III,” Archiv für Sozialwissenschaft und Sozialpolitik 25: 445–488.

Bortkiewicz, L. von. 1907c. “Zur Berichtigung der grundlegenden theoretischen Konstruktion von Marx im 3. Band des ‘Kapital,’” Jahrbücher für Nationalökonomie und Statistik 34: 319–335.

Bortkiewicz, L. von. 1949. “On the Correction of Marx’s Fundamental Theoretical Construction in the Third Volume of Capital,” in Paul. M. Sweezy (ed.), Karl Marx and the Close of His System and Böhm-Bawerk’s Criticism of Marx. August M. Kelley, New York. 197–221.
https://mises.org/library/karl-marx-and-close-his-system

Bortkiewicz, L. von. 1952. “Value and Price in the Marxian System,” International Economic Papers 2: 5–60.

Engels, F. 1991 [1895]. “Supplement and Addendum” to Volume 3 of Capital,” in Karl Marx, Capital. A Critique of Political Economy. Volume Three (trans. David Fernbach). Penguin Books, London.

Keen, Steve. 2011. Debunking Economics: The Naked Emperor Dethroned? (rev. and expanded edn.). Zed Books, London and New York.

Kliman, Andrew. 2006. Reclaiming Marx’s ‘Capital’: A Refutation of the Myth of Inconsistency. Lexington Books, Lanham.

Mongiovi, G. 2002. “Vulgar Economy in Marxian Garb: A Critique of Temporal Single System Marxism,” Review of Radical Political Economics 34.4: 393–416.

Moseley, Fred. “Marx’s Concept of Prices of Production: Long-Run Center-of-Gravity Prices”
http://www.mtholyoke.edu/~fmoseley/lrcgpric.html

Nitzan, Jonathan and Shimshon Bichler. 2009. Capital as Power: A Study or Order and Creorder. Routledge, Abingdon, UK and New York.

Samuelson, Paul A. 1971. “Understanding the Marxian Notion of Exploitation: A Summary of the So-Called Transformation Problem between Marxian Values and Competitive Prices,” Journal of Economic Literature 9.2: 399–431.

Steedman, Ian. 1977. Marx after Sraffa. NLB, London.

Sweezy, Paul M. 1946. The Theory of Capitalist Development. Principles of Marxian Political Economy.. Dennis Dobson, London.

11 comments:

  1. From Wikipedia:

    "Finally, there are Marxist scholars (e.g., Anwar Shaikh, Fred Moseley, Alan Freeman, Makoto Itoh, Gerard Dumenil and Dominique Levy, and Duncan Foley) who hold that there exists no incontestable logical procedure by which to derive price magnitudes from value magnitudes, but still think that it has no lethal consequences on his system as a whole. In a few very special cases, Marx's idea of labour as the "substance" of (exchangeable) value would not be openly at odds with the facts of market competitive equilibrium. These authors have argued that such cases—though not generally observed—throw light on the "hidden" or "pure" nature of capitalist society. Thus Marx's related notions of surplus value and unpaid labour can still be treated as basically true, although they hold that the practical details of their workings are more complicated than Marx thought.

    In particular, some (e.g., Anwar Shaikh) have suggested that since aggregate surplus value will generally differ from aggregate "profit", the former should be in fact treated as a mere pre-condition for the latter, rather than a full explanation of it. Using input-output data and empirical proxies for labour-values, Shaikh and Ochoa have provided some statistical evidence to show that, although no incontestable logical deduction may be possible of specific price magnitudes from specific value magnitudes, even within a complex model (in contrast to a probabilistic prediction), even a "93% Ricardian theory" of labour-value appears to be a better empirical predictor of price than its rivals."

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  2. I don't know where to begin.

    -You manage to mangle Capital within the first 50 words.

    -The TSSI section is rife with errors. likely because you've only cited TSSI opponents inside and ignored the entire literature of direct responses to said opponents.

    -You left out an entire interpretive camp.

    And that's just on a skim. If I can find the energy, I'll go into greater depth.

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    Replies
    1. (1) The law of value in volume 3 of Capital

      For an article about how Marxists have interpreted the law of value, it is odd that this section provides no Marxist reference; instead, it relies on an Austrian and two left-wing critics of Marxism.

      I am not aware of any Marxist who believes he used a different law of value in volume 1 than in his other writings from 1959 onward. The volume is, by its own admission, employing abstraction to indicate general laws. This is a common practice in many sciences, and even a casual observer in the 19th century would notice reality was more complicated.

      The law of value does not change throughout the three volumes of capital, and always and everywhere describes the proportionality of exchange value to labor time. It’s inherent to commodity exchange, and is deceptively simple in its underlying content — nothing can be consumed before it has been produced, and value is not created in exchange (ala double-entry bookkeeping).

      Marx explains this more clearly in Chapter 5 of Capital vole 1 — if buying cheap and selling dear enables someone to gain more value than they gave, then someone else of necessity lost more than they gained. But because of everyone's dual role, it becomes impossible at the macro level for net profits to emerge from this practice. This is the meaning of the equality of total money price (i.e., the value realized in exchange) with total value in money terms (i.e., the value created in production). As such, chapter 5 expresses, in more literary form, the same formalization of aggregate equality of price and value as in volume 3.

      Accordingly, whether or not value is empirically evident in average prices — such as before capitalism — the law still fundamentally exerts, much in the same way that (through the intervention of other mechanisms) the law of gravity is still in effect, albeit not empirically evident, in the movements of flocks of birds.

      (2) Simultaneous Dual System Interpretation

      It's misleading to say Bortkiewicz introduced this model "so the transformation problem is avoided," since his interpretation is precisely what first introduced the alleged problem. I believe you've made a similar observation yourself, in your "Absurdity of the Transformation Problem" post.

      The TSSI instead holds that prices and labour value of factor inputs should be measured at the time at which they were purchased

      This muddles two different things. The amount of value transferred depends upon the amount of value needed to acquire the means of production — that is, current costs, factored at the time of production. Historical valuation is used to determine something completely different: profits, since they're evaluated on the basis of the money advanced, rather than the ever-changing value of the means of production.

      If the TSSI simply defines labour values as equal to price by definition then it badly misunderstands Marx, who derived prices from labour values

      No. The determination of price and value is dialectical; price is a determinant of value as an input and value determines price in the last instance, per the law of value. Accounting identities do not a priori beg any question; if all accounting identities were "sleight of hand," the sectoral balances approach would be meaningless. They are a tool, not a theory; they must be justified on the basis of theory, which is what Marx spends much of Capital doing.

      On Mongiovi and Moseley: The former’s charges are critiqued directly in Kliman's "The Specter Haunting 'Marxian Economics,'" which is accessible via Google. Kliman's book cited in your post responds to Moseley.

      Finally, you omit any mention of the SSSI (simultaneous single-system), employed by Wolff, Moseley, and others. It shows the aggregate equalities hold for any simultaneous system, not merely the TSSI. It parts ways with the temporalists on the issue of the rate of profit.

      I'll leave it at that.

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    2. "I am not aware of any Marxist who believes he used a different law of value in volume 1 than in his other writings from 1959 onward. "

      Idiot. Some people who in the 1870s or 1880s followed Marx like Achille Loria charged him with this contradiction when vol. 3 was published. Marxists were desperately defending Marx from this charge for years, e.g., Engels, Hilferding. That is, it is a problem critics have identified.

      The fact that you -- and pathetic other fellow cultists -- don't think there is a contradiction only shows how you have been indoctrinated to ignore the evidence.

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    3. "The volume is, by its own admission, employing abstraction to indicate general laws. "

      No, it doesn't. That is a ridiculous falsehood. All you have is 2 obscure footnotes that if taken seriously smash the law of value in the actual text of vol. 1 to pieces.

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    4. Some people who in the 1870s or 1880s followed Marx like Achille Loria charged him with this contradiction when vol. 3 was published.

      Yes, yes, we know. Achille Loria. He was a socialist, yes, but not a Marxist. This is clear not from his his criticisms of Marx, but by the investigative method that yielded them.

      Thank you for the case in point.

      The fact that you -- and pathetic other fellow cultists -- don't think there is a contradiction only shows how you have been indoctrinated to ignore the evidence.

      It's swell that you can put this statement right next to one where you admit to ignoring footnotes (to which I would add other points in the body of the text, at the very least in chapters 3 and 5 and the preface).

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  3. "to which I would add other points in the body of the text, at the very least in chapters 3 and 5 and the preface"

    lol... What ones are they?

    And once again, you totally ignore:

    Marx in Chapter 5 of volume 1 of Capital:

    “It is true, commodities may be sold at prices deviating from their values, but these deviations are to be considered as infractions of the laws of the exchange of commodities, which, in its normal state is an exchange of equivalents, consequently, no method for increasing value.” (Marx 1906: 176–177).

    Marx states in Chapter 1 that it is possible to accurately measure the value of skilled labour by looking at the exchange values of products of skilled labour as against products of unskilled labour (Marx 1906: 51–52), but that **makes no sense** unless Marx really believes that commodities tend to exchange at pure labour values.

    Marx also says that gold or silver, when initially brought to market, is exchanged with other commodities with an equal socially necessary labour time value as a barter transaction (Marx 1906: 122). That requires exchange at pure labour values.

    Marx also thought that prices are determined by (1) the long-run labour value of gold as determined by the abstract socially necessary labour time required for gold’s production and (2) labour value of other commodities as this labour value relates to the labour value of gold in exchanges (Marx 1906: 108).

    Only your intense cult-like unwillingness to read the text is the issue here. You think you know Marx, but you don't. You are a charlatan.

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    1. Marx states in Chapter 1 that it is possible to accurately measure the value of skilled labour by looking at the exchange values of products of skilled labour as against products of unskilled labour (Marx 1906: 51–52), but that **makes no sense** unless Marx really believes that commodities tend to exchange at pure labour values.

      False. It makes perfect sense, and the procedure is trivial in a single-system reading (even leaving aside the issue of simultaneity/temporality).

      Marx also says that gold or silver, when initially brought to market, is exchanged with other commodities with an equal socially necessary labour time value as a barter transaction (Marx 1906: 122). That requires exchange at pure labour values.

      ...You realize everything exchanges at value in volume 1, right?

      Only your intense cult-like unwillingness to read the text is the issue here. You think you know Marx, but you don't. You are a charlatan.

      If you were arguing in good faith, by now you'd have at least *humored* a realist lens, per the principle of charity. This has never been a good-faith debate on your part, and by this point I take your insults as a sign I'm doing something right. :)

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    2. "...You realize everything exchanges at value in volume 1, right?"

      False. No, it doesn't. Marx says exchange values move around true labour values. Even in chapter 1, he points out diamonds might not always exchange for their true labour values (Marx 1906: 47), for instance.

      Even worse, you have the specific quote from vol. 1 right in front of you:

      “It is true, commodities may be sold at prices deviating from their values, but these deviations are to be considered as infractions of the laws of the exchange of commodities, which, in its normal state is an exchange of equivalents, consequently, no method for increasing value.” (Marx 1906: 176–177).

      This is the same idea as expressed here:

      “The assumption that the commodities of the various spheres of production are sold at their value implies, of course, only that their value is the center of gravity around which prices fluctuate, and around which their rise and fall tends to an equilibrium.” (Marx 1909: 208–210).

      You are a liar. Will you admit your mistake? You have one change or you're done on this thread.

      Delete
    3. Yes, I know the theory holds that price and value differ. I was pointing this out well in advance of you. As ever, you studiously missed my point, so let me be so clear you cannot possibly miss my meaning: show me a numerical example from volume 1 where price and value differ.

      This is the same idea as expressed here:

      You're like a bot. You don't even comprehend the content of what you're posting. That passage, which you've repeatedly used as a "definition" of the law of value, is no such thing, for one, and two, it explicitly says "assumption," a word you've labored for so long to expunge from your account of Marx.

      You billowing, fascist-sympathizing fraud.

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    4. "You billowing, fascist-sympathizing fraud."

      lol.. so everyone who isn't a Marxist and who thinks Marx's economic theories are not correct is a "fascist-sympathizing fraud"?

      And then you whine that you're never trolled this blog or you can't understand why your "courtesy" isn't "reciprocated" here:

      "I've never trolled you (at least that I can recall), and at several points I've said that if you simply tell me "don't come around here anymore," I'll respect your wishes. Is it unreasonable of me to expect such a level of courtesy be reciprocated? "
      http://socialdemocracy21stcentury.blogspot.com/2015/11/when-left-becomes-laughing-stock.html?showComment=1448463869791#c3013447980162603377

      Don't you worry: I've leave this comment of yours up so people can see your remarkable "courtesy".

      Delete