The Failure of Capitalist Production is the title of Andrew Kliman’s new book – with the subtitle, The underlying causes of the Great Recession (http://www.amazon.co.uk/Failure-Capitalist-Production-Underlying-Recession/dp/0745332390/ref=sr_1_1?ie=UTF8&qid=1323254965&sr=8-1). AK’s book is an important contribution to the debate, among Marxists in particular, over the causes of the Great Recession. Marxists are divided over this. The majority argue that the main cause was the establishment of a new structural era of capitalism that began in the early 1980s called ‘neo-liberalism’. This was based on a regime of destroying the trade unions to get a massive reduction in the share of wages in national income in the major capitalist countries that enabled profitability to rocket. Wages then had to supplemented by a huge increase in credit that fuelled economic growth, based on a growing financial sector hegemony. Neoliberalism came a cropper because the inequality of income and wealth reached such a level that it squeezed consumer demand to death, debt became excessive and the ‘financialisation’ of the economy led to renewed instability, eventually triggered by a collapse of a property bubble, resulting in the failure to ‘realise’ profitable production.
For the majority of Marxists and radical left economists, the cause of the Great Recession is thus more likely to be explained by the works of Keynes or his more radical follower Hyman Minsky, who emphasised the inherent instability of capitalism as debt levels mount. If it were to be explained by any of Marx’s ideas, the majority look to his supposed focus on the underconsumption of the masses, on the hegemony of monopoly finance capital, or on the inherent instability of markets. What the majority of Marxists do not accept is that the underlying cause of the Great Recession was what Marx called ‘the most important law of motion’ of capitalism, namely the tendency for the rate of profit to fall.
Marx’s law of profitability has generally been ruled out by most Marxists for varying reasons. First, profitability clearly rose under neoliberalism from the early 1980s, the argument goes, so that can’t be the reason. Second, wages fell as a share of income, so that is more likely the cause; namely a lack of consumption demand. Third, the growth of the financial sector in the neoliberal period was a new structural feature of capitalism and lies at the heart of the crisis. Anyway, not all crises are caused by falling profitability; they can have several causes: financial instability, low wages, uncontrolled credit – there is no one cause (see my post on The crisis of neo-liberalism and Gerard Dumenil, 3 March 2011).
AK sets out to refute these arguments and restore Marx’s law of profitability as central to the underlying cause of the Great Recession. And the word is ‘underlying’. As AK says, Marx’s theory “regards a fall in the rate of profit as an indirect cause of crises, it leads to crises only in conjunction with financial market instability and instability caused by low as distinct from falling profitability” p13 … “it certainly was not a proximate cause, but I shall argue that it was a key indirect cause.” p14.
In his book, AK’s main arguments against the ‘neo-liberal’ explanation are not theoretical, but empirical. In his view, the evidence the neo-liberal proponents present just does not hold up. Indeed, the evidence points to Marx’s law of profitability as the best explanation of the Great Recession. His evidence only refers to the US because the data are best there and the US is also the most important of the capitalist economies. First, he points out that private sector debt and inequality started to rise much earlier than the neoliberals claim, back in the 1970s when everybody agrees that US profitability was falling. But second and, most important, he argues that the US rate of profit did not rise on a trend basis after 1982 to the present, as the proponents of neoliberal explanations claim. When measured as the net value added of US corporations (what AK calls ‘property income’) minus employee compensation against the historic cost of the fixed capital stock of corporations, the US rate of profit shows a persistent fall from 1947 to 2009. And it does so, using historic costs, whether profits are measured as pretax, adjusted for inflation, or adjusted for labour values.
Measuring capital stock by historic costs is crucial, AK argues, and indeed is the only correct or meaningful way. Marx’s law of profitability is consistent with his law of value if capitalist accumulation is explained as capitalists advancing capital at already paid-for prices in order to generate new value out of the labour force, with the resulting goods sold at new prices. It is wrong to reprice the capital first advanced to match the replacement or current cost of that capital at the end of the production process. That makes the cost of capital lose its temporal quality; both past and future prices are then determined simultaneously. This flies in the face of reality (capitalists measure profit against the cost of advanced capital at the beginning not at the price of that capital at the end) and contradicts Marx’s law too.
In this argument, AK reminds readers that he is one of the founding proponents of the temporal single system interpretation (TSSI) of Marx’s value and profitability laws as against the ‘neo-Ricardian’ (or physicalist) interpretation of Marx (http://en.wikipedia.org/wiki/Temporal_single-system_interpretation). For more on this, read AK’s brilliant exposition of this debate in his earlier book of 2007, Reclaiming Marx’s Capital (http://www.amazon.co.uk/Reclaiming-Marxs-Capital-Inconsistency-Dunayevskaya/dp/0739118528/ref=sr_1_1?ie=UTF8&qid=1323255230&sr=8-1) or my review of that book in chapter 23 of my book, The Great Recession (http://www.amazon.co.uk/Great-Recession-Michael-Roberts/dp/144524408X/ref=sr_1_1?s=books&ie=UTF8&qid=1323255509&sr=1-1).
All the proponents of neoliberalism ignore this measurement issue and value corporate capital in current cost terms. Doing this shows the rate of profit rising significantly from 1982 to the present, thus suggesting that Marx’s law is irrelevant as the cause of the current crisis. But AK argues that current costs measures are inadmissible if Marx’s law is correctly interpreted. Also, they distort the results because they do not measure anything that could be considered a rate of profit and they bias profitability upward due to the impact of inflation and misleading measures of the depreciation of capital stock.
By measuring profitability on historic costs of capital, the explanation of the crisis becomes clear, says AK. US profitability falls and capital accumulation is resultingly weak. It is not slowing because profits are being switched into unproductive financial sectors, but simply because profitability is falling. Eventually, the crisis is reached when profitability falls so low as to provoke a major investment crisis, enhanced by overextended debt and unregulated financial sector speculation. This can only be resolved by a major destruction of capital values i.e. a slump. Also AK argues that the evidence does not justify a sharp fall in wage share in the US economy after 1982. If you measure income going to labour properly, there has been no significant decline in employee income (wages plus other benefits). Thus the underconsumptionist view that the Great Recession is the product of a collapse of consumer demand is not justified by the wage share argument or by that of growing inequality. AK then provides a devastating rebuttal of the underconsumptionist alternative (chapter 8).
I stand with AK on many of these points of division among Marxist explanations of the Great Recession. My own data, first compiled in 2006, confirm that of AK in showing that there has been a secular decline in the US rate of profit since 1947 (see my book, The Great Recession and my paper, The causes of the Great Recession). Also I agree that it must be right to use historic costs to value correctly the fixed assets of the capitalist sector in measuring the rate of profit. This is consistent with Marx’s analysis of capital and is what capitalists do anyway in gauging profits. On this basis, I’m entirely in agreement that the ultimate cause of the Great Recession must lie with Marx’s law of profitability and not with the alternative explanations of inequality and declining wage share (Husson, Reich, Wolff), or underconsumption or ‘over-accumulation’ (Harvey – see my post David Harvey, Marx’s method and the enigma of surplus, 13 November 2011) or excessive or uncontrolled debt (Keen – see my post, Bellofiore, Steve Keen and the delusions of debt, 7 october 2011 – or Dumenil, op cit) or financial instability (Lapavitsas). In that sense, the Great Recession was a failure of capitalist production, not a financial crisis (Minsky), nor one of the lack of effective demand (Keynes), nor the end of some special neo-liberal structural order of capitalism (Husson, Dumenil) .
Moreover, if it were one of the latter causes, that would imply that the solution for the crisis could be found by sorting out the financial sector, or boosting wages or reverting to less globalisation or more regulation. It would not be necessary to replace the capitalist mode of production, namely in the production sphere. And yet this is precisely the difference between Marxist and other left policy prescriptions to end crises.
I agree with AK that the underlying (or indirect) cause of the Great Recession was not financialisation, or a financial sector cause, but is to be found in Marx’s most important law of motion, the tendency of the rate of profit to fall, and the data confirm this. My measurements differ from AK’s to some extent. I have used what I call a ‘whole economy’ measure i.e. using the net national product of the whole economy measured against private fixed assets. Also I have measured the rate of profit in both current cost and historic costs. I have found that, anyway you measure it, the underlying trend in the rate of profit from 1946 to 2009, namely from trough to trough, was downwards. In that sense, this particular result is not dependent on using historic costs (see my paper The profit cycle and economic recession for more on this).
In Guglielmo Carchedi’s paper, Behind and Beyond the Crisis (Behind and beyond), he measures the US rate of profit using the historic cost measure of the fixed assets of private goods producing industries and their pretax corporate profits. He finds the same result as AK and I do: a trend decline in the ROP from 1947 (Chart 1), but he also finds a similar result to me, a sharp rise in ROP from 1986 to 1997. Carchedi also concludes that the main reason for the secular fall is Marx’s ‘law as such’, i.e. the secular rise in the organic composition of capital. But when counteracting factors come into play, the rate can rise either because the organic composition falls or the rate of surplus value rises significantly, or both. This is the basis of the cycle. Carchedi concludes that an upturn can happen again and is perfectly consistent with Marx’s explanation of capitalist crisis (see my post, Carchedi, Foster and the causes of crisis, 3 July 2011).
This is the interpretation that I reached in my book, The Great Recession, back in 2006. And it led me to go where AK does not go in his book, namely to distinguish a cyclical movement as well as a secular trend in the US rate of profit, driven by the tension between Marx’s ‘law as such’ and the counteracting influences that can produce an upturn around the long-term trend, of between 16-18 years. The uptrend must give way to the ‘law as such’ eventually and a downturn comes into play that generates a much higher probability of crises and deeper and more frequent recessions. I think this interpretation is important, as it helps to guide us in whether capitalism is in immediate crisis or not. It can’t all be in a straight line down. It may not be that the period of the Golden Age for capitalism (1948-65) was unique and exceptional and can never be repeated. AK emphasises the downward secular trend because he wishes to refute the alternative explanation of capitalist crises that deny a role for Marx’s law. But I want to highlight as well the cyclical movement of profitability because I think it helps explain why crises recur and why they are more frequent and deeper some times or not. Just looking at the secular trend cannot do that.
AK is highly sceptical that any cyclical movement can be interpreted from the US data on profitability (in correspondence with me). But my cyclical view does not just depend on the movement of US profits but also on accompanying cyclical movements in economic growth, investment and prices in US capitalism. The US stock market cycle follows closely the cyclical movement in profitability – a boom in the stock market from 1947-65, then a bear market until 1982, then a new bull market until 2000, and subsequently a bear market that we are still in. Also, the growth rate of US capitalism varies in the same way. Average real GDP growth was fast from 1947-65 (4%), slower from 1965-82 (2.9%), picked up again from 1982 to 1997 (3.6%), although slower than in the 1950s and since then has been very slow (2.2%). It’s the same story with investment. And inflation accelerated between 1950 and 1982 and decelerated afterwards. So it is conceivable that we can have faster growth, rising profitability and disinflation, as in 1982 to 1997, when the downward phase of Kondratiev prices cycle coincided with an upward phase in profitability (see my book).
The Failure of Capitalist Production is essential reading for all Marxists and lefts interested in what caused the Great Recession. It debunks the fads and fashionable arguments of neoliberalism, underconsumption and inequality with a battery of facts. It restores Marx’s law of profitability to the centre of any explanation of capitalist crisis with compelling evidence and searching analysis. It must be read.
Michael Roberts Blog 
Very good
Thank you for posting this and to you and Andrew both for persisting in maintaining access to one of Marx’s greatest gifts to us by using it and building on it.
The law of the tendency of the rate of profit to fall, has for me, been an essential of logic enabling me to remain sane during the last 3 decades. I haven’t systematically sorted empirical data since banished from academia, but I do process economic news. My main comment here: mastering the logic of the dialectic historical materialist philosophy Marx and Engels modeled is worth the effort.
Secondarily: what do correspondents think of a campaign to reduce the hours of labor required to earn a real livable wage (basket of commodities would have to include educational costs of adult and children being viable or”competitive” members of “labor market”)? The right is picking up on what I called guaranteed 20 hours for livable wage = welfare for 1 adult and child or median of unemployment extension. Their approach and left’s response is as a punitive requirement not a voluntary program open to anyone and with no monitoring of hours,
conditions, nor linked to recalibrating basket of necessities which link to and open lots of other questions eg smartphone/ipad purchased for 1st grader by mom or school and is iPad to measures of 21st standard of living what indoor plumbing and telephone were once?
Excuse this ignorant question but i am having trouble reconciling some of this. Namely, how does using historical rather than replacement cost of capital lead to a lower figure for profitability.
It seems that if the replacement cost of machinery is increasing due to inflation then any calculations taking this into account would leave profit lower rather than higher. Or to reverse it, surely using the old lower cost of the machinery/equipment used to manufacture would make reported profits appear higher! Thanks in advance if anyone can be bothered.
It is not an ignorant question, but indeed a tricky one. Using historic costs means that the LEVEL of the rate of profit starts higher. But it seems that with current costs the net stock of capital can rise less than the rise in net value added because the current cost depreciation on the gross stock is so much greater than it is with historic cost depreciation. The current cost depreciation will be higher due to inflation and because it is measuring depreciation with the final price of the stock of assets not the historic price. So the denominator will move more with current costs and profitability under the current cost measure can rise (or fall) more than under the historic cost measure. In the US series, the difference between the two series is very volatile. Between 1982 and 1997, the current cost rate as a ratio to the historic rate rose from about 55% to 71% (my calcs not AK’s). Interestingly, since then it has been very stable, in a period when inflation has been low. In other words, the current cost and historic measures of the rate of profit have moved together. AK deals with this in his way in Chapter 5 of his book.
Excellent post. A clear, important contribution to a critically important debate.
A question: even if it it agreed that a falling rate of profit in production is the primary underlying cause of the crisis, does that then automatically rule out that a “profit squeeze” due to rising wages was the primary cause? Isn’t there another question: what is the primary cause of the reduction in the rate of profit, a “rising wage squeeze,” rising organic composition of capital, or some combination of the two?
Allan
Marx argued that the primary reason should be a rising organic composition of capital with only occasionally a wage squeeze on the rate of surplus value being a cause. In his book, AK calculates that 89% of the fall in the rate of profit from 1947 to 2007 was due to a rising value composition of capital. I found in my calcs that it was about 80%.
Hi Michael,
First of all to say that your argument regards the falling rate of profit as an underlying cause is inspirational and important.
One thing that I query though is the idea that wages haven’t stagnated or declined relative to the post-war period. You argue that as a proportion of production costs, wages haven’t fallen significantly. But surely the benefits you add in can’t be turned into money.
I’m not suggesting that wage decline is the primary cause of the crisis, but is it not possible that once the rate of profit began to decline after ’97, the relatively low wage share, coupled with increased financialisation, laid the foundations for the crisis to express itself as a credit-crunch?
Anyway, great blog as always.
Ed.
@ Ed Field: the benefits *start* as money. The dollar value of the output of corporations–their net value added–is the “pie.” Now divide the pie in two. Slice 1 is profit (in the broadest sense). Slice 2 is what the corporations pay as “compensation” of their employees. It’s all money. The bigger Slice 2 is, the smaller Slice 1 is, and vice-versa. It’s technically correct to say that the “wage & salary” slice–which is *part* of Slice 2–has shrunk. But it’s very misleading, since the decline in the “wage & salary” slice hasn’t caused an increase in Slice 1. Slice 1 hasn’t increased. What’s increased is the other part of Slice 2.
Slice 2 averaged 71.0% of the pie from 1970 through 2007, and it was completely trendless as a share of net value added. From 1998 through 2007, the share was a bit higher, on average, 71.3%. Between 1998 and 2004, it averaged 72.5%.
I doubt there are data on the following, but I think it’s very doubtful that the rise in health and retirement benefits at the expense of wages and salaries led to a drop in demand. It’s very likely that almost all health benefits are spent on goods and services, and that health benefits are *more* likely than cash wages and salaries to be spent on goods and services. Retirees receive the retirement benefits; their income tends to be less than when they were working; and they have less need to save. So I think it’s also likely that health benefits are *more* likely than cash wages and salaries to be spent on goods and services.
Your expression “turned into money” may refer to the subjective utility of noncash benefits. Here’s what I say about this in the book: “When discussing this matter [the constancy of workers’ share of U.S. national income] in public talks, I have encountered three main objections. One is that the subjective utility of a dollar of health or retirement benefits is less than the subjective utility of a dollar of cash income. This may be true for some workers, but it is irrelevant here, where the issue is how national income is divided between working people and others. An extra dollar of income received by one group is a dollar less received by the other; this is so both when the income is received in the form of cash and when it is not. For the same reason, the subjective utility of benefits is also irrelevant to an analysis of the division of corporations’ net value added into property income and employees’ compensation.”
* * *
I greatly appreciate Michael Roberts’ review, not only because it is favorable, and not only because it’s publicity, but especially because he (unlike many “reviewers” of books) cared to accurately report what I wrote.
In the 5th paragraph, it should be: “When measured as the net value added of US corporations MINUS COMPENSATION OF EMPLOYEES (what AK calls ‘property income’) ….”
I actually agree that there’s *some sort* of cyclical movement in U.S. corporations’ profitability after 1982, at least in the sense that that little of the subsequent decline in the “property-income” rate of profit occurred through 1997; the bulk of the decline through 2001-2002 came after 1997. The before-tax rate of profit clearly rose between the 1982 trough and the 1997 peak, because of falling interest rates. What I’m skeptical about is the idea that the post-1982 cyclical movement (or whatever one calls it) has the same set of causes as previous cycles of approximately the same length that have (supposedly) occurred.
Andrew
Thanks for the correction on the measurement of property income. I’ve sorted it.
Michael
AK says,
“The dollar value of the output of corporations–their net value added–is the “pie.” Now divide the pie in two. Slice 1 is profit (in the broadest sense). Slice 2 is what the corporations pay as “compensation” of their employees.”
But, Marx opposes this concept, which is a reversion to the Trinity Formula of Adam Smith. In note 52 to Chapter 49, Marx quotes this view by Smith and repeated here by AK, and then refutes it,
“In every society the price of every commodity finally resolves itself into some one or other, or all of those three parts [viz., wages, profits, rent] … A fourth part, it may perhaps be thought, is necessary for replacing the stock of the farmer or for compensating the wear and tear of his labouring cattle, and other instruments of husbandry. But it must be considered that the price of any instrument of husbandry, such as a labouring horse, is itself made up of the same three parts: the rent of the land upon which he is reared, the labour of tending and rearing him, and the profits of the farmer, who advances both the rent of his land and the wages of his labour. Though the price of the corn, therefore, may pay the price as well as the maintenance of the horse, the whole price still resolves itself either immediately or ultimately into the same three parts of rent, labour [meaning wages] and profit.” (Adam Smith.) — We shall show later on how Adam Smith himself feels the inconsistency and insufficiency of this subterfuge, for it is nothing but a subterfuge on his part to send us from Pontius to Pilate while nowhere does he indicate the real investment of capital, in which case the price of the product resolves itself ultimately into these three parts, without any further progressus.”
In fact, as Marx sets out here in Chapter 49, the total output cannot be resolved in the Smithian Trinity Formula, but can only be resolved into C + V + S, the newly added labour acting not only to create new value, but acting also to preserve the Value already embodied within the Constant Capital.
“Secondly, it is quite correct to say that the component parts of commodities which make up the constant capital, like any other commodity-value, may be reduced to portions of value which resolve themselves for the producers and the owners of the means of production into wages, profit and rent. This is merely a capitalist form of expression for the fact that all commodity-value is but the measure of the socially necessary labour contained in a commodity. But it has already been shown in Book I that this nowise prevents the commodity-product of any capital from being split into separate parts, of which one represents exclusively the constant portion of capital, another the variable portion of capital, and a third solely surplus-value.”
http://www.marxists.org/archive/marx/works/1894-c3/ch49.htm
The other point is that this considers US government revenues as capitalist “profits”. They’re not. The result of this mismeasure is to grossly overestimate the mass of profits.
Oops. In the 3d paragraph, I meant:
“Retirees receive the retirement benefits; their income tends to be less than when they were working; and they have less need to save. So I think it’s also likely that RETIREMENT benefits are *more* likely than cash wages and salaries to be spent on goods and services.
For a more critical review, see here;
http://www.permanentrevolution.net/entry/3388
Bill
Thanks for this reference to your review. I have just read it and may comment in another post fairly soon.
Michael
That linked review seems to be saying that Kliman’s use of historical valuation leaves no room for depreciation. However, Kliman explicitly argued in Reclaiming that both “replacement cost” and “historical cost” interpretations are false, the latter precisely because it doesn’t take depreciation into account.
From page 35: “[Temporalists] interpret Marx as having held that commodities’ values depend upon what the inputs cost when they enter into the production process, which might be quite different from both their historical cost and their replacement cost.”
Page 110n7: “Mirowski argues that Marx flip-flopped between historical- and replacement-cost valuation. He arrives at this conclusion by … overlooking the possibility that both are wrong and that Marx consistently held that the value transferred from inputs to the outputs is the inputs’ pre-production reproduction cost.”
I have only just acquired Kliman’s new book and am only a few pages in, but I am confident that he wouldn’t have suddenly decided that pure, unmodified historical cost valuation is suddenly a-ok.
We’ll see, I guess.
Hedlund
You are dead right. Of course, the historical cost measure takes into account depreciation and so does AK. I shall be taking up this issue in an upcoming post. This is not the only thing that Bill Jefferies has wrong.
Michael
@ Hedlund:
The passages you quote discuss how a commodity’s value is determined. But the measurement of the denominator of the rate of profit is a different matter. That’s because the denominator is advanced capital (aka net book value, aka accumulated investment after depreciation), NOT the value of the physical assets.
Conflation of these two things is the foremost error that physicalists make. It’s one of Jefferies’ bigger mistakes (and that’s saying a lot). He writes, “Kliman’s theory asserts that the fixed capital stock must always be valued at its purchase price.” I say no such thing. I say that the advanced capital can’t be revalued.
In other words, the capital advanced is the historical cost (net of depreciation). This doesn’t contradict the fact that the values and prices of the physical assets that are bought with the capital advance are always changing. (And it doesn’t contradict the fact that, in Marx’s theory, the value transferred to products from used-up physical assets depends neither on their historical cost nor their post-production replacement cost, but on their pre-production reproduction cost.)
For instance, let’s assume for simplicity that office buildings don’t depreciate. (The U.S. govermment says that they depreciate less than one-twelfth as fast as office equipment, so that’s not a big stretch.) So imagine that a company invests $1 million in 1999 to build an office building, and the price of the building rises to $2 million in 2006 and falls to $1.3 million in 2009. The value (or price) of this “fixed capital stock” changes a lot. But the capital advanced, the amount invested, was $1 million. It is $1 million. It will always be $1 million.
Moseley, who Jefferies cites for support, makes the exact same mistake. So does Deepankar Basu, in a recent paper:
“The profit rate is measured as the ratio of profit income (over a period) and the capital advanced (to generate that profit income). There are two different ways to measure the capital advanced: (a) as the _historical cost_ value … and (b) as the _replacement (current) cost_ value ….”
Excuse me, how does some price that exists only *after* the period has ended serve as a measure of the capital that was advanced *before* the period started, in order to generate some profit income *during* the period?
As Chris Harman put it, “You can’t build a house today with the bricks of tomorrow.”
Actually, if you’d bought the bricks ahead of time on a Futures market, you could. But, its also true that you cannot sell a house today at a price determined by the price you paid for the bricks some time in the past, nor could you rent it on that basis either. As Marx, says in discussing the issue of appreciation and depreciation, what we are concerned with is not the position of some particular Capital, but of Capital in general, and for capital in general the appropriate value of Capital is not some past sunk cost, but the current Value determined by the necessary Labour time required for its production.
The idea that what is significant is the historic cost is what is causing problems in Bank Valuations, which have tradiitonally been based on a price to book valuation. But, everyone knows that the Book Valuation of bank assets is a fiction, its is based on valuations of property that is itself a fiction, and on other assets such as peripheral European sovereign debt that could turn out to be next to worthless. That is why Capitalists have devalued that Bank Capital way below what the Book Value of the Banks is.
“Kliman’s theory asserts that the fixed capital stock must always be valued at its purchase price.” I say no such thing. I say that the advanced capital can’t be revalued.”
Or in other words that the capital stock must always be paid for at its purchase price. If it can be revalued then by definition it is not always paid for at its purchase price.
You can’t build a house today with the bricks of tomorrow. But the cost of the bricks already paid for, and the amount of value they contribute to production, can change according to the socially necessary labour time required for their production, based on their current cost of production.
This isn’t the worst mistake in AK’s book though. Property income grossly overestimates the mass of profit by conflating tax revenues and profits, and paradoxcially smoothes away actual capitalist crisis.
Yeah, it “must always be paid for at its purchase price.” Do you ever pay more or less for anything than the price at which you purchase it? Do you know anyone who does?
Well indeed everything must always be paid for at its purchase price, and that price is historical and so cannot change. But the value of fixed capital – how much it is worth in the present – can change. For the simple reason that it exists for more than one cycle of capitalist production. That’s the whole point.
The amount of value the fixed capital stock can contribute to production is priced at the current socially necessary labour time for its production, not its historical purchase price. Marx reiterates this point over and over. This mistake is part of the reason your book is so wrong.
The bigger mistake – relates to “property income” that grossly exaggerates the mass of profit by conflating tax revenues of the capitalist state and the profits of the capitalist class.
There’s other things too, but these are the main ones.
@ billj You say, “The amount of value the fixed capital stock can contribute to production is priced at the current socially necessary labour time for its production, not its historical purchase price. Marx reiterates this point over and over. This mistake is part of the reason your book is so wrong.”
See what I mean when I say
“the denominator is advanced capital (aka net book value, aka accumulated investment after depreciation), NOT the value of the physical assets.Conflation of these two things is the foremost error that physicalists make. It’s one of Jefferies’ bigger mistakes (and that’s saying a lot).”
It’s NOT the case that “Kliman’s theory asserts that the fixed capital stock must always be valued at its purchase price.” I say no such thing. I say that the advanced capital can’t be revalued.
Is your problem that you don’t understand the difference between “value of the fixed capital stock” and “advanced capital”?
You say that the advanced capital cannot be revalued, even though depreciation revalues it. The advanced capital cannot be revalued, in the sense that a given amount of money is always worth the amount it was worth when it was given, but the stuff that that money bought, in this instance the fixed capital, can be revalued and depreciation is the method by which that revaluation takes place.
In fact, if you accept that the historical or purchase price is revalued by depreciation, then your theory equals nought, as depreciation revalues it to its current price. If that is your view why did you bother in the first place?
I think your mistake is to conflate the amount of capital the capitalists historically advanced with the “net book value aka accumulated investment after depreciation”.
These things are not the same, as depreciation reprices that historic investment to its current price. If you accept that your denominator is in fact the net book value, then that is different from the amount of capital capitalists actually advanced, as it has been depreciated according to the current socially necessary labour time. In which case, what’s all the fuss about?
@ billj: You should have familiarized yourself with the difference between depreciation and revaluation before you decided to attack.
Under what conditions would you be willing to acknowledge that your interpretation of Marx’s concept of how advanced capital is determined is incorrect?
People who are not willing to acknowledge under any circumstances that their position has been incorrect are known as dogmatists.
You say that the capital advanced cannot be revalued but you measure it net of the depreciation that revalues it. What’s dogmatism got to do with it?
Please answer the question:
Under what conditions would you be willing to acknowledge that your interpretation of Marx’s concept of how advanced capital is determined is incorrect?
“What’s dogmatism got to do with it?” The following:
People who are not willing to acknowledge under any circumstances that their position has been incorrect are known as dogmatists.
Actually, the distinction that AK is making is not between depreciation and revaluation but between the Value of Fixed Capital Consumed in the production process, which is a function of its use i.e. the more its used, the more is consumed, and depreciation, which is effectively a function of time i.e. a machine becomes depreciated over time, whether it is ever used in production or not.
AK’s position appears pedantic, because he does not seem to be prepared to accept the idea that Fixed capital can be “Morally Depreciated” as Marx describes it, which is that even a brand new machine can be depreciated simply beause a new more efficient machine is invented, or because some new production technique enables the existing machine to be produced at a fraction of the cost of existing machines.
All of these examples of depreciation are given and explained by marx in Capital, and Marx then uses the new Value resulting from such changes as the denominator in calculating the Rate of Profit.
Under what circumstances would AK be prepared to admit that his formulation on all these issues is at variance with that set out by Marx?
Under what conditions would I be prepared to change my mind? Under the conditions where evidence had been presented that proved me wrong. So far that is notable by its absence.
AK seems to confuse the distinction between constant and variable capital with fixed and circulating capital. But its not really clear what he argues at all. As I’ve pointed out on the one had he says that the value of fixed capital cannot be changed, but at the same time he values that very same fixed capital – after its value has been changed by depreciation.
At first glance that seems like a prima facae contradiction. And at second glance it does too.
The value of fixed capital is not fixed according to Marx, it simply endures for more than one circuit of the accumulation process. Marx examines all this at length in Volume II. In one sense all capital circulates, the bills of ownership circulate, their value circulates and changes, but they are fixed in the production process due to their relative durability, that’s all.
Its weird to call me a “physicalist”, not to say rubbish, as my point is precisely that the price of fixed capital is different from its value, as the value of that fixed capital can change. AK is closer to a physicalist than me. But in both instances its a pointless term of abuse that simply clouds the issue.
Much of this discussion is going round in circles as paradoxically it doesn’t make much difference to the rate of profit calcualtions whichever mass of fixed capital you use, historical or current. Although I should point out that due to inflation, the current tock of fixed capital is more expensive than its historic counter part and the rate of profit that results from it, therefore lower. This is the direct opposite of what AK shows. And another good reason not to agree with him. Never mind “property income” and all the rest.
Just on Hedlund’s point, the historical cost price in Kliman’s verson only includes physical depreciation, that is the cost of capital used up in production, but excludes depreciation due to the revaluation of assets according to the current socially necessary labour time. As far as I can tell anyway – the discussion is not at all clear in the book – he seems to exclude both moral depreciation and losses from that. Anyway I’m sure he can clarify here if that’s not the case.
As Chris Harman put it, “You can’t build a house today with the bricks of tomorrow.”
AK, you are aware that Chris Harman’s use of historical costs is motivated by his determination to refute Marx’s cheapening of the elements of constant capital as a countervailing tendency to the falling rate of profit. What are you’re thoughts on this, IIRC you and Harman were in broad agreement?
This is a “when did you stop beating your wife?” question. I don’t accept the premise. And your stuff about Harman’s motivations is just unsupported speculation, and not nice.
Its got nothing to do with beating your wife. Depreciation can revalue the fixed capital stock by cheapening it, in the process reducing the organic composition of capital, and so raising the rate of profit. Marx repeats this point over and over again. Harman didn’t agree with it. It would appear that neither do you. Why not answer the question?
I’m sorry you’ve taken it like that, I don’t see the question as contentious or anything else as it is well documented that Harman uses historical costs in this context.
I think his idea on it goes back to the 1970s and Re-Reading Capital by Ben Fine and Lawrence Harris. His most detailed explanation is given in Explaining the Crisis from a few years later and has been repeated since in articles by himself and others. For example, Joseph Choonara in 2009, reviewing Harman’s work:
” In particular, a number of works pointed out an abstract possibility that productivity increases could, over time, cheapen constant capital (plant, equipment, raw material, etc), leading to rising rather than falling profit rates. Chris insisted that in the real world capitalists had to recoup the cost of the constant capital they had actually invested in at the point they invested, not just the cost of the constant capital they could buy if they were purchasing it in the present: “You can’t build the houses of yesterday with the bricks of today.” ”
http://www.isj.org.uk/index.php4?id=612=125
Perhaps Harman is only countering Okishio and others who believe that rising productivity will always lead to rising profit rates, that is clearly wrong. But I think it is also wrong to swing too far in the other direction and claim that it can never happen. The relationship between productivity and the rate of profit is indeterminate as it can cheapen the cost of inputs but at the same raises the composition of capital.
My question was how all this that fits in with the temporal approach.
In my post http://boffyblog.blogspot.com/2007/12/tendency-for-rate-of-profit-to-rise.html, I set out why there are very good reasons to believe that there are conditions, which can lead to a Tendency for a Rising rather than a Falling Rate of Profit. They basically flow from the counter tendencies that Marx set out to the falling rate of profit – one of which, of course was that rising productivity would cause a fall in the Value of Constant Capital!
The factors I set out are:
1) There has been a shift of consumption patterns towards “Service” commodities. Many of these employ High value, Complex Labour, which means that there is a tendency in these new areas of consumption for a LOWER not higher organic composition of Capital. Think of designer clothes labels, branded goods such as cars, the increasing expenditure on leisure, dining out (the rise of the celebrity chef), the boom produced by Sattellite TV for Sport, which facilitates the huge wages of sportspeople, similar for Pop Stars, Actors etc.
2) The same changes mean that this type of production requires a smaller quantity of raw material.
3) Technological development means that large areas of even manufacturing production uses much less raw material. LCD and LED screen in place of CRT, mobile phone in place of big clunky landline phones, the replacement of vinyl records, first with CD’s, and now with digital storage and transmission.
4) The Internet has also meant that huge amounts of expenditure on transport costs have been replaced, as well as speeding up the turnover of Capital by a significant amount.
@ GrahamB: You say, “I’m sorry you’ve taken it like that, I don’t see the question as contentious or anything else.”
Give me a break. You wrote, “AK, you are aware that Chris Harman’s use of historical costs is motivated by his determination to refute Marx[ … ]. What are you’re thoughts on this …?”
My view of the substantive issue is spelled out on p. 123 of Reclaiming Marx’s “Capital”: a refutation of the myth of inconsistency.
I assumed you were aware of it, it’s not a secret or in need of alternative interpretation.
I wanted to know if you agreed with it or not, particularly as I believe it pre-dates TSSI.
What is the point on a blog of referring people to p123 in your book? I could get out my own copy but not everyone has it. Links, direct quotes, or succinct explanations would help debate. Your response and refusal doesn’t.
Capitalists do not use historic cost of Capital for measurement of the Value of Fixed or Constant Capital, nor for the commodities produced by it. The exchange value of commodities is determined by the necessary social labour time required now, not what it was at some point in the past. Those capitalists who find themselves in the unfortunate position of having been burdened with old Capital will still be forced to sell their commodities at the new prevailing prices, determined by the Labour time embodied in Fixed and Constant Capital being employed now, and by the Variable capital now required to produce those commodities with the new Fixed and Constant Capital.
Marx makes that quite clear in his discussion on the consequences of a change in the Exchange Value of Cotton for a Textile manufacturer, for instance.
But, it is also the current Exchange value of Fixed capital that capitalists themselves use. If I am a Capitalist considering buying shares in a Company, or considering buying the Company in its entirety, I am not nat all interested in the price the existing Capitalist paid for that Capital at some point in the past. I am only interested in paying the current value of that Capital, and it is on that basis that I will do my calculations of the current profitability or otherwise of the business, and its worth. By making that comparison, I can decide whether it is worth buying the business or shares in it, or simply to buy the required Fixed Capital myself at current prices.
As Marx puts it,
” 1. “Appreciation and depreciation are self-explanatory. All they mean is that a given capital increases or decreases in value as a result of certain general economic conditions, for we are not discussing the particular fate of an individual capital. All they mean, therefore, is that the value of a capital invested in production rises or falls, irrespective of its self-expansion by virtue of the surplus-labour employed by it…
“After machinery, equipment of buildings, and fixed capital in general, attain a certain maturity, so that they remain unaltered for some length of time at least in their basic construction, there arises a similar depreciation due to improvements in the methods of reproducing this fixed capital. The value of the machinery, etc., falls in this case not so much because the machinery is rapidly crowded out and depreciated to a certain degree by new and more productive machinery, etc., but because it can be reproduced more cheaply. This is one of the reasons why large enterprises frequently do not flourish until they pass into other hands, i. e., after their first proprietors have been bankrupted, and their successors, who buy them cheaply, therefore begin from the outset with a smaller outlay of capital.”
See:http://www.marxists.org/archive/marx/works/1894-c3/ch06.htm
What Capital is really interested in is not the Rate of profit per se, but the Rate at which it can accumulate, and that is a function not of the historic price of Capital, but its current price.
Finally, as far as I can see AK does not take account of changes in the Rate of Turnover of Capital in his calculations. In fact, we can think of many things from the introduction of Just In Time, to the effects of the Internet and other aspects of Technology, along with the increase in the Rate of Turnover simply due to increased productivity, which will mean that the true rate of profit is considerably higher than the figures at face value would suggest.
“What Capital is really interested in is not the Rate of profit per se, but the Rate at which it can accumulate, and that is a function not of the historic price of Capital, but its current price.”
This is false. Specifically, “that is a function” to the end is false. We’ve shown it’s false again and again. See, e.g., pp. 114-115 of The Failure of Capitalist Production.
Do you have any reliable data on turnover time for the U.S.? If I had known of any, I would have used them.
If you don’t, what you say would happen is account were taken of turnover time is just unsubstantiated speculation.
“If I am a Capitalist considering buying shares in a Company, or considering buying the Company in its entirety, I am not nat all interested in the price the existing Capitalist paid for that Capital at some point in the past. I am only interested in paying the current value of that Capital, and it is on that basis that I will do my calculations of the current profitability or otherwise of the business, and its worth.”
Gee, I wonder why Kliman never thought of that. It’s so obvious. He must be a total dumbfuck.
It clearly is not false that the Rate of Accumulation is a function of the current cost of Fixed capital, and marx in several places shows why. If the price of cotton falls, and I am a textile manufacturer, I am able to buy more cotton, and with part of the saving employ additional workers to process it! If, on the contrary the price of cotton rises the opposite is the case. The amount of Surplus Value, which is a function of the amount of Labour-Power employed, and the Rate of Surplus value, is unchanged by these changes in the price of the Constant Capital, and so the same amount of Surplus value, is able to buy more or less Constant Capital.
I am not the one having written a book claiming to explain recent economic events. As Marx sets out the function of the Rate of Turnover on the rate of profit, and as he sets out the factors that can increase it – such as changes in tehnology, communications etc – then I would have thought that any Marxist conducting an analysis of changes in the Rate of profit would have wanted to do some investigation of the very obvious changes in that regard which have occurred over the last 30 years, and made referene at the very least to them, and their consequent effect in increasing the real Rate of profit.
I’ve tried to write comments here in as respectful a way as possible, and sticking to the facts. I do not appreciate smarmy and sarcastic responses. Actually, I think your arguments and claims are so far from what marx actually wrote, that I am indeed wondering whether your suggestion in your final sentecne might have some validity. Either way, I notice you did not actually deal with the substantive point about the way real Capitalists DO Value Capital. A point that Marx was well aware of in his comment about Capitalists buying out the original owners, and thereby laying out less Capital. Once again that is at odds with your position of valuing Capital on an historic cost basis.
From IFRS:
“Measurement of the elements of financial statementsPar. 99.
Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement. This involves the selection of the particular basis of measurement.
Par. 100. A number of different measurement bases are employed to different degrees and in varying combinations in financial statements. They include the following:
(a) Historical cost. Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business.
(b) Current cost. Assets are carried at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent asset was acquired currently. Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently.
(c) Realisable (settlement) value. Assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal. Assets are carried at the present discounted value of the future net cash inflows that the item is expected to generate in the normal course of business. Liabilities are carried at the present discounted value of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business.
Par. 101. The measurement basis most commonly adopted by entities in preparing their financial statements is historical cost. This is usually combined with other measurement bases. For example, inventories are usually carried at the lower of cost and net realisable value, marketable securities may be carried at market value and pension liabilities are carried at their present value. Furthermore, some entities use the current cost basis as a response to the inability of the historical cost accounting model to deal with the effects of changing prices of non-monetary assets.”
“The value of an asset changes as the result of depreciation and revaluation./6/ Depreciation is the change in value associated with the aging of an asset. As an asset ages, its price changes because it declines in efficiency, or yields fewer productive services, in the current period and in all future periods. Depreciation reflects the present value of all such current and future changes in productive services. ”
http://www.bea.gov/scb/account_articles/national/0797fr/maintext.htm
Yeah, this quote is a good one. It shows that you’re wrong. What do you think the function of the word “and” is, in the 1st sentence?
It means it can go up and down. What do you think its function is?
This is getting interesting. I’ll bet you $10,000 that you’re wrong.
If you read the following paragraphs from that source it would seem that AK owes BJ $10,000. It reads:
“The decomposition of the change in the value of an asset is illustrated in table 1 for an asset with price per unit. The price of an asset, P_time,age_, in time 0 and the price of an asset in time 1 is observed. There are two possible sources of the price change: The first being a change in the price of an asset because it has aged and the second being a change in the price of an asset because it is a different time period. The decomposition can be illustrated in the simplest case by reference to the well-known used-car price book. Prices for 1-year-old cars of the same make and model in the 1997 book and their prices when new provide an estimate of depreciation because everything but age is held constant. Prices for 1-year-old cars of the same make and model in the 1996 and 1997 price books provide an estimate of revaluation, because age is held constant while everything else changes.
Obsolescence is a decrease in the value of an asset because a new asset is more productive, efficient, or suitable for production. A new asset might be more suited for production because it economizes on an input that has become relatively more expensive. Obsolescence has played a big part in the debate about the impact of the oil embargo on productivity./7/ Other impacts on the price of an asset include the price effect of any changes in taxes or interest rates facing business not anticipated when the asset was new. If depreciation and retirement patterns did not change over time, revaluation could be estimated from a used-asset-price book, as described above.”
Shall I send you my bank details?;
“The value of an asset changes as the result of depreciation and revaluation./6/ Depreciation is the change in value associated with the aging of an asset. As an asset ages, its price changes because it declines in efficiency, or yields fewer productive services, in the current period and in all future periods. Depreciation reflects the present value of all such current and future changes in productive services.
Revaluation is the change in value or price per unit that is associated with everything other than aging. Revaluation includes pure inflation, obsolescence, and any other impact on the price of an asset not associated with aging.”
The impact of inflation is to make the value of an asset increase. Or maybe that’s something else that requires “interpretation”?.
AK concedes in his book that …”advanced capital figures are net of depreciation” including moral depreciation or obsolesence (p96). So the figures that AK uses to create his “historic” mass of fixed capital have already been depreciated to the current cost!
If that’s the case, then your complaint that I measure profit against the historical cost of the fixed assets is a complaint about nothing.
Like I said in my review, much of this discussion is semantic and uninformative.
@ billj: Your response is non-responsive. What’s at issue here is not “the discussion,” but the contradiction is YOUR position. On the one hand, you complain that I DON’T measure profit against the current cost of the fixed assets. On the other hand, you say that I do measure profit against the current cost of the fixed assets.
You don’t make any sense.
That’s the implication of the contradiction in your position, and that–not “the discussion”–is the point.
Exactly it doesn’t make any sense.
There’s another point I’d like to make. Marx’s category “Constant” Capital is more than just Fixed Capital such as Buildings and Machinery. It comprises all of the raw materials, and intermediate production consumed in the production process, as well as that part of the Fixed Capital Consumed in the particular production cycle, and finally the faux frais of production, the oil used to lubricate the machines, the electricity to power the machines, heat the buildings etc.
I may have understood AK wrongly here, but it appears to me that his category “Property Income” as anything that is not wages conflates the fund needed to reproduce Constant Capital with the Fund from which Surplus Value (profits, Interest, rent and taxes) is paid. That is a return to the position of Adam Smith, which was criticised by Marx and Engels. The followers of Smith argued that Marx was wrong because Constant Capital was also the product of human labour, and, therefore, its Value could be reduced to necessary and surplus labour. Marx and Engels replied that this was simply sending us from Peter to Paul, because, in fact this Constant Capital could NOT just be reduced to the payment of Variable Capital (wages) and surplus value, because its Value too included the Value of the Constant Capital, in turn used to produce it.
This is important, because by dividing the total National product not just into Surplus Value and Wages, but into C + V + S, means that the rate of profit can be rising even whilst the share of wages in total output is also rising, providing that the Value of C is falling, which can be the case for a number of reasons that reduce the value of machines, raw materials etc. So,
C 1000 + V1000 + S1000 = E3000, gives R=50%, and share of wages = 33.3%.
If the value of C falls to 500
C500 + V1000 + S1000 = E2500, gives R= 66.6%, and wage share = 40%.
In fact, a casual look at what happened to raw material prices during the period of the Long Wave downturn, shows a signifcant fall. In addition, the introduction of new techniques to improve efficiency and reduce costs, brought about a more efficient use of things such as oil to a significant extent, as well as there being a reduction in the Value of machines due to improvements in productivity, and new inventions.
Marx’s view that it is the current Value of Capital that is the denominator, and not its historic cost is set out in Capital III Chapter VII, where he writes,
“Fluctuations in the rate of profit may occur irrespective of changes in the organic components of the capital, or of the absolute magnitude of the capital, through a rise or fall in the value of the fixed or circulating advanced capital caused by an increase or a reduction of the working-time required for its reproduction, this increase or reduction taking place independently of the already existing capital. The value of every commodity – thus also of the commodities making up the capital – is determined not by the necessary labour-time contained in it, but by the social labour-time required for its reproduction. This reproduction may take place under unfavourable or under propitious circumstances, distinct from the conditions of original production. If, under altered conditions, it takes double or, conversely, half the time, to reproduce the same material capital, and if the value of money remains unchanged, a capital formerly worth £100 would be worth £200, or £50 respectively. Should this appreciation or depreciation affect all parts of capital uniformly, then the profit would also be accordingly expressed in double, or half, the amount of money. But if it involves a change in the organic composition of the capital, if the ratio of the variable to the constant portion of capital rises or falls, then, other circumstances remaining the same, the rate of profit will rise with a relatively rising variable capital and fall with a relatively falling one. If only the money-value of the advanced capital rises or falls (in consequence of a change in the value of money), then the money-expression of the surplus-value rises, or falls, in the same proportion. The rate of profit remains unchanged.”
http://www.marxists.org/archive/marx/works/1894-c3/ch07.htm
I don’t think that could be clearer.
This quote very clearly refutes AKs assertion here;
“In other words, the capital advanced is the historical cost (net of depreciation). This doesn’t contradict the fact that the values and prices of the physical assets that are bought with the capital advance are always changing. (And it doesn’t contradict the fact that, in Marx’s theory, the value transferred to products from used-up physical assets depends neither on their historical cost nor their post-production replacement cost, but on their pre-production reproduction cost.)”
Marx’s theory did not say that the value transferred by physical assets depends on their pre-production reproduction cost. Or maybe Marx was not a Marxian?
I find this way of trying to decide between interpretations–cherry picking of quotations–objectionable. To be adequate, an interpretation has to make the texts make sense as a whole, if that is possible. All physicalist-simultaneist interpretations fail to do so, in part because, on all these interpretations, Marx’s law of the tendential fall in the rate of profit is logically invalid.
In any case, in the chap. 7 passage, Marx considers a case in which “the value of the capital advanced … rises or falls as a result of an increase or decrease in the labour-time necessary for its reproduction, AN INCREASE OR DECREASE THAT IS INDEPENDENT OF THE CAPITAL ALREADY IN EXISTENCE” (my caps). This seems to mean that the rise or fall in the value of the capital advanced is independent of the capital already in existence, i.e., that the capital value already advanced does not rise or fall.
I wonder if the physicalists out there can explain why he makes a distinction here between the capital already in existence and the capital that’s not yet in existence, i.e., treats the capital already in existence as a distinct category.
Cherry picking, schmerry schmicking. If you want to establish what people thought quoting them is not a bad way.
The trouble for you is, you’re wrong. Marx makes not such distinction. Marx simply means that the change in value of the already existing capital is not dependent on it. It is independent of it. That does not mean that the already existing capital is not affected by the change in value. In fact there are dozens of passages in Capital where Marx explains that changes in the value of the components of constant capital change the organic composition of capital, independent of its technical composition, and so changes the rate of profit.
Why not just come clean? You don’t agree with Marx, it would save a lot of angst and then we could discuss what you really think, not what you think Marx should have thought – when he didn’t.
AK’s argument about cherry-picking quotes might have some traction if there were not so many instances of extensive quotes from Marx that contradict his position.
To try to argue that Marx was not discussing the revaluation of existing Capital here is untenable. Just reading this section of what he says makes that clear:
“The value of every commodity – thus also of the commodities making up the capital – is determined not by the necessary labour-time contained in it, but by the social labour-time required for its reproduction. This reproduction may take place under unfavourable or under propitious circumstances, distinct from the conditions of original production. If, under altered conditions, it takes double or, conversely, half the time, to reproduce the same material capital, and if the value of money remains unchanged, a capital formerly worth £100 would be worth £200, or £50 respectively.”
To apparently wilfully read this text as saying that Marx was not arguing that the original Capital is revalued makes me wonder whether there are any conditions under which AK would admit that his formulations are at odds with those of Marx!
Fred Moseley has surveyed all of Marx where he specifically discusses the determination of constant capital and concludes:
“Thus I conclude on the basis of this review of Marx’s texts that Marx was consistent throughout his writings on this topic of the valuation of constant capital. Marx assumed throughout that constant capital is valued at current reproduction costs, in t he sense that the value of existing constant capital may change, if there is a change in the value of the means of production anytime between the purchase of these means of production and the sale of the commodities produced. The value of constant capital is not determined at the point in time when the means of production enter the production process. The value of constant capital does not remain unchanged after the means of production enter production if there is a change in the value of the means of production before the output is sold. The stock of the constant capital, as well as the flow of constant capital, is revalued as a result of a change in the value of the means of production.”
http://www.mtholyoke.edu/~fmoseley/CONCP.htm
As I said, Moseley goes wrong by conflating the (a) capital value advanced, (b) the value transferred to the product from used-up means of production, and (c) the value of the means of production. He uses “value of constant capital” to cover all 3 things, things, which enables him to take statements about the value of means of production changing and “apply” them to the capital value advanced and the value transferred.
The logical error here is known as “equivocation.”
So the textual evidence doesn’t mean what he thinks it means.
I’ve surveyed all the relevant evidence, too. Much of it is discussed in chap. 6 of Reclaiming Marx’s “Capital”: a refutation of the myth of inconsistency. The evidence reads very differently when one has the necessary supply of distinctions to work with.
Going back to basics, it occurs to me that judging profit by replacement costs runs into another, far more fundamental problem. In doing so, one appears to make the assumption that the capitalist was already in possession of the fixed capital, i.e. that capitalist production actually begins AT production and ends with the acquisition of replacement factors.
In other words, the circuit starts and ends at C instead of M. It’s effectively trying to wring a measure of profit out of the simple commodity exchange circuit instead of the capitalist one.
If what we’re purporting to measure is the rate of capitalist profit, I think historical valuation of advanced capital (whether depreciation is measured in historical or current terms) is unavoidable.
I don’t see why. Whether or not you start the circuit at M or C then the next circuit will show an expanded value M’ or C’.
Whether you choose to use the historical or current measure of advanced capital is moot, IMO you can use both, they both provide you with information about the rate of profit at a given moment. The rate of profit is constantly fluctuating and changing albeit within certain parameters. It is not a static fixed quantity.
This isn’t the same thing as AKs theory.
AK insists that the value of historic fixed capital cannot change, (at least that’s what he says here). He then measures the value of that historic capital net of depreciation.
But depreciation is charged at current prices as its value is related to the given productive conditions of the given moment when it is charged. As a result whether you use the historic or current valuation, in either case it is impossible to avoid the influence of current prices on the fixed capital stock.
AKs theory is built on a contradiction the historic fixed capital – the thing that Kliman says cannot change price – has changed price when Kliman measures it.
@billj: Thanks for your reply.
“I don’t see why. Whether or not you start the circuit at M or C then the next circuit will show an expanded value M’ or C’.”
Well, sure, but if an expanded C goes unrealized, then it’s not profit at all!
Being able to buy twice the quantity of the means of production in the next period is not the same as having a 100% rate of profit.
“AK insists that the value of historic fixed capital cannot change, (at least that’s what he says here).”
No, he was talking about capital advanced.
I think the problem here is a conflation of “capital advanced” with the “fixed capital” in question. Say $100 buys one unit of gold. If you pay $1000 for the means of production, you could have bought 10 units of gold with that money. If the MP’s value suddenly falls to $500, you still advanced enough money capital to have purchased 10 gold units. That does not get revalued, even if the means of production and the value of your subsequent units of output do.
I hope this makes plain the distinction between AK’s statement “the advanced capital can’t be revalued” and the divergent interpretation of “the fixed capital stock must always be valued at its purchase price.”
If you only make $800 off the venture, you’ve lost $200. Going by the current valuation of your MP, one might argue that, on the contrary, you’ve profited $300. This would be 100% true, if you had purchased your capital at its new value. But alas, that one detail is the difference between profiting and going out of business.
As for your other remarks about AK’s recent work, I can confirm that there is at least one chart in which he demonstrates that historic valuation of advanced capital plus current-price depreciation will present a similar downward trend to historical depreciation, although the whole shape is translated upwards a little. Other than this observation, I cannot comment further on the book’s content because, as I previously noted, I’m not too far into it yet.
Actually I agree with you, the problem is the conflation of capital advanced with the fixed capital stock. Obviously every historical act has already happened and therefore cannot change.
The point is that once the capital advanced has been spent it no longer exists, it is in that sense irrelevent. Its value is now incorporated in the fixed capital stock that it has purchased. The value of that fixed capital stock can change, as you have described.
Kliman’s point is in that sense pointless. So what if the amount advanced cannot change if the thing it is incorporated in, the fixed capital stock, can change?
The other major contradiction is the confusion of the assertion that the value of the capital advanced, with its meausre, the depreciated fixed capital stock. Depreciation always takes place in the present, so it incorporates obsolesence which reflects the current value of the fixed captial stock.
Therefore, if the measure of the fixed capital stock is net of depreciation…it has already changed!
Isn’t there a problem with isolating US data? What if US companies were making profits by buying low and selling high and the loser was not other US corporations? Can we be sure that all profit is Surplus value profit and if so, how?
Do we factor out smaller companies who tend to hide profit or maybe use funds to redecorate the owners luxury garage? This does actually happen. Do we assume this all levels out? If smaller firms are happy to report low profit to the taxman or retail giants are happy to forego profit for market share can it be assumed that declining rate of profit is a problem? How can we say it leads to crisis?
How do we factor in unproductive and productive labour?
I also think that surplus given up in taxes for example should be excluded. Didn’t Marx say that less surplus made equates to less that could be invested in, say, paying doctors? The attack on the state spending we are now seeing is an attempt to give up less surplus, isn’t it? So giving up less surplus is a way to boost profit – isn’t that the neo liberal project? Or does this mean we should include taxes etc? God I am confused!
@Hedlund
That’s interesting and I was thinking about this but from another angle. The common sense or real-world of capitalism justification, to give one of AK’s previous examples, is:
“So imagine that a company invests $1 million in 1999 to build an office building, and the price of the building rises to $2 million in 2006 and falls to $1.3 million in 2009. The value (or price) of this “fixed capital stock” changes a lot. But the capital advanced, the amount invested, was $1 million. It is $1 million. It will always be $1 million.”
Well, if you draw up your example table of consecutive production periods this is assuming that the real world can be reduced to one firm or alternatively that all firms exactly synchronise their periods of production and operate as a single entity. In reality, all the capitalist production periods of many competing capitals in the sector will overlap and be of different lengths – some have just bought the latest machines and others are still using old ones and will buy them later. Here, any measure of the value of capital would be some sort of average because periods aren’t fixed.
All you can say about the value of capital at any moment in time is that it is the *average* socially necessary labour time.
Maybe wrong, just a thought…
@GrahamB:
I agree 100%, if I am understanding you correctly. Volume II of Capital starts off by discussing the various capital circuits, all of which intertwine across the world economy. It’s what makes Marx’s analysis dynamic, which is all the more exciting given the current prevalence of static general equilibrium analysis in economics.
The various enterprises interlock with one another such that one sale is another purchase, etc. And the phrase “socially necessary labor time” is indeed understood to denote an average.
However, the above discussion is more focused on measuring the profit of enterprise than capital valuation per se (don’t worry, I ran afoul of that distinction in my own first comment, above). As such, it should be remembered that within the terms of a given capitalist enterprise, you can roughly draw up start and end points (buy means of production & labor power, produce, sell output), and judge profit on those grounds.
Kliman says that the price of the fixed capital investment cannot change. That’s just basically wrong.
It can, it does and the measure he uses for historic unchanging prices assumes the thing that he denies.
Say a capitalist invests £100 in a machine.
That £100 has now disappeared, its value is incorporated in the machine. What’s the machine worth? £100 to begin with, otherwise there would be no point buying it. But from thereon in it is worth its cost of production less depreciation. If the capitalist insists that he has invested £100 and that £100 cannot change, other capitalists who invested later and bought the same machine for £50 will simply say, try and sell your output above its socially necessary cost and see how far you get.
The capitalist will try to sell their output above the socially necessary rate and go bust.
The market imposes the current price by competition.
The other point is that there is no “historical” depreciation. Depreciation is always at the current rate as it always happens in the current. Consequently, depreciation incorporates obsolesence, which is a measure of the revaluation of historic capital to its current price.
And Kliman owes me $10 grand. Wonder how long I’m going to have to wait for my money?
Yes, I can see that. I was trying to point out that the real-world example – that does neatly encapsulate AK’s interpretation (I think) – may not model the real world of market capitalism very well at all. In the same way that Okishio’s mistake is to ignore the competition of capitalists.
More specifically, if you choose an arbitrary start date of 01 Jan 2012, you can always value capital – wherever it is – as the SNLT, but you can’t do the same for advanced capital.
If a capitalist invests £1000 it is on the specific day of the transaction (otherwise it wouldn’t be unchanging) but on the 01 Jan it so happened that only one of the 100 capitalists in the sector made the investment. So the calculation of the rate of profit over the forthcoming period only makes sense in the case of this one capitalist.
Then again, perhaps there is no choice but to assume corresponding start and end points?
Also, billj made an important point on asset price inflation. Most examples I’ve seen – like your gold one – use a fall in the price of the asset and then asserts that if you use replacement cost the capitalist has some how had a free lunch. But if the price was to rise over the period the position is reversed and it’s the historic cost that appears to provide a free lunch.
@ billj: “Kliman says that the price of the fixed capital investment cannot change.” I’ve said no such thing.
Discuss my actual formulation. You’ll then find that your line of argument here doesn’t work.
This is also wrong: “Say a capitalist invests £100 in a machine.That £100 has now disappeared, its value is incorporated in the machine.” It confuses the investment, which is measured in terms of money but is not itself money, with the money used to make the investment.
No it doesn’t. Capital is a social thing. Once the £100 has been invested in he machine it has no other existence other than in that machine. That’s what the circuit of capital means M-C-M’. Money is invested in commodities (labour and capital) and produces more money.
If the value of the commodities that the investor has invested in loses value – they have lost money. They may complain that they made their investment in good faith, but no capitalist is going to pay out – unless maybe they’ve been reading Andrew Kliman’s book!
Looking at this closer, you say;
“I think the problem here is a conflation of “capital advanced” with the “fixed capital” in question. Say $100 buys one unit of gold. If you pay $1000 for the means of production, you could have bought 10 units of gold with that money. If the MP’s value suddenly falls to $500, you still advanced enough money capital to have purchased 10 gold units. That does not get revalued, even if the means of production and the value of your subsequent units of output do”.
I still agree with the first sentence but unfortunately you then conflate the MP with the value of the money advanced. The amount of that advance does not change – but its value does.
The key point is that the money advanced no longer exists as money, its value has been incorporated in the MP you have purchased. That MP now only has a price of $500.
Assuming that you sell these assets and the price of gold has not changed in the meantime, you will only have enough money to buy 5 gold units. You have lost $500. You should have bought gold.
This illustrates quite neatly the flaws of AKs method I think.
Marx’s law of profitability applies to the world capitalist economy, but it would be no mean feat to work out the world average rate of profit given the the number of national capitals, the restrictions on the movement of capital and labour and so on.
Looking at the US rate of profit is still useful because it is the most important capitalist economy and where the Great Recession kicked off. The data for the US corporate rate of profit excludes profits accrued from investment abroad and, yes, the higher level of labour productivity in the US over many emerging capitalist economies means that US companies gain a higher rate of profit at the expense of other economies.
We can include smaller non-corporate firms in the figures but it is a little tricky.
In my book, I try to factor in the role of unproductive and productive labour in determining the rate of profit.
If you want a measure of the rate of profit of the whole capitalist economy, then you should not deduct taxes, interest or rents from your measure of surplus value. But if you want see if capitalist corporations can compensate for a a falling rate of profit (perhaps temporarily), then you might want to look at the after-tax rate of profit. I think you need the overall figure to see what is happening to capitalism and the after-tax figure as the outcome of neoliberal policies.
Its true that Kliman’s use of US figures to the exclusion of every where else is seriously misleading. Its one of his other mistakes.
@billj: I appreciate your continued correspondence!
Please note: Because our conversation is starting to spread to several different places on the page, for the sake of my own sanity I am going to combine my responses to your last few remarks into a single comment. Hope that’s okay.
From your January 17, 2012 at 8:12 am comment:
“That £100 has now disappeared, its value is incorporated in the machine. What’s the machine worth? £100 to begin with, otherwise there would be no point buying it. But from thereon in it is worth its cost of production less depreciation. If the capitalist insists that he has invested £100 and that £100 cannot change, other capitalists who invested later and bought the same machine for £50 will simply say, try and sell your output above its socially necessary cost and see how far you get.”
To this I say, exactly! We’re definitely on the same page, here. This is what makes it so important to note that historical valuation of fixed capital is inappropriate. Indeed, the capitalist’s pricing is subject to the discipline of the market.
But remember, so far we’ve only discussed commodity valuation and not the calculation of profit. Once the capitalist sells his output at the price determined by the decreased value of its fixed capital, he will find that his profits are lower than that of the other capitalists you mentioned, who purchased the machine after its depreciation. That £50 is, to him, a loss to be accounted for (for example, by way of a writedown) within the given production period.
From January 17, 2012 at 8:54 am:
“Kliman’s point is in that sense pointless. So what if the amount advanced cannot change if the thing it is incorporated in, the fixed capital stock, can change?”
So everything. This is the crux of the temporalist argument, and it is precisely the way in which moral depreciation can enter the discussion, despite charges that it cannot. If what you have now is worth less than what you paid for it, depreciation has hurt you.
From January 17, 2012 at 12:10 pm:
“I still agree with the first sentence but unfortunately you then conflate the MP with the value of the money advanced. The amount of that advance does not change – but its value does.
The key point is that the money advanced no longer exists as money, its value has been incorporated in the MP you have purchased. That MP now only has a price of $500.
Assuming that you sell these assets and the price of gold has not changed in the meantime, you will only have enough money to buy 5 gold units. You have lost $500. You should have bought gold.
This illustrates quite neatly the flaws of AKs method I think.”
I respectfully disagree. I’ll try to emphasize where I believe the argument is becoming “confuddled,” as it were.
“The amount of that advance does not change – but its value does. The key point is that the money advanced no longer exists as money, its value has been incorporated in the MP you have purchased. That MP now only has a price of $500.” <– I think this is the major point of discord. Here's the issue: you start off with money capital in the amount of $1000, or 10 arbitrarily defined gold units. You exchange that for commodity capital initially equivalent, which then falls to half its value. Five of your abstract could-have-been-gold units have vanished. It’s as if someone had stolen them! Indeed, either way, you have taken a hit equivalent to $500 that would not be accounted for if you then attempt to revalue your initial money capital advancement.
You are correct that the money advanced no longer exists as money. I am with you there. You have traded one form of capital for another – money for commodity. Then the commodity capital is depreciated. However, in this example, the money capital is not devalued in any way.
Put another, perhaps clearer, way: you start with M, purchase C, and then C becomes devalued before P. C’ will therefore be valued lower than it originally would have, which means M’ is lower than it originally would have been. The only thing in this entire circuit that never changed was the original M. And since profits are measured in terms of the difference between M values, a lower M’ means that M’-M yields a lower profit in this case, as will (M’-M)/M represent a lower rate of profit.
Profits are always measured in terms of the difference of money revenue to money outlay. That never changes.
“Hence, if a commodity is sold at its value, a profit is realised which is equal to the excess of its value over its cost-price, and therefore equal to the entire surplus-value incorporated in the value of the commodity. But the capitalist may sell a commodity at a profit even when he sells it below its value. So long as its selling price is higher than its cost-price, though it may be lower than its value, a portion of the surplus-value incorporated in it is always realised, thus always yielding a profit.” Vol III, Chapter 1
As long as M’ > M, m and therefore s (and therefore π) is positive.
Remember my previous example? I posited an initial advancement of $1000, then fixed capital value falls to $500, and after revaluation of the output on those grounds, total revenue was $800. As I noted, if we use the legitimate measure of profit, M’-M = -$200. We’ve lost money. If we’re revaluing our money-capital advancement based on the commodity capital for which it was traded, we’d report profit of $300, despite operating at a loss. In the world of accounting, this could be considered a form of “cooking the books,” and could carry steep penalties.
It becomes more obvious if you received the $1000 initial outlay from a bank or private investor(s). If you report profits, your creditor(s) would be surprised and unhappy when your $800 return is insufficient to repay them. Nobody likes being lied to, yes? That’s because the capital fronted was $1000, regardless of what may have happened to the things on which it was spent. Maybe they were destroyed, maybe they depreciated. In either case, they’re going to adversely impact profits.
I hope this suffices to explain why I believe we have reached such different conclusions.
The problem I’ve got with your later example – is that it is not linked to cycles of commodity production. This is the same issue with AK. Let’s look at his example first;
“For instance, let’s assume for simplicity that office buildings don’t depreciate. (The U.S. govermment says that they depreciate less than one-twelfth as fast as office equipment, so that’s not a big stretch.) So imagine that a company invests $1 million in 1999 to build an office building, and the price of the building rises to $2 million in 2006 and falls to $1.3 million in 2009. The value (or price) of this “fixed capital stock” changes a lot. But the capital advanced, the amount invested, was $1 million. It is $1 million. It will always be $1 million”
It is curious to take the changes in price to an office building, that occur after its production and to assume no depreciation. But in this instance Kliman is obviously correct, if no productive activity is undertaken, if no depreciation occurs, if no capital accumulation takes place, if there are no sales, no profits or losses, then the original $1million remains the amount invested. Is this typical of the capitalist mode of production and is it useful for analysing capitalism – a system of generalised commodity production? I suggest it is not.
Let’s look at your example, still not ideal as it doesn’t relate to cycles of productive activity, but you say that after depreciation;
“The only thing in this entire circuit that never changed was the original M. And since profits are measured in terms of the difference between M values, a lower M’ means that M’-M yields a lower profit in this case, as will (M’-M)/M represent a lower rate of profit.”
That’s true. But reveals why AK is wrong. He says that the original investment can never change. You say it cannot change during one cycle of production. I agree with you. The affect of the production process is to reduce the value of the original investment and this is demonstrated by changes to the value of the fixed capital stock through the production process.
Sorted!
The problem with Hedlund’s argument in relation to profits being measured in terms of the Money originally laid out is that it has nothing to do with the Marxist analysis of Capitalist production. It basically accepts the orthodox economic viewpoint. What is Marx concerned with in his analysis? It is not an exercise in Comparative Statics, which treats individual cycles as discrete events. The whole point of Marx’s analysis is of Capital as self-expanding value, of its continual need to reproduce itself on an expanded scale.
The driving force of Capital is not profit seeking, but Accumulation, profits are merely the means by which that Accumulation is accomplished. This is precisely why Marx values Capital – not just Fixed and Constant Capital, but Variable Capital too) at its current replacement cost. If the price of Cotton falls, then the textile manufacturer, has to use this Value in his calculation of selling prices, not the price he actually paid for it.
See: Vol III Chapter 48 on Appreciation and Depreciation.
But, it is precisely because Marx is interested in Capital as self-expanding value i.e. looking forward to how it expands, not like the moneybags orthodox economists who are looking back to the Money paid out, that means that this notional Capital Loss, this paper money loss is irrelevant. Although, the reduced price of Cotton is reflected in a lower Exchange value and price of the final commodity, that is only because at the same time, the Capitalist can replace this cotton used up, with the same amount of cotton at the now reduced price. In fact, as Marx sets out this reduction in the price of the Constant Capital leads not to a loss for the Capitalist, but to a higher rate of profit. Consider the following.
A Textile Capitalist has a production function such as:
C 1000 + V1000 + S1000 = E3000
C is made up entirely of cotton lets say for simplicity. A change in productivity means that the price of cotton falls to 500. Does this in any way change the position of the Capitalist in relation to the £1000 he paid for it. No, because Marx’s analysis is based on Capiatl being a process, on the assumption of continued production.
So, now we can see how in fact, Capital Accumulation is in fact enhanced. We now have:
C500 + V1000 +S1000 = E2500. On Marx’s basis of calculating the Rate of profit, this means R= 66.6% up from 50% previously. Why is this the relevant measure from marx’s perspective?
Previously,if we assume that 1 unit of C, and 1 unit of V cost £1, then the £1000 of S could be used to expand production such that an additional 500 units of Cotton, and 500 units of Labour Power could be bought.
However, because the Cotton now only costs £0.5 instead of £1, the £500 of Constant Capital previously added, now only costs £250. Alternatively, the £500 of additional Constant Capital could be used to buy 1000 units of additional Constant Capital. And finally it could be divided so as to increase both the amount of additional Constant Capital, and variable Capital. In other words, it makes possible an increased rate of Capital Accumulation, which is precisely what a Marxist analysis is concerned with.
You can, of course, measure the rate of profit against the original Money laid out (which is a form of money illusion), rather than looking at real values, but from a marxist perspective it tells you nothing useful.
I’ve just been looking at the part of AK’s book Reclaiming Marx’s Capital that provides a numerical example (this is around 120 pages into the book, I kid you not).
I’d like to say that it clarifies things – whether one agrees or not – but it doesn’t.
The corn example covers four periods/years with productivity increasing in the third year and again in the fourth. Corn is the only input and is treated as circulating rather than fixed capital. After the example he says (his emphasis):
“I am not suggesting that the decline in the value of the seed corn should actually cause the rate of profit to *fall*. As Marx recognised, the cheapening of means of production does reduce the capital value advanced, and thus it tends to counteract the tendency of the rate of profit to fall. My point is simply that it cannot do so *retroactively*.”
“Here again [in the case of fixed capital], it is only the rate of profit of *subsequent* years, not the *current* year’s rate, which tends to rise as a result of the cheapening of means of production.”
The “retroactively” sentence refers to all the bricks and gold examples where the historic cost is used. The rate of profit falls in the periods where there’s a rise in productivity and the price of corn has fallen at the end of the period.
But then he adds these caveats that the rate of profit could rise in future periods… Unfortunately I can’t find a numerical example of this so it’s left hanging (could have missed it, its not an easy read!).
Make of it what you can.
It seems that he equates one cycle of capital accumulation with a year;
““Here again [in the case of fixed capital], it is only the rate of profit of *subsequent* years, not the *current* year’s rate, which tends to rise as a result of the cheapening of means of production.””
But of course the current year contains many cycles of production. As capital is revalued after each cycle this is wrong.
Just so that no one thinks that billj has a point here, the example assumes that production takes a year.
If the production period is more or less than a year long, the point stands. The quote would need to be changed to read:
“Here again, it is only the rate of profit of *subsequent* periods, not the *current* period’s rate, which tends to rise as a result of the cheapening of means of production.””
The difficulty in this discussion about historical cost or replacement cost in measuring fixed capital is an inconsistency, an ambiguity or a hasty formulation within Marx’s presentation. (Sorry, Drew). It was first used by N. Moszkowska in 1929 to “refute” the falling rate of profit. The thing is that AK’s interpretation is the one actually consistent – not with what Marx concretely stated, which is fuzzy enough to seemingly endorse the use of “replacement” values – but with Marx’s actual method. And that is why this approach, it seems to me, is the only valid one. It is the only approach that doesn’t leave the labor theory of value in a self-contradictory state.
The labor time expressed in a commodity of a particular is no more determined by the most productive process, than by the least. It is determined by the average. It is determined by a blend of vintage methods, of machinery of varying effectiveness and cost that converge to yield a unitary value. It is the historical approach that captures this blended process as a snapshot of any moment through time.
This can be illustrated in two different ways. Let us assume 100 widgets are to be made in 10 subsequent periods, 10 per period. Let us further assume that 100 hours of labor time “embodied” in machines is required in the 1st period combined with X hours of living labor, 99 hours of embodied labor time in the 2nd also combined with X hours of living labor, 98 in the 3rd, 97 in the 4th, 96 in the 5th, 95 in the 6th, 94 in the 7th, 93 in the 8th, 92 in the 9th and 91 in the 10th. In the 10 periods 955 hours of embodied labor + 10X of living would have been expended on the 100 widgets, which on average would have cost society 9.55 embodied hours per machine + X hours of living hours.
Leaving aside the cost in living labor, according to the replacement method, the 100 widgets would have 910 embodied hours transferred from the means of production, when in reality 955 hours of socially necessary labor had been expended. 45 hours is simply unaccounted for. The same could be illustrated on the basis of falling labor productivity in machine production where we start with 9.1 hours per machine in period 1 and end up with 10 hours required per machine of equal effectiveness in the final production period. Again, 955 hours of socially necessary labor would have been transferred from means of production at the end of the 10th period. But according to the “replacement” method an additional 45 hours of fictitious labor time “must” be realized!
Now let’s apply this to the actual question at hand. If, instead of considering this issue of producing 100 widgets in 10 subsequent periods, we ask what if 10 different procedures are simultaneously employed in the production of these machines in the course of one period. 955 hours of embodied labor in the means of production would be expended. The value transferred to the widgets per machine would be 9.55. It is not equal to 10(the marginalist approach), nor is it equal to 9.1 (the replacement approach). It is equal to the average cost in labor time. This is the approach consistent with Marx’s method, if not always with his exposition. And this is what AK, I believe, quite properly insisted upon.
It also illustrates why “cheapening of the elements of constant capital” has a much more gradual impact on modulating movements in the rate of profit than would otherwise be apparent in the replacement version..
But this assumes that the value of labour time remains the same. It obviously doesn’t. Indeed it constantly varies up and down. Not only does the labour time vary, but so does the value of the means of production and raw materials.
This fictious labour time is nothing of the sort, it is simply the repricing of past accumulation to present values through the process of market competition. Something that Marx explains at length and over and over again in Capital.
That is why the issue of the current socially necessary labour time is so important, not some arbitrary past time selected to suit the capitalist.In other words. There is only a problem if you apply comparative statics as AK does.
I hate to say it, as it is a much abused point, but its the difference between dialectics and formal logic. But it is nonetheless, the reason why there is no inconsistency, and it is the only interpretation not only consistent with Marx but more importantly the reality of a capitalist mode of production with constantly changing prices and values.
As you point out, Marx’s text does not support AKs interpretation. That’s because it is not Marx’s interpretation.
IMO the “correct” procedure for determining rates of profit is to find both the current and historical rates and recognise that the rop will fall somewhere between the two. As they move in tandem, there is no reason to be more accurate than that.
@Barry
That’s very interesting and I’d talked about “average” socially necessary labour time in an earlier post – though I it was only an idea and not worked out.
On a quick look at what you said there is a confusion. Why is the machine transferring less to the output in each cycle, assuming the cycles of equal length? The machine is fixed capital and you say it is only replaced at the end of the 10th cycle. This looks more like circulating capital that is falling in price at the beginning of each cycle, such as raw materials.
Or, are you saying the machine is completely used up in cycle 1 and replaced with a more productive one at the beginning of cycle 2. If this is the case, the replacement value would also give 955.
There is nothing fuzzy in Marx’s arguments on this in the many places where he discusses it. He is quite clear. But, the argument put forward above is confused. It confuses two different things – the Value of the Constant Capital used by a particular Capitalist, and the Value of the commodities produced by that Capitalist using that Constant Capital.
That the commodities produced by this Capitalist will have an Exchange Value determined by the average socially necessary labour-time required to produce them is surely not in doubt, or under discussion. Nor is the fact that the calculation of this average will have to take into account the full range of productive efficiency of all producers, which will be determined by the machines etc. those Capitalists use.
None of that is in doubt. What is at issue, however, is the Value of the Fixed and Constant Capital employed by each Capitalist to produce these commodities! And, Marx is quite clear on this point. he says that this Fixed and Constant Capital has to be valued in the same way as all these other commodities, and that Value will apply whether the Capitalist has just bought it at that price, or else bought it ten years ago at some other price (the latter of course modified by any depreciation due to age and wear and tear it has suffered).
The consequences of that in relation to each Capitalist are quite clear, and again set out by Marx. Suppose in an economy there are just two Capitalists producing widgets, each with half the market. The second Capitalist buys a machine, which costs the same as that paid by the first Capitalist, but it is a new type, which is twice as productive as the first.
In that case, Marx describes the first machine as being “morally depreciated”. Its value is cut in half, because it is now only half as productive as the second machine. Marx goes on to describe how the first Capitalist will try to remedy this situation, by working the machine and its workers harder, in order to maximise its use, which in turn will result in it being worn out quicker, and thereby justifying its replacement with the newer machine.
In the meantime, if the first capitalist doubles the time the machine is used in order to match the output of the second Capitalist, the Constant Capital used up in each cycle will be the same as before, but will be spread over double the output. But, in order to work the machine for this prolonged time, the Capitalist will have to buy twice as much Labour Power, twice as much material etc.
Because the exchange Value of the end commodity is determined by the average socially necessary labour time required for its production i.e. the average of the time required to produce the total output of both Capitalists it will be an average of the larger amount of time required by the first less efficient Capitalist, and of the second more efficient capitalist.
The consequence of this will be that the first Capitalist will produce at a higher Value than the average, and the second Capitalist will produce at a lower Value than the average. Consequently, Capitalist A will make a lower rate of profit, and Capitalist B will make a higher rate of profit. But, it is the average rate of profit that is of interest here, not the individual rate of profit, and averaging out the two cancels out. The average rate of profit for the industry will be based upon the current Value of the Fixed and Constant Capital employed, and it is that Value, which will determine how rapidly Capital is accumulated as and when it is reproduced.
@Barry
Ah, should have read it properly – value transferred with a machine that is slowly being out-dated over the 10 cycles.
Graham,
But, if it is being outdated in this way, it will be less efficient, and will take longer in each period to produce the 10 widegets, so the amount of labour time required will progressively increase in proportion as the Value of the machines declines!
And so the intensity of labour will increase. But Graham was right the first time, there seems to be no reason why the machine should contribute less value each cycle.
If it being depreciated by 1 each time, then it contributes 1 each time.
Yes, that is along the lines of my original thoughts on it and hence my first reply. I was trying to work out what Barry was actually trying to show – perhaps he could clarify?
I worked on CNC machines that were 40 years old! Then the Chinese & the Indians bought up much of the stock. Profit was add up all the costs and compare with income. More income than costs was good!It never really got more sophisticated than that. An economist once told us that if we took heed of his marginal theory, marginal cost = marginal revenue = maximum profit then we couldn’t go wrong. We ignored him, as he would say that wouldn’t he?
Did the Indians and Chinese buy the machines at the price that your employer originally paid for them, or at their current value? We know the answer, its the latter, and its on the basis of their current value, not some long passed price paid by an individual Capitalist that is the basis of the profit calculation.
For a machine we would amortize cost over ten years. After ten years on books Machines would be at nil value though you could/would still be using machine. We were working on multi spindle autos that were 40 to 45 years old! These had the advantage over the modern CNC’s of being able to handle large batch processes, modern CNC’s were effective with smaller batches. India, China (and others) bought up huge amounts of the existing stock of old Wickman machines, they tended to pay around the original cost but if we factor in inflation then the cost would have been lower. Many of these machines had also been refurbished, so the value paid was often well below the original value, in real terms. The Germans concentrated on buying up the ultra modern Gildermeister machines that solved the problem of modern CNC inefficiency with large batches.
I guess in Germany labour costs are high and in India labour costs are low, hence different strategies.
We paid for machines by taking a loan out at the bank; we only cared if we could pay the bank off. I picked up a machine at auction in Scotland for £800, a good quality one. It was really worth around £15k! The world of smaller business is ducking and diving. 30 years ago there were far more of these smaller businesses than now.
Fiddling was rife, eg we had to pay 23% or so on stock to the Inland revenue, accountants were systematically bunged to sign off low value stocks.
Economists charts are little above useless, that is my view from actually working and living in the productive sector.
My father was an engineer. A Miller, but could operate anything. before and in the early part of the War he worked in pretty much every car factory in the Midlands as well as Rolls Royce at Crewe. He got his cards literally blacked with ink at the last factory he worked at, because of his activities as a union militant. So, he ended up in the Army.
He said that after the War, he was working with machines locally that would have been old in the car factoris before the War!
In the 1990’s when I was working in Local Government, a measure was introduced so that we had to show an implied return on Capital. All the Council’s Assets had to be valued. They were all Valued at current Value, not the cost the Council paid for them up to 100 years ago!
Just picking up on Graham’s point, yes the machine is being reduced in value after each after cycle but why would that affect the amount of value added?
If the amount of value added by fixed capital is the amount used up in production, that is, if it is equal to the reduction in value of the machine, why would there be a lower amount of value added each cycle? Even if the machine was depreciated then its contribution to the value each cycle would be the same.
If the amount of value added was just 1, then the stock of fixed capital would be depreciated by 1 each cycle, that appears to be implied by the depreciation of the fixed capital stock by 1 in your example.
But you then say it’s contribution to production falls by one 100, 99, 98. etc why? If it is entirely depreciated then its value at the end of each cycle is 0, in which case it is not fixed capital. If it is not entirely depreciated why does the value added change?
If depreciation had reduced the value of fixed capital, then repairs to the value of 1 would have been required each cycle in order to enable production to continue.
In which case the contribution of fixed capital to the production process would be the same each time and the “difference” between current and historic valuations irrelevant.
Marx uses the example of a railway train. He points out that by the end of its “life” in fact it is a completely different train than at the beginning of it, as every part of it has been repaired. But a railway train that only works 99% does not work at all. At the end of every journey maintenance equal to the consumption of capital is required to keep the train on the track.
Just on my other point about the intensity of labour, this is very important and varies a lot. GDP growth is of course, reckoned to be the change in hours worked plus or minus productivity. That is the increase or reduction in the intensity of labour.
That is quite correct. Marx uses the example of a horse. The horse, but it could equally be a machine or a slave, gives up a certain amount of their Use value in the production process – it is consumed in Marx’s terms. The same is actually true in relation to Wage Labour. However, provided the horse, slave, worker, machine are not overworked, then providing the horse etc. with the necessary amount of food etc. to in turn ensure the Reproduction of their Use Value used up, ensures that they start the next cycle with the same Exchange Value that they began the previous Cycle.
It would only be true if the Value of this Capital was depreciated as a result of ageing. But in that case the output of this Capital would be proportionally reduced too so that if it began with a Value of 100, and fell to 99, then if it previously produced 100 units in the given cycle it would now produce only 99! Otherwise the simple fact of its ageing would be no reason for it to have been depreciated!
In fact, Barry’s argument contradicts AK’s argument. As he says, the Value of Commodities is determined by the average socially necessary labour-time required for their production, and determining this requires looking at all of the different producers and determing the Value on an average. But, it is precisely that point that Marx insists upon in determing the Exchange Value of Constant Capital itself!
We don’t say this Mars bar is a different Value than that Mars bar, because it was produced by a less efficient machine or plant. The Exchange Value is based on the average. If I buy a Mars Bar today that costs 50p, and find that tommorrow Mars Bars are produced more efficiently, and now cost only 30p, then the fact I paid 50p does not change the fact that today my Mars bar like all other mars Bars has a value of just 30p.
To treat Constant and Fixed capital differently from that is to cease treating it as a commodity, which really would contradict not just what Marx says, but the whole basis of his theory.
“If the capitalist insists that he has invested £100 and that £100 cannot change, other capitalists who invested later and bought the same machine for £50 will simply say, try and sell your output above its socially necessary cost and see how far you get.
The capitalist will try to sell their output above the socially necessary rate and go bust.”
But for the sake of calculating *his* profit, it will be based on £100 of investment. He will go out of busines precisely because – according to his outlay – his business was not profitable vis a vis his competitors.
On a methodological note Marx is dead, we need to move beyond appeals to what is written in Capital and prove the point in the here and now, preferably without claims to some ‘dialectical’ inside knowledge.
@benp:
Exactly! Profit is measured against advanced capital, not against the value of the means of production. The introduction of the latter into this discussion is a red herring.
I also agree fully that “we need to move beyond appeals to what is written in Capital and prove the point in the here and now, preferably without claims to some ‘dialectical’ inside knowledge.”
Except in one case–when the point to be proven is what what Marx’s theory is. In that case, what is written in Capital is relevant. And that includes the law of the tendential fall in the rate of profit.
@ everyone:
No interpretation of Marx’s theory according to which the advanced or invested capital is identical to the replacement cost of the means of production (and labor-power) can deduce the conclusions of Marx’s law from its premises. But the very purpose of an exegetical interpretation is to make the texts make sense. Thus, if an alternative interpretation CAN deduce this conclusion, it must be preferred as an exegetical interpretation. And that’s the case here.
There’s one exception: the latter interpretation need not be preferred if it is demonstrated that it cannot possibly be reconciled with other parts of the texts. But no one, including the opponents of Marx’s theory who have commented on this post, has ever demonstrated that it cannot be reconciled. Almost all of their textual evidence pertains to the value of the means of production (which they misinterpret, BTW), NOT advanced capital.
The only case in which their evidence pertains to advanced capital, if I’m not mistaken, is a passage in which Marx says that the value of the capital advanced changes, but notes that this change is INDEPENDENT OF THE CAPITAL ALREADY IN EXISTENCE. billj and Boffy have FAILED to demonstrate that my interpretation of this passage and the text are irreconcilable. In response to my interpretation, billj merely opposed a different interpretation to it–“Marx simply means that ….”– and referred to some “textual evidence”–i.e., his interpretation of the textual evidence. Here’s what I said about this method in Reclaiming Marx’s Capital: a Refutation of the Myth of Inconsistency (p. 61):
“They defend their interpretations of particular passages by appealing to ‘what Marx wrote’ in those passages and elsewhere. Yet their appeal to ‘what Marx wrote’ is actually an appeal to their own interpretations of what he wrote––not his words per se, but his words as construed by them. In other words, they defend their interpretations by appealing to their interpretations.
“This … leads inevitably to unintentional dogmatism. When Marx’s critics insist that their interpretations are correct because they are ‘what Marx wrote,’ they are actually insisting upon their own interpretations of what he wrote. In other words, their interpretations are correct because they say so. To avoid dogmatism, one needs to escape from this vicious circularity.”
Boffy is equally or more guilty of this. I find his/her stuff extremely dogmatic (unintentionally) and offensive (unintentionally). Again and again, s/he defends his/her interpretation of textual evidence by appealing to his/her interpretation of textual evidence. With regard to the particular passage under discussion here, s/he writes, “To try to argue that Marx was not discussing the revaluation of existing Capital here is untenable [according to my interpretation]. Just reading this section of what he says [in the way in which I read it] makes that clear.”
Chap. 4 of Reclaiming Marx’s Capital: a Refutation of the Myth of Inconsistency explains a way out of the vicious circularity. The whole chapter is needed to contextualize the solution properly, so I can’t explain it adequately in summary form here.
Boffy’s comment that
“AK’s argument about cherry-picking quotes might have some traction if there were not so many instances of extensive quotes from Marx that contradict his position”
reminds me of Fred Moseley, and what I said in response in RMC (p. 71):
“Moseley also argues that the evidence is too clearly in his favor to make the PSE (principle of scientific exegesis) applicable. The primary criterion of interpretive adequacy is the interpretation’s correspondence to the texts; the PSE ‘might be’ appropriate if the texts were ambiguous, but not here. The problem with this argument, of course, is that the evidence favors Moseley’s interpretation only if one accepts his exclusion of a great deal of evidence, interprets the remaining evidence as he does, and accepts his framing of the issue. (He frames it as ‘the determination of constant capital,’ while I think that this phrase conflates distinct processes, and that he misinterprets the texts because of this.) Under such circumstances, what good does it do to appeal to ‘what Marx wrote’? We are locked in an interpretive disagreement of the kind that no one has found a way to unlock, except by appealing to the criterion of coherence.”)
(If they (billj, Boffy, GrahamB) take offense to my characterization of them as opponents of Marx’s theory, I would point out that they started this. I’ll withdraw this characterization if and when they withdraw their characterization of us.)
@billj:
The bet is about whether the statement in the BEA publication, “The value of an asset changes as the result of depreciation and revaluation” means (to the BEA) what you claim it means, namely that the value of the asset “can go up and down.”
I propose the following: You and I each put $10,000 in escrow. The outcome will be decided by writing to the BEA, using the contact system on its website, and asking the question,
“When BEA says that ‘The value of an asset changes as the result of depreciation and revaluation,’ does the revaluation always result in an increase in the asset’s value, or can it lead to a decrease in the asset’s value?”
If they answer that the revaluation always results in an increase in the asset’s value, you collect the $10,000 I put up. Otherwise, I collect the $10,000 you put up.
Michael Roberts (or, if he declines, another mutually acceptable 3d party) will interpret the content of the BEA’s answer. His (or the alternative person’s) interpretation shall be final and binding.
Further to this, Capitalists, in most cases, are under contract to finance their capital investment at the original sum borrowed. Financiers do not care about depreciation or revaluaton of assets when it comes to loan repayment.
“Financiers do not care about depreciation or revaluaton of assets when it comes to loan repayment.”
Exactly.
Here’s part of what I say about this issue in The Failure of Capitalist Production:
“To see why the current-cost [‘rate of profit’] and the rate of accumulation can diverge markedly (in the absence of distinctive neoliberal regime of accumulation), imagine an economy without fixed capital, in which seed corn and labor are the only inputs, corn is the only output, and workers are paid in corn. At the start of the year, the capitalist farmers obtain one-year loans totaling $40 million from their bankers. Since the price of corn is $5/bushel, they use the $40 million they have borrowed to purchase 8 million bushels of corn, which they then plant as seed and use to hire farmworkers. At year’s end, 10 million bushels of corn are harvested.
“Now imagine that the price of corn has fallen in the meantime to $4/bushel. Sales revenue is $4 x 10 million = $40 million, and the cost, at the END of the year, of the 8 million bushels of corn invested at the START of the year is $4 x 8 million = $32 million. Profit computed on the basis of current costs is therefore $40 million – $32 million = $8 million, and so the current-cost “rate of profit” is $8 million/$32 million = 25%. In terms of value (or price), however, there is no profit––even if we ignore the interest that the capitalist farmers must pay the bankers. The $40 million in sales revenue received at year’s end is no greater than the $40 million invested at the start. The actual value (or price) rate of profit is therefore 0 percent.
“Which of these two rates of profit, 25 percent or 0 percent, more accurately depicts the maximum rate of capital accumulation––that is, the farmers’ ability to expand their operations next year? Proponents of current-cost valuation contend that the maximum rate of accumulation is 25 percent. The farmers initially invested 8 million bushels of corn, but end the year with 10 million bushels, which is a 25 percent increase. Hence, they can supposedly expand their operations by up to 25 percent, by investing 10 million bushels of corn at the start of next year instead of the 8 million bushels that they invested at the start of the current year.
“The farmers themselves, however, are a wee bit disappointed. Their one-year loans must now be repaid, and they have to use their entire sales revenue of $40 million to repay the $40 million that they borrowed at the start of the year. The farmers’ net worth has not increased at all and, after repaying their loans, they have nothing left over with which to expand their operations. They are unable to accumulate, EVEN IN PHYSICAL TERMS. Moreover, they have not yet paid, and cannot pay, the interest they owe the bankers. If the same situation occurs year after year––with corn output exceeding corn input by 25 percent each year, but the price of corn falling by 20 percent––the farmers are soon drowning in debt.”
The farmers having repaid their loan in full could simply take out another loan of the same amount, but now that loan would buy 25% more corn than it did the first year. Leaving aside the interest payments of course.
But that has nothing to do with the calculation of the Rate of Profit on a Marxist basis. Now you can say you think Marx was wrong, which is the implication of some of the comments here, but in that case you should say so. If you choose to calculate R on the basis of Monetary payment that is fine, but from a Marxist standpoint it tells you nothing useful about Capitalist Reproduction and Accumulation.
Yeah but you’ve changed the bet. I said it can go up and down you said I was wrong. You owe me $10 grand.
Here’s the actual quotes;
billj Says:
January 16, 2012 at 11:32 am
“It means it can go up and down. What do you think its function is?
Andrew Kliman Says:
January 16, 2012 at 12:06 pm
This is getting interesting. I’ll bet you $10,000 that you’re wrong.”
Actually your reply concedes the point, I said “it can go up and down” not “it will go up”. You then change the bet to
“I propose the following: You and I each put $10,000 in escrow. The outcome will be decided by writing to the BEA, using the contact system on its website, and asking the question,
When BEA says that ‘The value of an asset changes as the result of depreciation and revaluation,’ does the revaluation always result in an increase in the asset’s value, or can it lead to a decrease in the asset’s value?”
That’s obviously not what I said. So there’s no need to go to the BEA, you have conceded that it can go up or down. If you like I’ll send you my bank details, I’m not bothered about currency and I am happy to accept dollars.
Actually this is really rude. Kliman’s bet is the position I advocated. Kliman wants to bet against me the position I proposed. Its totally outrageous, after making a bet and losing, he now wants to wriggle out of paying. Why not pay your debts Kliman?
@ billj: You write, “I said it can go up and down you said I was wrong.” No I didn’t. I said that your interpretation of the BEA’s statement was wrong.
You claimed that the MEANING of the statement, “The value of an asset changes as the result of depreciation and revaluation,” is that “it [the value of an asset] can go up and down.”
If you don’t like the phrasing of my question, propose your own phrasing of a question to the BEA about the MEANING OF THE BEA’S STATEMENT.
Or cough up 10 grand.
You said I was wrong when I wrote “the value of the asset can go up and down.”
The question that you demanded the BEA answer was;
“‘The value of an asset changes as the result of depreciation and revaluation,’ does the revaluation always result in an increase in the asset’s value, or can it lead to a decrease in the asset’s value?”
“Does the revaluation always result in an increase in an assets value”. That’s obviously not what I said. I said that it “can lead to a decrease in the assets value” but it can also lead to an increase. That’s what going up or down means.
Therefore, the question you asked the BEA was my interpretation. You then said if the BEA agree with my interpretation that I had to pay you $10 grand.
That’s clearly bizarre and perverse, not to say dishonest and disreputable.
Its your way of welching on your debts. If that keeps you happy then fine. There’s not much I can do about it.
But its a good illustration of how you work. You do not read what people actually wrote – you rewrite what they wrote to suit your arguments.
@ billj: You write, “You said I was wrong when I wrote ‘the value of the asset can go up and down.'” No I didn’t. This is a baldfaced lie.
“‘Does the revaluation always result in an increase in an assets value’. That’s obviously not what I said.” No. of course not. But it is what you meant. There’s no other plausible interpretation of your statement that “The value of an asset changes as the result of depreciation and
revaluation” MEANS that the asset’s value can go up (revaluation) or down (depreciation).
“I said that it ‘can lead to a decrease in the assets value” but it can also lead to an increase.” No, you didn’t. Another baldfaced lie. You evidently don’t want to cough up the 10 grand you owe me. You said that “The value of an asset changes as the result of depreciation and revaluation” MEANS that it can go up or down (depreciation).
“You then said if the BEA agree with my interpretation that I had to pay you $10 grand.” Another baldfaced lie. I said, “If they answer that the revaluation always results in an increase in the asset’s value, you collect the $10,000 I put up. Otherwise, I collect the $10,000 you put up.”
But again, If you don’t like the phrasing of my question, propose your own phrasing of a question to the BEA about the MEANING OF THE BEA’S STATEMENT.
Or cough up 10 grand.
All your shouting doesn’t make you right. You say;
“That’s obviously not what I said.” No. of course not. But it is what you meant.”
So what’s important is not what I said – but what you say I said. And because what you say I said was not what I said then I’m a LIAR.
Usually its the other way around – when people do not say things and other people put words in their mouths then they’re lying. But this is the world of Andrew KLIMAN. Like I said PERVERSE and BIZARRE.
Clearly Bill your interpretation of what you said is not correct, because AK’s interpretation of it is different from yours. I wonder udner whant conditions he would accept that your interpretaion of what you said was correct, and his was not?
Perhaps Marx’s interpretation of what he said in all those quotes was also wrong. Perhaps what Marx really MEANT, as opposed to what he said in numerous places is only known by AK, and was not even really known by Marx himself, who interpreted himself wrongly!
I’ve obviously given up all hope of getting my money. Lol.
Would the money you are owed be Valued at current prices, do you think or some past prices?
Stop dancing around, billj. I’ll say it again:
If you don’t like the phrasing of my question, propose your own phrasing of a question to the BEA about the MEANING OF THE BEA’S STATEMENT.
Or cough up 10 grand.
.* * *
I wrote, “‘That’s obviously not what I said.’ No. of course not. But it is what you meant.”
The master interpreter concludes from this the following: “So what’s important is not what I said – but what you say I said. And because what you say I said was not what I said then I’m a LIAR.”
This is complete bullshit. The correct interpretation of what I wrote is that what’s important is not ONLY what billj said – but ALSO what HE MEANT.
And the reason he’s a liar is not that what he said differs from what I say he said, but because he continually and knowingly writes things that are false.
For instance, he wrote “You said I was wrong when I wrote ‘the value of the asset can go up and down.’” I said no such thing and he knows it.
He wrote, “I said that it ‘can lead to a decrease in the assets value” but it can also lead to an increase.” He didn’t say that and he knows it.
He wrote, “You then said if the BEA agree with my interpretation that I had to pay you $10 grand.” I said no such thing and he knows it.
Notice that he DOES NOT dispute the actual substance of my claims that what he wrote was false, in any of these cases.
What’s dancing got to do with it? I do know what I thought, and I know it better than you.
But not only do I know what I thought I wrote it too, The sentence; “the value of the asset can go up and down’” simply does not mean that an asset can only go up.
That is true.
No reasonable, honest or even more or less accurate interpretation could think it does. And I am not a liar for saying so.
You call me a liar for not agreeing with your frankly perverse and bizarre “interpretation”.
I guess the level of vituperation is related to the tightness of your wallet. Its basically beside the point, but it is a good example of your methods of argument.
You do not argue about what people said – or indeed what is a reasonable intepretration, or indeed more or less accurate version of what they said – rather you “interpret” their words to mean just whatever the hell you like.
In this instance its to get yourself out of having to pay the dosh, elsewhere its to defend you “interpretation” of Marx.
The content is slightly different but the methods the same.
I missed the last bit. Of course I dispute it. You’re one of the most dishonest people I’ve ever had the misfortune to virtually meet.
So exactly how would YOU interpret Marx’s statement,
“The value of every commodity – thus also of the commodities making up the capital – is determined not by the necessary labour-time contained in it, but by the social labour-time required for its reproduction. This reproduction may take place under unfavourable or under propitious circumstances, distinct from the conditions of original production. If, under altered conditions, it takes double or, conversely, half the time, to reproduce the same material capital, and if the value of money remains unchanged, a capital formerly worth £100 would be worth £200, or £50 respectively,”
so as it not to mean what it says, which is that existing Capital, which was formerly worth £100, now becomes worth either £200 or £50, depending upon the “altered conditions” “distinct from the conditions of its original production”?
How exactly would YOU interpret all those other staements in Chapter 6, of Vol III, where Marx describes the consequences of changes in the price of cotton, on all the existing cotton at different stages of the production process of a textile Capitalist?
But the point is Marx is dealing with social laws – not individual laws. The capitalists in Capital represent examples of the social type. This is the basic problem with Kliman’s whole “theory” (though he doesn’t like that word), its an application of neo-classical individualism and comparative statics to Marxism.
No wonder its a mess.
Just so that no one thinks that billj has a point here, I note that my alleged “application of neo-classical individualism and comparative statics to Marxism” is no more than an unsubstantiated allegation.
billj, I used your example and offered a different interpretation. Maybe you could expand on how your interpretation aggregates to become a social law.
Also this discussion seems to be deteriorating rapidly, can we reset and move forwards on a more comradely fashion.
The answer is simple, and was given by Marx himself. If an individual Capitalist operates with an historic Value for his capital, and proceeds on that basis he will go bust. Unfortunate for that individual Capitalist, but irrelevant for Capital as a whole.
As Marx sets out, it is frequently the case that such Capitalists go bust. Other capitalists pick up the Capital which they have accumulated, but buy it at its current Value, and on that basis are able to make a profit.
The Capitalist may go bust, but his Capital will not die with him. Another Capitalist will pick it up at its new depreciated Value, as Marx says and continue production. The rate of profit will then correctly be calculated on this new depreciated Value not on what the first Capitalist paid for it.
In fact, as marx also points out. What Capitalists frequently do in such conditions is to try to use the machine more intensively, so it wears out more quickly. For example, coal merchants and otehrs who used horses for deliveries found they increasingly could not compete with those who used motorised transport. The former worked the horses harder, and tended to then repalce the horse when it was knackered with a lorry.
So (and I address this specifically to Graham) let me try to re-represent my case in a way that doesn’t get bogged down in model building.
What I find ambiguous and misleading in Marx can be highlighted, I think, by this passage. “The definition of constant capital given above by no means excludes the possibility of a change of value in its elements. Suppose that the price of cotton is one day sixpence a pound, and the next day, as a result of the failure of the cotton crop, a shilling a pound. Each pound of the cotton bought at sixpence, and worked up after the rise in value, transfers to the product a value of one shilling (my emphasis); and the cotton already spun before the rise, and perhaps circulating in the market as yarn, similarly transfers to the product twice its original value. It is plain, however, that these changes of value are independent of the valorization of the cotton in the spinning process itself. (…)The change in value in the case we have been considering originates not in the process in which cotton plays the part of means of production, and which it therefore functions as constant capital, but in the process in which cotton itself is produced.” (again, my emphasis)(Capital I, 317-18, Penguin edition 1976).
It is this and similarly passages that have encouraged Marxists to reprice constant capital based on replacement prices, rather than employ the actual values that entered into the production process. But what social force compels capitalists to do so? To the extent that each user of cotton has on hand a mixture of the cheap and expensive cotton, isn’t it more likely that the final product reflects an average price of the cotton input that occurred over time? If s/he instead tried to reprice output according to the full replacement price of cotton, s/he would surely lose market share to those who showed some self restraint. And, I suspect, would, in short order be compelled roll back prices to some middle ground.
Even if one were an unfortunate late comer and had to work completely with the more expensive cotton, market conditions would only permit a fraction of that to be realized on the market place in a selling price. Rather than setting the price, and allowing all other producers to realize profit differentials, this capitalist would simply have to realize less profit; those fortunate to have on hand only the cheap cotton would conversely reap additional profits. But it is the capitalist with the average mixture of new and old cotton that determine the market value of the output. I think this is the interpretation that is most consistent with the labor theory of value and most consistent with other familiar aspects of Marx’s presentation.
A rejection of this for a “full replacement price” approach is an exercise in a variant of marginalism.
We can run the logic of Marx’s presentation in reverse to see that cheapening of the elements of constant capital, done along the lines suggested by Marx in the above passage, overstates the compensatory effects it may have on declining profitability. The rate, with which the value of a unit of means of production falls, is – in my opinion – much slower than the rate with which productivity in department I grows.
Here’s my interpretation of the passage and a very similar in vol. 3 (Penguin ed., p. 207) :
“These passages clearly repudiate historical-cost valuation, but that is not in dispute. As discussed above, both the simultaneist interpretations and the TSSI deny that already existing stocks of commodities retain their original values after the change in the price of cotton. They both hold that the change in the cotton’s price causes a revaluation of the already existing stocks (the ‘cotton spun [into yarn] before the rise’ in the price of cotton, and the cotton that is ‘still in the warehouse’ prior to being employed in production as a raw material). The previously spun yarn and the warehoused cotton now have the same values as the most recently produced yarn and cotton, respectively.
“The TSSI may at first seem incompatible with the end of the first passage, since Marx states that the value transferred from the cotton to the yarn rises retroactively, after the cotton entered production. Yet since the yarn was previously produced, ‘spun before the rise’ in value, while the sole controversial question is how the value of newly produced commodities is determined, there is actually no incompatibility.
“If anything, these two passages seem to support the TSSI rather than the replacement-cost interpretation. They seem to suggest that more value is transferred from cotton to yarn because the cotton is worth more when it enters production; it is ‘worked up after the rise in value.’ In order to specify the amount of value the cotton transfers, Marx tells us its price when it is worked up. The information that the replacement-cost interpretation deems necessary––the cotton’s price when the yarn is completed––is never mentioned.”
(Reclaiming Marx’s Capital: a Refutation of the Myth of Inconsistency, p. 98)
This “interpretation” is nothing of the kind. You re-write Marx to make him fit your theory. The labour spent cannot change its value obviously, but its product can change its value.
Not complicated.
@ billj: That a product’s value can change retroactively, according to Marx’s theory, is not the issue. Of course it can.
This is false: “This ‘interpretation’ is nothing of the kind.” My interpretation is certainly an interpretation.
This is also false: “You re-write Marx to make him fit your theory.” Neither in this case nor in any other do I re-write Marx. I interpret his theories and texts, and the results differ from your (apparently unfalsifiable) interpretation. Because you evidently can’t tell the difference between your interpretation and the texts themselves, you wrongly charge that an interpretation that’s at variance with yours is at variance with the texts.
Of course, my interpretation might indeed be at variance with the texts (it isn’t, but in principle it might be). But that would have to be shown, and you have done NOTHING to
show it. Nor will you ever be able to show it, because your appeals to “the texts” are in fact, always and inevitably, appeals to YOUR INTERPRETATION of the texts. So all you can ever show is that you have a different interpretation, which we already know.
You can’t show that your interpretation is correct, because the method by which you try to do so is to take a text and apply your interpretation to it. And then, lo and behold, the text (as you interpret it) confirms your interpretation. This is circular and question-begging.te your interpretation, be appeals to
“That a product’s value can change retroactively, according to Marx’s theory, is not the issue. Of course it can.”.
In which case your insistence that the value of the original investment cannot change is meaningless. The value of the original investment cannot change, but the thing it has been invested in can change. The value of the original labour cannot change, but the value of the product that it was incorporated in can change.
Hence historical values can be priced at current prices. Why not just give up?
@ billj:
Your response is ridiculous.
“The value of the original investment cannot change, but the thing it has been invested in can change.”
This is far from meaningless. It means exactly what it says. You buy a bond for $10,000. Your investment is $10,000. You get $500 interest at the end of 1 year. But meanwhile, the price of the bond has fallen to $500. Your rate of return isn’t $50/$50 = 100%. It’s -90%. In other words, your assets (bond + interest) are worth only 10% of the value that you invested.
“The value of the original labour cannot change, but the value of the product that it was incorporated in can change.”
In Marx’s theory, labor doesn’t have value.
“Hence historical values can be priced at current prices.”
The “hence” is bullshit. Your conclusion (which is false) doesn’t follow from anything.
Why don’t you learn the difference between value and use-value, for god sakes?
So now we have moved entirely away from Marx’s theory based on commodity production, to the favoured ground of the Neo-Classical economist, that of the Stock and Bond Markets.
The laws that determine the prices of Stocks and Bonds are quite different to those determining commodity production, so this example is absurd. What Marxist analysis is concerend with is the process of Capital formation and reproduction. That is with the production of Surplus Value, and its re-investment in on going productive activity. That is quite different from the concern with looking at discrete periods of production as though this reflected the true nature of Capitalism.
But, even were we to take the example given it does not entirely fit the requirement AK wants of it. If we look at the position in the way a Marxist rather than a neo-classicist would then for Capital as a whole, we would find that a fall in the price of the Bond from $10,000 to $500 provides them with an excellent investing opportunity. Now each Capitalist will make a 100% return on each $500 investment they make in these now much cheaper Bonds, and so the overall “Rate of profit” on such investments will soar!
If we take the instance even of the original investor, then if their intention is to generate income – which is more in tune with the purpoise of capitalist production – rather than Capital Gain, then over time, they will also be able to utilise their $50 Yield, to each year buy an additional Bond, which previously would have cost them $10,000. That may well be the case for a Pension Fund, for instance. If we take a 40 year investment period, then this may well mean that overall returns are much higher than had the price of the Bond and the Yield on it remained unchanged!
This illustrates nicely what I was talking about. Your examples never seem to refer to the production of commodities. Previously you wrote about a building that was never sold, now your write about interest income on a fictional financial asset.
The point is that the historical value that you talk about no longer exists from the moment it has been incorported into means of production. What matters then is the value of the means of production, not the nominal value of the original investment. As Marx is dealing in social types, not individuals, the individual can make a loss on these price fluctuations, while other individuals will make a profit. These will balance out however, as surplus value arises in production not circulation. I’m not sure what use value or exchange value has to do with it.
Your point is that the historical value cannot change. That’s not my interpretation it is what you said earlier. My point is simply that this historical value can change as it has no existence apart from the means of production it is invested in.
Like I said, once you accept that the means of production and the product can change price you theory is pointless.
I used to work for a small company that produced protective clothing. If we had proceeeded on the basis you describe here we would have gone bust. The price I had to take into account in determining the price of the overalls, was not what we had paid som time in the past for the cloth we had in stock, but what I would now have to pay to replace. Without buying in new stock, the Company could not function, and the only means of bringing in the necessary Working Capital to replenish that stock, was by pricing the overalls accordingly, even though they were produced with old stock, not new.
But, in turn, the suppliers of cloth to us, would base their prices on what they would have to pay for the yarn needed to replace that used up in their own production, and for the same reasons. In turn, the suppliers of yarn would base their selling prices on what they would have to pay for their new stock of cotton. When prices are rising rapidly as they were in the 1970’s when I was working at this firm any failure to price on that basis would have rapidly led to cash flow problems and bankruptcy.
Why not address the example you gave?
Its quite clear that there is no reason why the fixed capital should depreciate by 1 each cycle.
That’s the origin of the so called “inconsistency” in Marx’s work. You basically say that a certain amount of value vanishes (for no good reason) and in order to resolve this inconsistency (the inconsistency you introduced) you need to value the output before the introduction of the inconsistency you introduced.
Not very convincing is it really?
It cannot work in that way for one simple reason, the cotton used up in production has to be replaced or else the capitalist cannot continue production. If the capitalist does not recoup the new cost of the cotton in their existing sales, they will not generate sufficient Exchange Value to buy the cotton needed to replace that used up. Marx sets out the effects of individual Capitalists with varying amounts of cotton at different stages of production, in the quote I have provided in another comment.
If Capitalists did what you say then the overall consequence, in so far as it did not bankrupt any of them because of having insufficient working Capital to buy replacement stock would be that the rate of profit in the sector would fall below the average. Capital would be withdrawn, prices and profits would rise. If the price of cotton remained stable after the change then the amount of Capital, and the Rate of Profit would be restored to the avergae level, and prices would rise to the new level.
You might as well argue on the basis you put forward here, why do not individual Capitalists accept a lower than average rate of profit in order to win margin share. The answer is, of course, that some do, but we are looking here at things at an abstract level of Theory, rather like the way orthodox economics does with the concept of the free market, and each firm being a price taker. Introducing the complication of monopoly here, would only cloud the issue.
On Interpretive Norms
billj writes,
“Under what conditions would I be prepared to change my mind? Under the conditions where evidence had been presented that proved me wrong.”
Why am I not surprised?
His answer begs the question (petitio principii). As I noted in Reclaiming Marx’s Capital: a Refutation of the Myth of Inconsistency (p. 61):
“in the absence of a clear criterion of interpretive adequacy, it is impossible to specify the conditions that would falsify one’s interpretation. Over the years, I have asked many critics of Marx and/or the TSSI to specify such conditions, but none has done so. The ‘best’ answer I have received is that they would abandon their interpretations if new evidence came along that contradicted them. This answer clearly begs the question. Under what conditions would they be willing to concede that the new evidence does contradict their interpretations? To this question there has been no answer.”
Boffy writes,
“To apparently wilfully read this text as saying that Marx was not arguing that the original Capital is revalued makes me wonder whether there are any conditions under which AK would admit that his formulations are at odds with those of Marx!”
and asks, “Under what circumstances would AK be prepared to admit that his formulation on all these issues is at variance with that set out by Marx?”
Answer: If it is demonstrated that my interpretation is unable to make different parts of the texts cohere. This answer is explained and justified at length in chap. 4 of RMC.
@ Boffy: Under what conditions would you be willing to acknowledge that your interpretation of Marx’s concept of how advanced capital is determined is incorrect?
Where you could clearly show that Marx says what you claim he says. Show me where he says the Value of commodities – which is what Fixed and Constant Capital are – is determined by what someone paid for them, whenever they bought them, rather than what the current average socially necessary labour time required for their production determines.
Just words. Or if you want to get Freudian projection. You accuse everyone else of things you do.
@ billj: This is the sort of brilliant response I’ve come to expect from you. There are either conditions under which you’d be willing to concede that the evidence shows that your interpretation is incorrect, or there are no such conditions. If there are no such conditions, then you’re a dogmatist. If there are such conditions, you haven’t told us what they are. If you don’t do so promptly, we’ll have no choice but to conclude that you are evading the issue and that you are, in fact, a dogmatist.
But the paradox is that you accuse everyone else of what you do. Freud had it nailed.
@ billj: you write, “But the paradox is that you accuse everyone else of what you do.”
This is complete bullshit. There are indeed conditions under which I’d be willing to concede that the evidence shows that my interpretation is incorrect, AND I’ve clearly specified what those conditions are.
I accuse you and Boffy of NOT doing what I do.
J’accuse.
Well that’s as to be expected. You obviously accuse us of what you do. Like I just said.
But, you have not set out any conditions under which you would accept that your interpretation is wrong.
@ the Physicalists:
Imagine that corn is produced by means of corn (used as seed) and living labor, nothing else. The value added by living labor is L. Owing to a crop failure, 10 qtrs of seed corn are planted at the start of the year, but only 9 qtrs are harvested at the end.
You maintain that the value of a commodity is determined by the post-production replacement cost of the means of production plus the new value added by living labor. Let’s call the per-qtr value of the commodity (corn output) ‘v’. The post-production replacement cost of the means of production (seed corn) is also ‘v’.
Thus, on your interpretation of Marx’s theory,
10v + L = 9v
so that
v = -L.
Hence, it must be the case that either
(a) L is negative, which means that, CONTRARY TO WHAT MARX ARGUED, the farmworkers’ labor subtracts value rather than adding it,
or
(b) v is negative, which means that a negative amount of labor is needed to produce a qtr of corn. This is MEANINGLESS, since there’s no such thing as a negative amount of labor. Thus, on your interpretation, Marx’s value theory leads to meaningless results.
I stand corrected. There’s a third possibility, too.
(c) L = 0 and v = 0, which means that (i) CONTRARY TO WHAT MARX ARGUED, the farmworkers’ labor does not add value, AND (ii) no labor is needed to produce a qtr of corn, which is FALSE, since the farmworkers did labor in order to produce the corn output (even though, on your interpretation, their labor did not add any value).
There is another option, which is that you fail to think these things through properly. The actual relation is 10v + L = 10v +L. The Constant Capital is revalued to reflect the fact that the labour time required for its production has increased. But, that is also reflected in the selling price of the corn too, whose Value is determined by the average socially necessary labour-time required for its production!
Marx’s theory continues to hold. Undder what condiitons would you accept that you are wrong?
That’s wrong too. Its clearly possible for farmers to make a loss due to crop failure. Great Recession anyone?
@ billj: your reply is puerile. That farmers can make a loss is not the issue. Read what I wrote CAREFULLY. Your interpretation is at stake here.
Puerile? I think not. Your method is straightforward, you do not address what people wrote you attribute them arguments that suit you. I do not maintain that “You maintain that the value of a commodity is determined by the post-production replacement cost of the means of production plus the new value added by living labor. ”
I maintain that the value of the commodity is based on the socially necessary labour time required for its production at current market prices. Clearly this can go up and down. So while labour has been incorporated into the corn, as the price has crashed the value of that production can be lower than the cost of the inputs.
That’s what happens in a recession. Like I pointed out in my review, one of the paradoxical results of your theory is to rule out the possibility of recession.
You produce a smoothed series that brushes away actual capitalist crisis.
This is because you do not treat the capitalists in these theoretical examples, as representing social types, but rather as individuals. Instead of a living dynamic changing system you adopt the neo-classical method of comparative statics.
As we’ve seen with the bet – you have no compunction about re-writing what your opponents have said to suit your purpose.
Not only will you not address the points at issue – but you won’t pay your debts either.
Crap huh?
@ bill j: You write, “I maintain that the value of the commodity is based on the socially necessary labour time required for its production at current market prices.”
Okay, imagine that corn is produced by means of corn (used as seed) and living labor, nothing else. The value added by living labor is L. Owing to a crop failure, 10 qtrs of seed corn are planted at the start of the year, but only 9 qtrs are harvested at the end.
What is the per-qtr value of the corn, as “based on the socially necessary labour time required for its production at current market prices.”
Hic Rhodus. Hic Salta.
To answer this question you would need to know how much labour time is required to produce the 10 quarters of seedcorn used as Constant Capital. Given that there has been a crop failure, the amount of labour-time required to produce it would clearly be higher than it was at the beginning of this cycle. If we assume that it required 10 hours of labour-time to produce the original 10 qtrs, but now after the crop failure it requires 12 hours, then the Value of the Constant Capital used up will have risen by 20%, and this will be passed through into the price of the Corn produced. So, if previoulsy we had:
C10 + V2 +S2 = E 14, with a rate of profit of 16%, we will now have,
C12 + V2 +S2 = E16, with a rate of profit of 14%.
Your point is?
There’s obviously no answer – unless we know what the market prices are. Veni, Vidi, Vici.
billj wrote:
“There’s obviously no answer – unless we know what the market prices are.”
Oh, this is precious. Now we have an interpretation of Marx’s value theory–MARX’s–in which the value of a commodity is NOT determined by average amount of labor needed to produce the commodity, i.e., the amount of value transferred from used-up means of production plus the new value added by living labor. Instead, it is determined by market prices!
What determines the sum of the prices? Competition? Marginal utility? Time preference?
Imagine that the per-qtr market price of corn at harvest time is $4. Corn is produced by means of corn (used as seed) and living labor, nothing else. The value added by living labor is L. Owing to a crop failure, 10 qtrs of seed corn are planted at the start of the year, but only 9 qtrs are harvested at the end.
What is the per-qtr value of the corn, as “based on the socially necessary labour time required for its production at current market prices,” and what is the amount of new value added by living labor?
Hic Rhodus. Hic Salta.
But Bill, he’s clearly wrong anyway. He confuses the 9 qtrs of physical output with 9v of value. If there is a crop failure which reduces output, increases the labour-time required, then prices will rise as they always do with a food shortage. The value of the output of corn will not be 9v, which means its price would have to have remained constant, but will be 10v +L!!!
The argument in relation to seedcorn is bizarre. You confuse the physical output of corn with its Value!!! If the Capitalist begins with 10 qtrs of corn, and a crop failure leads to an increase in the amount of labour time required to produce corn, then its Value goes up!
Good point. Looks like Kliman’s the “physicalist”!
You begin with 10 qtrs of wheat, and say some of this goes to pay the workers. Let us assume that 2 qtrs of wheat are required to cover the value of Labour Power. As you have not mentioned any Surplus Value appropriated by the Capitalist in this instance, I will assume that under the given conditions of production, workers are only able to just cover the Value of their Labour Power.
Let us assume that in the previous cycle i.e. under the conditions of productivity in which this 10 qtrs was produced, it took 10 hours to produce a qtr. In value terms, we would then have had:
C 80 V20 S0 = 100. However, you set out changed conditions of production under which instead of 10 qtrs of wheat being produced in 100 hours, only 9 qtrs of wheat can be produced i.e. productivity of labour has fallen by 10%. But, in that case, it is quite clear that if previously Labour could only just reproduce its own cost, then under these new condiiotns it is not able to do even that i.e. the capitalist has to pay the worker more for his subsistence than the worker is able to produce in new Value, that is the Capitalist makes a loss from employing the worker under these conditions. That is similar to the situation, that marx and engels describe in relation to slave societies where the slave was unable to produce even enough food etc. to cover his own subsistence, and therefore, where the slaveowner would have had to make up the difference by a reduction in his own store.
As a result of the drop in productivity it new requires 11 hours not 10 to produce a quarter of corn.
If we apply the new Values, we would then have in approximate figures:
C (8 qtrs) 88 + V (2 qtrs) 22 + S – 11 = E (9 qtrs) 99
As the subsistence requirements of the workers is set in physical terms i.e. they cannot live on less than 2 qtrs, the drop in productivity means that the rise in the price of corn necessarily increases the Value of Labour Power from 20 to 22 units. So, the worker not only produces a smaller physical quantity during the period, but and because of this, the part of the day required to reproduce the workers themselves also increases.
And, of course, this loss suffered by the Capitalist is manifest in the next cycle. Rather than being able to even continue production at the old level, let alone expand production, he is faced with the necessity to contract production. The 99 units of exchange Value he obtains from the sale of his 9 qtrs is only able to buy 7 qtrs of corn to use as seedcorn (Constant Capital), and to pay the workers the 2 qtrs of Corn required for their wages. And as well too, because there is only 9 qtrs of corn available to be used in this way!
@ Boffy. No, I don’t “begin with 10 qtrs of wheat, and say some of this goes to pay the workers.” I say that “10 qtrs of seed corn are planted at the start of the year, but only 9 qtrs are harvested at the end.” Any corn wages that the workers receive are in addition to the 10 gtrs that are planted as seed.
So your calculations don’t address my example.
Then you should tell us from where the workers are paid! Either way it will make no substantive difference to the outcome will it. The reduction in the productivity of Labour you describe will mean that the Capitalist makes a loss, and it is that loss, which in Value terms is deducted from the Constant Capital and Variable Capital laid out, which then results in the Value of the final production of 9 qtrs.
This Value is then only able to buy sufficient new Constant and variable Capital at the new price of 11.1111 units per qtr. The loss suffered by the Capitalist of 11.111111 units in Value terms, is equal tio 1 Qtr of corn, and oh look the physcial data you provide also shows that the Capitalist starts with 10 qtrs of corn, and ends up with 9 qtrs of corn, or a loss of 1 qtr. Go figure!
And the question is
“What is the per-qtr value of the corn, as “based on the socially necessary labour time required for its production at current market prices,” and what is the amount of new value added by living labor?”
Your C, V, S, E calculations don’t address these questions.
You can assume anything you want for the labor-time required to produce the 10 qtrs of seed corn, as long as it’s a positive amount.
On the basis of the inadequate information you have provided, let us continue to assume that in addiiton to the Constant Capital of 10 qtrs in seedcorn, the production of the 9 qtrs requires an addiitonal 2 qtrs to compensate the workers for their Labour. If we continue with the assumption that in the previous cycle a qtr took 10 hours labour-time, then now the labour-time required under the reduced condiiotns of productivity means that it requires 11.1111 hours to produce, which is its new value, answering your first question.
The Total Output is then made up as follows:
C (10 qtrs) 110 + V (2 qtrs) 22 + S -33 = E 99.
Under these very adverse conditions it is clear that if the cycle begins with 10 qtrs, and ends with only 9 qtrs, the additional Labour Power has not added new value, but rather has diminshed the existing Value over and above what it then requires for its own reproduction. So, there is a consequent loss to the Capitalist of 3 qtrs, with a Value of 33 units.
This is no different than a slave owner who begins with 10 quarters, and provides his slave with 2 qtrs, and ends up with only 9 qtrs. He laid out a total of 12 quarters to get back just 9, making a loss of 3 quarters, thereby in the process.
In the following cycle the Capitalist would buy with the 99 units of Value:
C (7 qtrs) 77 + V (2 qtrs) 22, thereby consuming all of the output of 9 qtrs. Production would have been contracted by 3 qtrs equal to the capitalists loss, or 33 units.
So the new value added is -11.111… HOURS OF LABOR. But the workers work for a POSITIVE number of hours.
So a positive number of hours of labor adds a negative number of hours of labor to the value of the product (as Marx explained in volume -1 of Capital). This is a labor theory of unvalue.
The amount of new value the workers’ labor adds is -11.111… hours of labor, no matter how much or how little they work they produce the 9 qtrs of corn. So the value of the commodity is not influenced by how much labor is pumped out of them, but on how much physical output they produce (as Marx explained in volume -1 of Capital).
This is also the case if the corn output is greater than the amount of seed corn planted. Assume that in the previous cycle a qtr of corn took 10 hours of labor-time to produce, and that, in this period, 10 qtrs of seed corn are planted while X qtrs are harvested, where X > 10. The per-qtr value of the corn depends on the numerical value of X, but it doesn’t depend on how much labor is pumped out of the workers independently of that (as Marx explained in volume -1 of Capital).
AK’s response to my solution to his hypothetical, mathematical model shows precisely what is wrong with his argument based on historic pricing rather than Exchange Value. He complains that my solution to his hypothetical model involves in positive expenditure of Labour resulting in negative net Value added, which he says contradicts Marx. But, Marx was dealing with the reality of Capitalist production, not the hypothetical mathematical model that AK puts forward, which has nothing to do with Capitalist Production! In fact, the opponents of the Labour Theory of Value have always relied on these unreal mathematical models to make their cases. It has always been the case that part of the Marxist response to such Neo-Classical arguments, is precisely that they are removed from the reality of Capitalist production. At least when the Neo-Ricardians such as Ian Steedman attacked the LTV on the basis of Sraffian economics they did so by the front door. What AK’s argument amounts to is a covert neo-classical attack on the LTV by the back door. That is demonstrated not just in relation to his arguments in relation to historic price and Exchange Value, but in his return to the Trinity Formula of Adam Smith in relation to the determination of Output Values. But, let me deal with AK’s objections.
What he constructs is a Corn economy, where Corn acts as the Money Commodity. Constant Capital (Seed Corn) is purchased with the Corn Money Capital in the hands of the Capitalist. Variable Capital (Wages) are also paid for in Corn Money out of the hands of the Capitalist. As we have this two commodity economy – Corn and Labour Power – the Value of Labour Power is determined by its physical requirements for Corn (2 qtrs).
So, the Capitalist begins the cycle with Corn Money Capital equal to 12qtrs, which is paid out as described. At the end of the production process, the Capitalist has a Corn Money Capital equal to just 9 qtrs! Now, most rational people would see at first glance that our Capitalist has in fact made a loss equal to 3 qtrs of Corn Money. This loss is in fact, reflected in the fact that in the next cycle rather than simple reproduction, or even expanded reproduction, what we have is contracted production. The capitalist has suffered a loss of his productive Capital. The product of his activity, will now only purchase slightly more than 7 qtrs of seed corn, and slightly fewer workers than were previously employed, signifying unemployment.
If we look at the prices we can arrive at the following information. If previously it took 100 hours of labour time to produce 10 qtrs of Corn, that gives a Value per qtr of 10. We can see that now, 10 hours of labour-time that was embodied in the seed corn, and 2 hours of labour-time that was embodied in the wages, have been required to produce just 9 qtrs. In other words, Labour Productivity has fallen, and it now requires 13.3333 hours of labour to produce a qtr of Corn, a rise in price of 33.3%. If we use the historic pricing model it is possible to arrive at a solution in which the Capitalist does not make the loss, which everyone can visibly see they have actually made.
If we price the inputs at historic prices, but price the output at current prices, we would have:
C 100 hrs. + V 20 hrs. + S 0 = E 120.
But, the point is, does this solution provide a Marxist with any useful information about Capitalist production as a process within this economy? It would normally be expected that in a situation where a Capitalist breaks even, I.e. where the inputs used in production create sufficient Value in the Final Output to reproduce themselves, then reproduction in the next cycle would proceed unaltered. But, clearly that is not the case here!!! A break-even for the Capitalist as presented by the historic pricing method, results in contracted production in the following cycle!! The use of Exchange Values to determine the Values of the inputs according to their repalcement costs, in fact picks out the true state of affairs in which the capitalist has suffered a loss equal to three qtrs. Of Corn Money Capital, and is thereby forced to contract production in the following cycle.
Moreover, it is not true to say that the Labour has not added Value. The Value of each unit of output has risen from 10 hrs, to 13.3 hrs, which is a reflection of the lower level of productivity of Labour. Labour has added value to each unit of production, but the fall in the total output of units in the example, more than offsets that the value added by Labour.
But, the example is removed from Capitalist reality. We do not have economies where there is just the production of Corn and labour Power, and where the Corn then acts as Money. So, in reality, it is impossible to resolve this hypothetical mathematical model in a realistic way, because it is impossible to arrive at sensible conclusions in relation to the Value of Labour Power, which would be affected by the prices of all other wage goods, for instance. But, it is unrealistic in another sense. Capitalist production is divided into discrete periods in the way AK and other neo-classical economists describe. It is a continual process. So, even in an economy such as that described, workers would not be paid at the beginning of the year as a one off payment. They would be paid weekly or monthly, and if productivity in this economy was falling as a result of bad harvests then the Value of Labour Power would be continually rising as a consequence, meaning that the monetary payment to those workers would need to rise accordingly. Even if we allow for payment in kind, this amounts to the same thing, because that same falling productivity means that the Corn paid to the workers as wages, in constant physical terms, would, in fact, represent steadily rising Exchange Value! But, of course, the same is true for Constant Capital in the real economy, it is being continually turned over, as well as being tied up in the way that Marx describes, and its exchange value is constantly changing as a consequence. Marx’s method of basing the analysis of this complex process on Exchange Values rather than historic prices captures that reality, the Neo-Classical, Comparative Statics method used by AK does not.
@Boffy
“A break-even for the Capitalist as presented by the historic pricing method, results in contracted production in the following cycle!! The use of Exchange Values to determine the Values of the inputs according to their repalcement costs, in fact picks out the true state of affairs in which the capitalist has suffered a loss equal to three qtrs. Of Corn Money Capital, and is thereby forced to contract production in the following cycle.”
Well said! The irony being that AK’s example actually supports replacement cost as it identifies the obvious loss that has occurred. So much for all the talk of an interpretation that fits with reality.
Boffy wrote, “AK … complains that my solution to his hypothetical model involves in positive expenditure of Labour resulting in negative net Value added, which he says contradicts Marx. But, Marx was dealing with the reality of Capitalist production, not the hypothetical mathematical model that AK puts forward, which has nothing to do with Capitalist Production! … It has always been the case that part of the Marxist response to such Neo-Classical arguments, is precisely that they are removed from the reality of Capitalist production. … What he constructs is a Corn economy … the example is removed from Capitalist reality. … it is unrealistic in another sense. Capitalist production is divided into discrete periods in the way AK and other neo-classical economists describe. …Marx’s method of basing the analysis of this complex process on Exchange Values rather than historic prices captures that reality, the Neo-Classical, Comparative Statics method used by AK does not.”
He may be interested in studying Marx’s corn models–from which he draws ANTI-PHYSICALIST conclusions–especially the one that starts on p. 267 (last full para.) of volume 3 of Marx’s _Collected Works_. It’s summarized and discussed in section 6.4.4 of Reclaiming Marx’s “Capital”: A Refutation of the Myth of Inconsistency, along with Marx’s other anti-physicalist corn models. (BTW, Marx does not complain about the alleged lack of realism of the examples.)
As I noted in my discussion of this corn model,
“Marx thus suggests that, contrary to Ramsay’s claim, both the amount of profit and the rate of profit are the same in Years 1 and 2, despite the rise in productivity.
“These conclusions are incompatible with the replacement-cost interpretation. If we use the seed corn’s replacement cost in Year 2, £1/qr, to compute the value it transfers to the product, profit would exceed £80. Used-up constant capital would constitute a smaller share of the output’s total value of £200, and thus surplus-value or profit would constitute a larger share, even if variable capital is assumed not to change. Marx’s conclusion that profit remains £80, despite the rise in the physical surplus from 40 qrs to 140 qrs, is valid only if the value transferred from the seed corn is determined by its pre-production value of £2/qr.”
While I’m at it, consider another of Marx’s corn models. Colonel Torrens had argued that “The farmer expends 100 qrs of corn and obtains in return 120 qrs. In this case, 20 qrs constitute the profit.” In response, Marx (Collected Works, vol. 32, pp. 268–69, emphases in original) agreed that
“120 qrs of corn are most certainly more than 100 qrs,”
but he denied that this
“increase in quantity constitutes profit, which is applicable solely to exchange value, although exchange value manifests itself in a surplus produce.
“As far as exchange value is concerned, there is no need to explain further that the value of 90 qrs of corn can be equal to (or greater than) the value of 100, that the value of 100 can be greater than that of 120, and that of 120 greater than that of 500.”
Your physicalist interpretation is flat-out incompatible with Marx’s conclusion.
I didn’t say Marx objected to the unrealism of others models, but that Marxists have objected to the kind of Neo-Classical models you develop.
No one doubts that Marx is correct that 90 qtrs of wheat can be more valuable than 100 qtrs of wheat, if we are talking about different time periods. But, in the same time period they have the same value, as marx sets out in all of his examples.
Your response simply does not deal with the obvious reality which all can see that in your Corn Money economy, the Capitalist began with a Capital equal to 12 qtrs of Corn Money, and ended it with a Capital of only 9 qtrs of Corn Money. You do not have to be a genius or even an economy to understand that this represents a loss to the Capitalist equal to 3 qtrs of Corn Money.
Squirm how you like that is the inescapable conlcusion of your own model!
Boffy: “I didn’t say Marx objected to the unrealism of others models, but that Marxists have objected to the kind of Neo-Classical models you develop.”
Neo-classical models like Marx’s corn models.
Boffy: “No one doubts that Marx is correct that 90 qtrs of wheat can be more valuable than 100 qtrs of wheat, if we are talking about different time periods.
That’s NOT what he was talking about. He’s responding to Torrens, who wrote, “The farmer expends 100 qrs of corn and obtains in return 120 qrs. In this case, 20 qrs constitute the profit.” SAME time period. Marx says that the 100 qrs of corn can be worth more than the 120 grs. This flat out contradicts your physicalist interpretation.
Boffy: “But, in the same time period they have the same value, as marx sets out in all of his examples.”
False! See THIS example and see the other corn model I cited, WHICH YOU HAVE NOT COMMENTED ON. Why?
Boffy: “Your response simply does not deal with the obvious reality which all can see that in your Corn Money economy, the Capitalist began with a Capital equal to 12 qtrs of Corn Money, and ended it with a Capital of only 9 qtrs of Corn Money. You do not have to be a genius or even an economy to understand that this represents a loss to the Capitalist equal to 3 qtrs of Corn Money.”
False: There’s no “corn money” in the examples, mine or Marx’s.
Boffy: “Squirm how you like that is the inescapable conlcusion of your own model!”
False. I’m not squirming, because you’re incorrect.
Marx uses pounds sterling, and so will I. £1 is the monetary expression of 1 labor-hr. The pre-production price (= value) of corn is £1/qr, and workers work 2 hrs. 10 qrs of corn–not corn MONEY–are planted, while 9 are harvested. Thus
C = £10 = 10 labor-hrs
new value added = £2 = 2 labor hrs
total value of output = £12 = 12 labor-hrs
Note that, in contrast to Boffian economics, in Marx’s theory the new value added is positive, precisely because workers work a positive number of hours. Boffian economics would have us believe that the post-production price is £x/qr, where x > 0 and that new value added by living labor is -£x, which is negative.
But, you have completely distorted what Marx’s argument against Torrens is here. Marx writes,
“120 quarters of corn are most certainly more than 100 quarters. But—if one merely considers the use-value and the process it goes through, that is, in reality, the vegetative or physiological ||787| process, as is the case here—it would be wrong to say, not indeed, with regard to the 20 quarters, but with regard to the elements which go to make them up, that they do not enter into the production process. If this were so, they could never emerge from it. In addition to the 100 quarters of corn—the seeds—various chemical ingredients supplied by the manure, salts contained in the soil, water, air, light, are all involved in the process which transforms 100 quarters of corn into 120. The transformation and absorption of the elements, the ingredients, the conditions—the expenditure of nature, which transforms 100 quarters into 120—takes place in the production process itself and the elements of these 20 quarters enter into this process itself as physiological “expenditure”, the result of which is the transformation of 100 quarters into 120.
Regarded merely from the standpoint of use-value, these 20 quarters are not mere profit. The inorganic components have been merely assimilated by the organic components and transformed into organic material. Without the addition of matter—and this is the physiological expenditure—the 100 qrs. would never become 120. Thus it can in fact be said even from the point of view of mere use-value, that is, regarding corn as corn—what enters into corn in inorganic form, as expenditure, appears in organic form, as the actual result, the 20 quarters, i.e., as the surplus of the corn harvested over the corn sown.”
Marx – Theories of Surplus Value
In other words Marx is objecting that the 100 have not simply become 120, meaning 20 profit, because Torrens has not takn into consideration all of the other “addition of matter” involved in the production process!!! He is demonstrating that from a Use value, perspective Torrens is wrong, because the 100 does not magically transform into 120, because the constitutes of the other 20 are already present in other form in the production process! This has nothing to do with the point at issue, and suggests you clearly do not udnerstand what marx was talking about. He goes on,
“As far as exchange-value is concerned, there is no need to explain further that the value of 90 quarters of corn can be equal to (or greater than) the value of 100 quarters, that the value of 100 quarters can be greater than that of 120 quarters, and that of 120 quarters greater than that of 500.”
But, it is clear that Marx here is talking about these quarters at different periods of time, about there expenditure being determined by different quantities of labour-time being expended upon their production, rather than simply being a function of their quantity. What Marxist would disagree with that? Clearly you do, as you want to present this as meaning that these identical commodities existing contemporaneously can have different values!!!
No, I’m talking exactly what Torrens and Marx are talking about. “The farmer expends 100 qrs of corn and obtains in return 120 qrs.” The value of the 100 qrs of corn input > the value of the 120 qrs of corn output.”
Boffian rhymes with Sraffian.
Give us the actual quote where Marx says that. He says no such thing as the full quote from that passage I’ve quoted shows. he takes issue with Torrens claim that the 100 qtrs planted (Use Value) magically turns into 120 qtrs, (Use Value), and thereby produces a profit of 20 Qtrs (Use Value). Marx says, no, the other 20 qtrs of Use Value, already exists in other Use Values in the soil etc.
If you do not understand this basic bit of what Marx is saying I don’t see how you can understand anyhting of his writings, which I am increasingly coming to think must be the case.
Marx does not anywhere in that quote say that Torrens is wrong because 100 qtrs of corn can in the same time period be worth more than 120 qtrs of corn!!! He says, Torrens is wrong because he does not take into consideration the fact that other material is added to the 100 qtrs, and this added material forms part of the process which turns 100 into 120!
I’ll tell you what if you think that 100 qtrs of wheat can contemporaneously be worth than 500 quarters, me and Bill and Graham will club together for the 100 qtrs, and you give us 500 in exchange. Or better still we’ll get 100 ounces of Gold, and you give us 500 ounces in return.
There clearly is Corn Money in your example. The Capitalist bought the Constant Capital with the Corn Money in his possession, and did likewise with the paymnt for Labour Power! he began with 12 qtrs of Corn Money and ended with 9. A loss of 3 qtrs of Corn Money.
Now of course, as I previously stated, you can use an historic pricing model in the way you have done, which results in the Capitalist breaking even. But, as I stated previously how does that benefit a marxist analysis which is concerned with udnerstanding the real processes going on in a Capitalist economy, on the basis of an on going process? It doesn’t. In fact, because the prices of Corn and labour Power as commodities have risen, the Value of your £1 has fallen, whereas you assume it remains constant. In oterh words you suffer from money illusion.
Let us suppose the workers, for example, took the weekly portion of the Wages they have been given, and came to buy the Corn necessary for their subsistence. But, in the current cycle, where the price of Corn is determined by the changed condiiotns of production arising from the crop failure, they will find that each time they come to exchange these £’s, those £’s are worth less, because the price of Corn is rising. In fact, in a ral economy this would be true of the Constant Capital too.
But, even if we adopt your neo-Classical approach of treating the economy as being divided into discrete periods to be analysed by comparative statics, and only look at the situation at the end of the cycle, what will we find. We will find that the £ has been devalued, because the price of Corn and labour power has risen by 33.3%! So, the workers, and the Capitalist will find that these pounds go only a fraction of the way to purchasing the Corn required.
production in the second cycle will be reduced accordingly reflecting the fact that the Capitalist actually DID make a loss on the first cycle, a loss which the Marxist interpretation draws out, and explains, and which the neo-classical approach of AK mystifies.
I think got it right the first time Boffy. There is no answer to this question for a Marxist as it is posed in physicalist terms. We do not know what the value of the corn is just the amount of use values produced. Without the relevent information Kliman can make up any answer he likes.
And of course he does!
AK says “So the value of the commodity is not influenced by how much labor is pumped out of them, but on how much physical output they produce (as Marx explained in volume -1 of Capital). ”
That’s true that value/price of each individual unit of output is affected by the amount of labour time contained in them.
But the value of the total product is certainly influenced by how much labour is pumped out of them.
Kliman confuses the price of the individual unit with its social aggregate.
The rate of profit is based on the aggregate of the total amount of units produced, in other words the total value output, or what Marx called the Annual Value Product.
Kliman’s example is not about the thing we’re talking about, the impact of productivity on the rate of profit, but the price of the individual unit. Once you separate movements in price from the value aggregates, you fall into the trap of neo-classical comparative statics.
The point is that for a Marxist the value of output can rise or fall separate from the physical quantity of use values produced. AKs example assumes their identity. That’s basically what’s wrong with it.
In that sense it reproduces the faults of his entire method. The separation of the amount advanced from its value form, in other words the insistence that the amount of value advanced cannot change, while the value of the thing that it is invested in – its only physical existence – can change.
No wonder its so confusing.
A correction to what I wrote on January 19, 2012 at 11:46 pm. It SHOULD read:
So the new value added is -11.111… HOURS OF LABOR. But the workers work for a POSITIVE number of hours.
So a positive number of hours of labor adds a negative number of hours of labor to the value of the product (as Marx explained in volume -1 of Capital). This is a labor theory of unvalue.
The amount of new value the workers’ labor adds is -11.111… hours of labor, no matter how much or how little they work they produce the 9 qtrs of corn. So the amount of new value added by living labor is not influenced by how much labor is pumped out of them, but on how much physical output they produce (as Marx explained in volume -1 of Capital).
This is also the case if the corn output is greater than the amount of seed corn planted. Assume that in the previous cycle a qtr of corn took 10 hours of labor-time to produce, and that, in this period, 10 qtrs of seed corn are planted while X qtrs are harvested, where X > 10. The amount of new value added by living labor depends on the numerical value of X, but it doesn’t depend on how much labor is pumped out of the workers independently of that (as Marx explained in volume -1 of Capital).
volume -1 of Capital).
This is where AK’s wrong;
“This is also the case if the corn output is greater than the amount of seed corn planted. Assume that in the previous cycle a qtr of corn took 10 hours of labor-time to produce, and that, in this period, 10 qtrs of seed corn are planted while X qtrs are harvested, where X > 10. The amount of new value added by living labor depends on the numerical value of X, but it doesn’t depend on how much labor is pumped out of the workers independently of that (as Marx explained in volume -1 of Capital).”
AK says that the amount of new value added depends on the quantity of use values produced “The amount of new value added by living labor depends on the numerical value of X,” That’s just wrong. The amount of use values changes independently of the amount of labour expended on their production. The amount of value absolutely does “depend on how much labor is pumped out of the workers independently of that”. AKs theory ditches the labour theory of value by the back door. That’s not surprising, his theory of money has already separated the universal equalivalent from its material commodity form. It took a while but finally we’re getting to the heart of it.
There’s a good quote from Marx here;
“The value of a commodity would therefore remain constant, if the labour time required for its production also remained constant. But the latter changes with every variation in the productiveness of labour. This productiveness is determined by various circumstances, amongst others, by the average amount of skill of the workmen, the state of science, and the degree of its practical application, the social organisation of production, the extent and capabilities of the means of production, and by physical conditions. For example, the same amount of labour in favourable seasons is embodied in 8 bushels of corn, and in unfavourable, only in four. The same labour extracts from rich mines more metal than from poor mines. ”
http://www.marxists.org/archive/marx/works/1867-c1/ch01.htm
Is it possible for labour to destroy value? Of course. Let’s say that the baker owns 10 (£/hours) of corn. The baker labours for 2 to make loaves of bread total value now 12 (£/hours). But those loaves of bread to not sell. The value incorporated in both the corn and the bread are destroyed. Total value now 0. The bakers 2 hours of labour have destroyed the corn, value 10, the corn cannot be made into anything else, now it is in the form of unwanted bread. Labour has destroyed value.
Yes, that’s right. The premise of AK’s example is dubious as it seems to conflate the production of commodites with what can happen to the commodites post-production – when value can be destroyed. The capitalist ends up making a loss.
Correction: “It should read Capitalist production is NOT divided into discrete periods…” above.
I can’t find AKs reference in my penguin edition or online, can you say the section and I’ll look it up?
Quote from AK;
“While I’m at it, consider another of Marx’s corn models. Colonel Torrens had argued that “The farmer expends 100 qrs of corn and obtains in return 120 qrs. In this case, 20 qrs constitute the profit.” In response, Marx (Collected Works, vol. 32, pp. 268–69, emphases in original) agreed that
“120 qrs of corn are most certainly more than 100 qrs,”
but he denied that this
“increase in quantity constitutes profit, which is applicable solely to exchange value, although exchange value manifests itself in a surplus produce.
“As far as exchange value is concerned, there is no need to explain further that the value of 90 qrs of corn can be equal to (or greater than) the value of 100, that the value of 100 can be greater than that of 120, and that of 120 greater than that of 500.”
That’s absolutely true, the value of 90 qrs of corn can be equal to or great than the value of 100. But not at the same time! This obviously assumes a change in price! If the value of corn rises by more than the proportionate fall in the quantity of corn, of course the lower mass of corn can be of a higher price than the previous higher mass of corn.
Since when has this been news?
Obviously the mass of 90 could be worth more than the mass of 100 if the price of corn had risen in the period, by more than the decline in the mass. Whats news?
Kliman’s not really claiming that this has got anything to do with his theory of the unchanging price of the fixed capital stock?
Is this the best you’ve got? Must try harder.
Bill, he seems to have completely lost the plot, because he actually IS now argumuing that 100 units of a commodity can be worth more than 500 contemporaneously!!!! I’ve suggested we will exchange 100 ounces of Gold with him, for 500 ounces if he’s so convinced about that argument.
Mind you given that he still owes you that 10 grand, I suppose there’s no chance of him coming up with the goods on that either.
How much is he asking for this book? If you get get away with this kind of nonsense and sell it, I think me, you and Graham should get together and write a decnet book, we’d make a fortune!
Boffy, you still haven’t dealt with MARX’S ANTI-PHYSICALIST CORN MODEL example against Ramsay. I suggest that you do that, rather than engaging in unhelpful diversions.
UNDER WHAT CONDITIONS WOULD YOU BE WILLING TO CONFESS THAT YOUR INTERPRETATION IS INCORRECT? You haven’t answered that question either. I suggest that you do so, rather than engaging in unhelpful diversions. If you don’t do so, everyone will know that you’re a dogmatist. And I’ll stop this discussion, because, if there’s no chance that I will demolish your interpretation to your satisfaction, there’s no point in discussing it.
And you still haven’t explained how the workers can work for a POSITIVE number of hours but add a NEGATIVE number of hours of new value (in terms of labor-time) to the product. I suggest that you do so, rather than engaging in unhelpful diversions. And I suggest that you and your cronies stop the insults.
What might help is this: THINK SERIOUSLY about the possibility that everything you think you know is wrong. That explains why your interpretation faces these insoluble logical and exegetical problems. Because you seem resistant to the most obvious explanation–everything you think you know is wrong–you grasp at straws for an explanation, blaming me for the insoluble logical and exegetical problems your interpretation faces. But I’m only the messenger.
And I suggest that you and your buddies cut out the insults.
And I suggest that you stop saying that I owe billj money. You know damned well that I’ve asked him numerous times to propose a question to the BEA in order to resolve the question of what they meant in their text, but he has carefully evaded this challenge. Might that have anything to do with the fact that NO way of posing the question to the BEA will get them to respond that the MEANING “The value of an asset changes as the result of depreciation and revaluation” is that the asset’s value can go up or down? And might it have anything to do with the fact that billj would be morally obligated to fork over $10,00–real money, not your “corn money”–when they fail to respond in that way?
Yes, of course these are the reasons.
Please acknowledge that, far from it being the case that I owe billj money, I’ve asked him numerous times to propose a question to the BEA in order to resolve the question of what they meant in their text, but he has never done so. If you do not acknowledge this promptly, I will not discuss anything further with you.
Sounds to me like you know you have lost the debate hands down, and you are looking for an exit. I can’t find the discussion on Ramsay you are talking about. Please provide a link to the exact quote, and I’ll respond to it. However, I did find the the quote in relation to Torrens, and it quite clearly DOESN’T say what you claimed it says, as the full quote of what Marx actually says demonstrates!
There is no contradiction in workers expending concrete labour, and the end result of their activity leading to a negative amount of Value being created. It happens all the time, its why firms make losses. Under your interpretation it would be impossible for a firm to ever make a loss, because so long as Marx’s requirement that new labour preserves the Value in the Constant Capital, they work with, then any new amount of labour time added to it will mean a profit. But, its quite clear that there are numerous occasions where the addition of labour results in a reduction in Value, precisely ebcause we are talking about socially necessary labour time, which is not the same as embodied labour-time. Just as surplus Value is relative to the new value added by Labour, whether it is extracte by Absolute or Relative Surplus Value), so if the amount the capitalist has to pay to workers in wages is greater than the new Value added, the consequence will be a loss. There are lots of occasions where, for example, the addiiton of labour destroys the Value of the Constant Capital because the product is in some way unsellable. The labour-time actually expended in both Constant and Variable Capital is then as Marx describes – not socially necessary, and cannot find its realisation on the market!
It is you that has the unsolvable dilemma to deal with, and your attempt to skirt round it by insisting on the payment in your example in £’s only compounds it.
If we take the situation you have described now, we have a previous cycle in which 10 qtrs of Corn have been produced that enter the new cycle as Constant Capital. The labour-time expended for that production was 100 hours = 10 hours/£’s per quarter.
The Capitalist expernds this £10/hrs for C. He then employs Labour to plant, and harvest this Corn. It requires 2 qtrs of Corn for its subsistence. As Marx insists it is the physical amount of means of subsistence that is determinant, not its Exchange value. A worker cannot live on one loaf of break a year, just because it is a very expensive loaf! So the value of Labour Power goes up and down detremined by the price of the necessities required for its reproduction. So on your historic cost model the Capitalist pays these workers £20, which is the historic cost of the Corn they need to live. But, the failing harvest means that the price of Corn, which enters Value of labour power then continually rises. As the workers come to spend this £20 of wages, throughout the year as they tend the growing Corn, they find that they cannot buy the 2 qtrs, precisely because its price is rising due to the falling productiviy of their own labour. If the cycle were short enough, and they could just wait until its end, in order to buy the 2 qtrs of Corn, they would find that the price of the Corn has now risen from £10 per qtr to £13.3333 per qtr. Their wages would not buy the necessary 2 qtrs required for their subsistence, and so you will have breached the requirements of the LTV and of Marx that commodities exchange at their Values!
Incidentally the Capitalists themselves also recognised that fact, which is why as Marx describes, in the 19th Century it was common for employers to fine workers for any breakages or faulty production, because they recognised that otherwise they would have suffered a loss not just of the Labour-time expended in immediate labour, but also that in the Constant Capital that was now destroyed, and of the potential Surplus value that would have been appropriated!
Boffy
This is snide and childish. I object to you using this blog to conduct a (private) conversation with those you agree with against AK as though he were not there. Why can’t you guys conduct an intellectual debate on an important issue without all this sneering? I don’t think it helps clarify anything but apparently just makes you feel better. I shall be entering the fray at a later date, but not while this tone of debate is predominant. Take a rest!
Michael,
I began this debate by showing the greatest respect for other participants. I focused on providing facts, arguing logical positions, and providing links to any quoutes, so they could be checked. I am happy to proceed with a debate on that basis. However, it was AK who began introducing snide comments and childishness such as his bet of $10,000 against BJ, and many other such instances. there comes a point when the best of us can only stand that for so long before responding in like manner. I’d suggest you ask AK to keep his own house in order if you are going to ask others to do the same.
I think this is the quote. After making his points about the changes in the quantity of corn produced Marx continues;
But these considerations, in themselves, have as little to do with the question of profit, as if one were to say that lengths of wire which, in the production process, are stretched to a thousand times the length of the metal from which they are fabricated, yield a thousandfold profit since their length has been increased a thousandfold. In the case of the wire, the length has been increased, in the case of corn, the quantity. But neither increase in length nor increase in quantity constitutes profit, which is applicable solely to exchange-value, although exchange-value manifests itself in a surplus product.
As far as exchange-value is concerned, there is no need to explain further that the value of 90 quarters of corn can be equal to (or greater than) the value of 100 quarters, that the value of 100 quarters can be greater than that of 120 quarters, and that of 120 quarters greater than that of 500.
Thus, on the basis of one example which has nothing to do with profit, with the surplus in the value of the product over the value of the capital outlay. Torrens draws conclusions about profit. And even considered physiologically, as use-value, his example is wrong since, in actual fact, the 20 quarters of corn which form the surplus product already exist in one way or another in the production process, although in a different form.”
Marx is clear – this example has “nothing to do with profit,, with the surplus in the value of the product over the value of the capital outlay.i”.
http://www.marxists.org/archive/marx/works/1863/theories-surplus-value/ch20.htm
Of course in the Klimanesque interpretation, when Marx said this had nothing to do with profit, surplus value or the value of the capital outlay – what he actually meant was that this was all about profits, surplus value and capital outlay. On this “interpreation” Kliman then developed his theory of profits, surplus value and capital outlay.
More nonsense.
I found that quote, and have responded to it accordingly. It has nothing to do with the question at issue, and its clear that Marx does not say what AK claims. The quote I cannot find is the one he refers to from CW3 in relation to Ramsay. It would be useful to provide links to any quotes that are being used, so that everyone can refer back to it themselves rather than rely on someone else’s “interpretation”.
Boffy
Fair enough. We should all exercise a reasonable level of respect for each other. We are all on the side of angels after all, even angels can disagree.
If the discussion is going to continue, then everybody should deal with the issues rather than denigrating people’s motives or personalities. And avoid insults.
The argument that AK put on 19th January that a positive number of labour hours results in a negative amount of new value created is false. If the workers worked for 10 hours then they add 10 hours of new value. The point is that if with the sharply reduced level of productivity the Value of Labour Power has risen to 20 hours i.e. they require 20 hours of Corn production to meet the costs of their own reproduction, the new value they create will be less than the cost of their own reproduction i.e. the NET new value will be negative, the Capitalist will make a loss, not a profit.
As I set out that is no different than a slave owner who finds that the cost of feeding his slaves is greater than the food produced by those slaves.
@AK
Where is ‘s’ in your example? We are discussing capitalist production which means commodity production and the value of a commodity must include the surplus value.
Just as buying and selling a financial asset, a house or my car is not about capitalist production.
In Marx’s theory, the value of a commodity is determined independently of the magnitude of surplus-value.
In your example, is L = (paid + unpaid hours) of living labour?
Can you answer this please. It’s important for the *meaning* of your example and the conclusions that can be drawn from it – particularly as you purposely chose a failed harvest rather than a bumper year.
AK hasn’t replied to the most straightforward of questions. In other places I’ve attempted to engage with his work and there has been no response.
On the cheapening of the elements of constant capital he referred me to a page in his first book. I then did him the favour of quoting from it on this blog and there has been no attempt to debate it.
I’ve also tried to get to grips with the circumstances under which he does and doesn’t agree with current replacement cost – from his first book – and again there has been no attempt to debate it.
As AK has refused to debate…
AK said on January 19, 2012 at 4:07 am:
“@ the Physicalists:
Imagine that corn is produced by means of corn (used as seed) and living labor, nothing else. The value added by living labor is L. Owing to a crop failure, 10 qtrs of seed corn are planted at the start of the year, but only 9 qtrs are harvested at the end.
You maintain that the value of a commodity is determined by the post-production replacement cost of the means of production plus the new value added by living labor. Let’s call the per-qtr value of the commodity (corn output) ‘v’. The post-production replacement cost of the means of production (seed corn) is also ‘v’.
Thus, on your interpretation of Marx’s theory,
10v + L = 9v
so that
v = -L
….
L is negative, which means that, CONTRARY TO WHAT MARX ARGUED, the farmworkers’ labor subtracts value rather than adding it, ”
This is an important example for the temporalists (which is why AK chose crop failure, not success) as they claim that the apparent absurdity of labour subtracting value refutes replacement cost. Well, algebra is algebra, but is the premise of the question meaningful? Does it illustate anything about capitalist production – can it happen in this way?
I would answer no. What circumstances could lead to labour time being expended by living labour that results in the loss of a unit of corn? Either:
1. The labour produced 10 or more units of corn during the ACTUAL period of production but one or more units of corn were destroyed BEFORE or AFTER production. For example, a fire in the warehouse.
2. The question implies a sleight of hand, that LABOUR destroyed the unit of corn when a crop failure can occur for many reasons that are exogeneous to your closed corn producing model and thus invalidates it e.g. drought or flood.
3. Your claim, that productivity declined in this period of production relative to the previous period. But now you have to decide if your corn production represents ONE corn producer or the WHOLE corn producing sector of the capitalist economy?
If it is one corn producer, then so what? They introduced a new method of sowing and irrigation that failed RELATIVE to the other corn producers in the sector. But the value of corn is determined by the average conditions of production across the WHOLE sector.
If your example represents the entire sector then you’d have to suspend reality of capitalism as many competing capitals and assume that ALL the corn producers in the sector simultaneously introduced the failed method of production. And if you extended it to the whole economy, capitalism would never have survived this long.
The premise of your example falls but the temporalists insist that this model is a commonplace scenario within capitalism.
But, as I’ve also shown Graham, the requirement insisted on by AK that any positive expenditure of Labour must result in a postive addition of Value means that he always has to have a positive Value for whatever the output is, even were the crop to fail completely, which means an output of 0 would still have a positive Value!
Ah yes Boffy, just read the later posts and you’re quite right. His model leads to the absurd position of zeo corn output (total crop failure) being valued at £120 because the value transferred from input to output MUST be the historic cost of the inputs, the concrete labour objectified in them.
I think there are more than enough reasons to dispel the idea that this particluar corn model refutes replacement cost. AK said that we have to provide numbers. I’m all in favour of empirical data research but he’s confused real economic data with made-up numbers in a model. Of course this can be done, but you have to be very careful that the numbers model the real capitlist economy.
Also, I think your distinction between caital gain/loss and profit/loss is very attractive, paricularly the house example. If I’ve got it right, for temporalists, if your house falls in price you have made a ‘loss’. Who could disagee but this ‘loss’ is a capital loss and is nothing to do with the rate of profit because buying and selling houses is not capitalist production as no labour has been employed. When we look at capitalist production, constant capital gain/loss is something quite different to the rate of profit based on value.
Graham,
Its not that the Capital Loss has nothing to do with the Rate of Profit, but that it has nothing to do with the quantity of Profit/Loss. It DOES have something to do with the rate of profit – this is the point Marx makes against Ramsay, precisely because the QUANTITY of Surplus Value is left unchanged as a consequnce of the change in the Value of the Constant Capital, but because this unchanged quanity of Surplus Value is measured against a changed value of the Constant Capital, it necessarily produces a changed rate of profit.
Ok. Could you provide a simple example as its getting difficult to trawl through all the previous posts to find what you want. Try and keep it as short as possible…
Graham,
I’m assuming you were asking me for an example. Its getting a bit confusing which comment is replying to what now. I’ll have a go. This is top of my head while having tea, so excuse any glaring errors.
Take a Capitalist that has a piece of fixed capital let’s say a mobile chip shop. They buy in frozen chips, fish etc., and employ a worker to process and sell them.
The Van required 1000 hrs of labour time to produce when bought. It gives up 100 hours of this Value consumed in production.
The raw materials required 100 hours when bought.
The Labour Power required 40 hours of labour-time to produce when bought.
The worker works for 8 hours.
So C (100 + 100) V 40 + S40 = E 2080. R is calculated on Total capital, equals 1140. Therefore, S/K = 40/1140 = 3.51%.
Now, changes in productivity mean the Van can be produced in half the time. So, now,
Its value falls to 500 hours. Taking on Bill’s point above and shown in the lengthier example I gave some days ago, the consequence is that the Value of the Value consumed in production also falls proprtionately to 50 hours not 100 hours. But, as marx points out this cannot change the AMOUNT of PROFIT, because whatever the Value of Constant Capital it is only ever transferred to the final commodity it does not expand or contract. Only Variable Capital has that caapcity.
So,
K (500 + 100 + 40) = 640
C (50 + 100) + V 40 + S 40 = 230.
The amount of surplus value (profit) does not change because the same amount of labour power is employed as previously, and no change in its reproduction cost has occurred. Consequently, no change in the Rate of Surplus value occurs either. But, the rate of profit does change, precisely because the Van has been revalued.
Now, K = 640 and S = 40, which gives R = 40/640 = 6.25%.
Here is my difference with Bill. He wants to account for the reduction in the value of the Van, by treating the loss of (500 hours) in its Value, as a one of loss to be deducted from Surplus Value. I do not, because it is not a change resulting from the productive activity of the Capital. It is merely a Capital Loss resulting from exogenous changes. The capitalist would have suffered this loss whether they engaged in productive activity or not.
More importantly, it is only a paper loss if you assume continuing reproduction. This is the point that Marx, makes against Ramsay. The apparent phenomenon of the added 20 qtrs appears if the farmer shuts up shop and sells everything. Here the Capitalist only suffers a loss if they stop production and liquidate their assets. But, assuming continuing production, what has the capitalist actually lost in this devaluation of the Van? When they come to repale it they will by the repalccement for 500 hours not 1000 hours, making a gain of 500 hours over the previous price, so the two things cancel out!
marx deals with this in the quote I provided from him in response to Ramsay where he talks about a capitalist whose fixed Capital lasts for 12 years, during which time its Value could go up and down several times. The capitalist then has to so order things so as to be able to esnure continuing production irrespective of whether the Capital Value has risen or fallen.
In this regard Kliman is literally a Ricardian. Or is he just applying Say’s law? Ricardo simply assumed the realisation of the product and proceeded accordingly. Say said that production creates its own demand in an absolute sense.
Kliman bases his value measures on concrete not abstract labour and as a consequence the problem of realisation is not an issue for him.
In reality his argument is all over the place. he’s more like Adam Smith, but without Smith’s justification for being wrong – in that he varies according to need his Valuation method. In practive, like Smith he uses a Cost of production method, whereby the Value of a Commodity is simply made up of the costs of the inputs that went into its production, priced at the historical rather than current prices.
That is how come he also ends up with Smith’s Trinity Formula for the Value of National Output. In this context, Surplus value (property income) is just another cost of production.
Graham,
Sorry, yes, misread part of your comment. Of course, changes in Capital Values of houses do not represent a profit or loss, nor do they have anything to do with the rate of profit, because a process of capitalist production is not occurring here – unless you are a housebuilder of course.
But, if a capitalist owns a factory, then changes in the Value of the building, whilst not affecting the profit made – which as marx again shows in the response to Ramsay – is a function of how much Labour is employed, and what the Rate of Surplus Value is – WILL affect the RATE of Profit, precisely because the given amount of Surplus value will be measured against a changed Value of Capital!
Its in this section that marx explains that the additional profit made by the Corn Farmer arises not as ramsey believed from the fact of providing his own Constant Capital (Seed Corn), but was a result of the cheapening of the Corn as a result of an abundant harvest i.e. in reality the farmer had to lay out less value (though the same 20 quarters) than in the previous cycle.
Graham,
Incientally I think its this distinction between Capital Gain and Profit, which is the root of my disagreement with Bill over whether such a devaluation causes a reduction in the Rate of profit in year 1. I think the answer is no, because its a Capital Loss not a trading loss, but I still need to think it through.
I had some argument on a site run by Miseans on this some years ago, so I have some basic feel for the argument, but need to think it through further.
A few corrections, and an important point.
Above it should read E280 not 2080, and the worker works 80 hours not 8. The following points I think clarify the whole matter.
What we have is an equation. The Value of the Commodity Total must equal the sum of the Values, which go into its production, or the equation is out of balance. The value of the commodity is determined by the amount of socially necessary labour-time required for its production currently. No one disagrees with that concept. But, what the amount of labour-time is that goes into its production varies as the amount of Labour-time required for the production of the Constant Capital varies, and as that for labour Power varies.
But, in revaluing Constant and Variable Capital, no one is saying that this changes what has actually been laid out for their purchase, only that their current Value has changed, and this current Value is important for a very obvious reason.
Suppose the cost of wage goods falls. Instead of requiring 40 hours as above, they only require 20 hours. Now, in the example above, this does not change the fact that the Capitalist has already paid the workers their wage in advance! The money he paid out – let’s say £40 – has gone, replaced with the actual worker and their labour power. In this instance, the worker is fortuitous because their £40 will now buy twice as many wage goods as previously. But, in pricing the commodity the Capitalist HAS TO price the Labour Power not at its historic cost but at its current value, because Competition will forcehim to do so. In this case, other Capitalists will reduce their prices, because they will calculate on the basis that they can buy Labour Power cheaper in the next cycle, and so it is this reduced value of Labour Power that they reflect in the price of the commodity. But, unless the Labour power is entered into the equation at that current cost, then the equation must be out of balance, precisely because it is for the purpose of repalcing it, that it was priced in the Value of the product at its current cost, not what was paid for it.
Of course, in reality prices of wage goods are rising and falling all the time, and production is a continuous process. What we are dealing here is a level of abstraction.
What determines the sum of prices – the amount of socially necessary labour time required for production, that’s the same thing as the total of market prices. At aggregates values equal prices. I had assumed you were aware of that?
You have some different theory based on unchanging historical values and prices. But you simultaneously accept that these historical values and prices can change. Not to clear is it?
You haven’t answered the question, billj.
The question is: What is the per-qtr value of the corn, as “based on the socially necessary labour time required for its production at current market prices,” and what is the amount of new value added by living labor?
This is precious: “What determines the sum of prices – the amount of socially necessary labour time required for production, that’s the same thing as the total of market prices.” What determines X is the same thing as X. So X is what determines X, and what determines X is the same thing as what determines X.
No X = Y.
Not hard.
I have answered the question. You just don’t like my answer. What’s new? Tell you what, why don’t you “interpret” it?
You HAVE NOT answered the question. The question isn’t “what determines the sum of the prices”–which is what you wrote about.
The question is:
What is the per-qtr value of the corn, as “based on the socially necessary labour time required for its production at current market prices,” and what is the amount of new value added by living labor?
To answer the question, you have to provide NUMBERS.
Hic Rhodus. Hic Salta.
Suppose a firm has a fixed Capital worth £10,000 = 10,000 hours. We could assume this is a single piece of equipment like a steam engine, part of which has to be renewed each year, or we could assume it is a horse, whose Use Value has to be continually renewed by the provision of food, adequate stabling etc. But, for ease of explanation let us assume it is made up of 10,000 identical machines, 10% of which have to be replaced each year. On this basis, and again for ease of calculation we assume that there is no depreciation of existing machines due to wear and tear or age, and no reduction in their performance or the Use value conveyed to the final product. The only depreciation then is that due to “Moral depreciation” resulting from increased productivity in the production of these machines.
So: if we Value K – Total Fixed capital in terms of the Average Labour Time required for its production as it stands at the end of each production cycle we have:
1. K = 10,000; (m) = Exchange Value of machines consumed in production = 10% of total machines; (rm) = raw materials etc. consumed during each production cycle.
C(m) 1000 + C(rm) 1000 + V 1000 + S 1000 = E 4000; R = 1000/12000 x 100 = 8.5%
If we assume that in each subsequent year increases in productivity lead to a reduction of 1,000 hours in the average socially necessary labour time required to produce 10,000 of these machines, then the replacement cost of the 1000 machines falls by £100 = 100 hours, and it is this cost (Exchange Value), which is transferred to the end commodity. But, for the reasons Marx sets out that the Value of any Commodity – including Fixed and Constant Capital – is determined by the socially necessary labour-time required for its re/production, then it cannot be just the machines that are replaced, which are so valued, but all the existing machines. Otherwise, we would have the ridiculous situation, in which identical commodities have different values, which would certainly mean abolishing the Labour Theory of Value. So, we have in subsequent cycles:
2. K 9,000:
C(m) 900 + C(rm) 1000 + V 1000 + S 1000 = E 3900; R = 1000/11000 x 100 = 9.9%.
3. K 8,000
C(m) 800 + C(rm) 1000 + V 1000 + S 1000 = E 3800; R = 1000/10000 x 100 = 10%
4. K 7,000
C(m) 700 + C(rm) 1000 + V 1000 + S 1000 = E 3700; R = 1000/9000 x 100 = 11.1%
5. K 6,000
C(m) 600 + C(rm) 1000 + V 1000 + S 1000 = E 3600; R = 1000/8000 x 100 = 12.5%.
In each cycle all necessary relationships are maintained. The reduced Value of machines to be replaced, whose Value has been transferred to the final commodity in the previous cycle, goes to the fund required to purchase these machines, and is enough to do so, no more no less. The Value of these machines remains in the same relation to the total Value of the total Fixed Capital i.e. 10%, and all these machines (as commodities) have the same Value, determined by the average socially necessary labour-time required for their re/production.
Each year the Rate of Profit rises because the Surplus Value extracted from the employed Labour Power remains the same, whilst the Value of the Constant Capital tied up in machines constantly falls, as a result of the average socially necessary labour time required for its production falling.
If we were to take the five year period as a single production cycle which is one explanation for Barry’s argument, then it is absolutely correct that the actual Labour-time embodied in the final product would be greater than what the calculation of that figure in current terms would be. But, that is to confuse embodied labour with abstract labour-time. The abstract Labour embodied in any commodity is always subject to verification by the market. For, example, a manufacturer may produce commodities by the most efficient means, but if they produce more of these commodities than are required, the labour-time embodied in the surplus commodities is not socially necessary. If a capitalist overpays for the Capital they employ for whatever reason, a Marxist analysis does not concern itself with the incompetence of the Capitalist, or their misfortune, but bases itself on the Value of that Capital determined by the average, socially necessary labour-time required for its production.
Consider a Capitalist who produced Mars Bars, but who thought that there market price might rise, and so rather than selling them, stored them for five years, so in each cycle, they fail to recover in the sale of the Mars Bars, the replacement cost of the machines used up. At the end of the five years, they come to sell this accumulated. But, if the Value of these machines has continually fallen as in the example above, the current Average Socially Necessary labour-time, required for their production will also have fallen as set out, and so the current Exchange Value, the price at which this Capitalist will be able to sell this output will be determined by it. The fact that the capitalist made a mistake, and failed to realise the Value during each cycle, will not at all change that situation. They will not be able to sell them at THEIR average labour-time expended during the five year period!
The only case in which the average over the period would apply would be if it were a single production cycle faced by all Capitalists in that industry, for example ship building. But, even here, if some new production process arose that reduced the production time down to say 1 cycle, that would still have a corresponding effect on all the capital involved in current production. It certainly applies to all Constant Capital, such as raw materials used up. As Marx puts it,
“Appreciation and depreciation are self-explanatory. All they mean is that a given capital increases or decreases in value as a result of certain general economic conditions, for we are not discussing the particular fate of an individual capital. All they mean, therefore, is that the value of a capital invested in production rises or falls, irrespective of its self-expansion by virtue of the surplus-labour employed by it…
Appreciation and depreciation may affect either constant or variable capital, or both, and in the case of constant capital it may, in turn, affect either the fixed, or the circulating portion, or both. ..
If the price of raw material, for instance of cotton, rises, then the price of cotton goods — both semi-finished goods like yarn and finished goods like cotton fabrics — manufactured while cotton was cheaper, rises also. So does the value of the unprocessed cotton held in stock, and of the cotton in the process of manufacture. The latter because it comes to represent more labour-time in retrospect and thus adds more than its original value to the product which it enters, and more than the capitalist paid for it.
Hence, if the price of raw materials rises, and there is a considerable quantity of available finished commodities in the market, no matter what the stage of their manufacture, the value of these commodities rises, thereby enhancing the value of the existing capital. The same is true for the supply of raw materials, etc., in the hands of the producer. This appreciation of value may compensate, or more than compensate, the individual capitalist, or even an entire separate sphere of capitalist production, for the drop in the rate of profit attending a rise in the price of raw materials. Without entering into the detailed effects of competition, we might state for the sake of thoroughness that 1) if available supplies of raw material are considerable, they tend to counteract the price increase which occurred at the place of their origin; 2) if the semi-finished and finished goods press very heavily upon the market, their price is thereby prevented from rising proportionately to the price of their raw materials.
The reverse takes place when the price of raw material falls. Other circumstances remaining the same, this increases the rate of profit. The commodities in the market, the articles in the process of production, and the available supplies of raw material, depreciate in value and thereby counteract the attendant rise in the rate of profit.”
Barry’s argument actually contradicts that put forward by AK. If we do Barry’s trick of taking different Capital’s from different time periods, each with different Values, and transpose them on to a similar number of Capitals in the same single time period, then we would be bound to ask, if these were identical Capital’s how can they have different Values? But, that is precisely what AK’s proposition involves. It posits the idea that what is important is not the actual Value of the Capital, but what each Capitalist paid for it. But, if we agree with barry that the Value of any commodity including Fixed capital is determined by the average socially necessary labour-time required for its production, then on what basis could all these identical Capitals existing in the same time period have different Values? They could not. The only basis on which different prices could exist contemporaneously, would be if these prices diverged from Value!
But, of course, that is precisely what AK’s theory requires us to do, it requires us to abandon Value in favour of Monetary Payment. But, on what rational basis would a Marxist base their analysis on what each individual Capitalist paid for their Capital – which here varies according to whether the individual Capitalist is shrewd or incompetent, lucky or unlucky – rather than on its Value?
Great post Boffy – but pearls before swine I’m afraid.
“It posits the idea that what is important is not the actual Value of the Capital, but what each Capitalist paid for it.”
Important for the valuation of profit, correct. What is money but a concrete store of value realised upon payment. What happens to that value thereafter is irrelevant for calculating the returns on the intial investment.
I think we are getting very off track here and reading more into a method of valuing profit than is merited.
Guys
I think it is time that we gave this thread a rest by all parties. It has been a useful debate some of the time but also worrying in tone for some of the time. We need to take a break. I suggest that all those who have already commented more than once leave it for a while (at least on this blog) and only new comments come in. If AK and BJ wish to pursue the issues (including bets), they do so by email between them, at least until they can agree on anything.
Ther’es a good critique of Kliman’s theory here,
http://critiqueofcrisistheory.wordpress.com/responses-to-readers-austrian-economics-versus-marxism/andrew-kliman-and-the-neo-ricardian-attack-on-marxism-pt-1/
Shows nothing’s new in the world.
Yes, I’ve had enough of the corn model too – an entirely untypical world where one commodity is both an input and the output.
Furthermore, we have discrete periods of production with instantaneous input to production and instantaneous consumption of the output.
When AK ‘advances’ capital its at a very specific time, its not the start of the period but the moment it enters production and excludes any time between its purchase by the capitalist and its usage in production. And the same applies to his end of period, its specifically when the output is ‘produced’ and excludes the time after production whether the output is held by the capitalist or worker before its consumed.
He accepts that the value of commodity is determined by the socially necessary time for its production – and that this can and often will be different to the labour time that was actually spent in its production – for ALL the time of the existence of the commodity (and hence he accepts current/replacement cost) EXCEPT for when the commodity is constant capital ‘in’ the production of other commodities. Does this make sense in any real way? That there is a suspension of the labour theory of value, that the value of constant capital is suddenly frozen?
In fact ‘temporal interpretation’ is a misnomer, he wants to stop changes in value over time.
But its worse than that;
He separates money from the commodity form – in fact capitalist investment always exists at its original price – because the capitalists have invested it want to make profits!
He says that the existence of the investment in the capitalists head is the real measure of value – not its actual existence in the commodity form.
He says that the same good at the same time in the same place can have different prices.
He says that additional labour can never destroy value
He says that the original price of the investment can never change – but measures it at a changed price (i.e. net of depreciation)
He says that the original price of the investment must always be measured by uses depreciation measured at current rates – and which therefore adjust values for the socially necessary labour time now
He ignores the distinction between concrete and abstract labour.
He regards the pricing of fixed capital as different from all other value, when in fact fixed value is only distinct from any other value inasmuch as it exists for several cycles of production
He confuses the use value of the object with its exchange value
And the list goes on. This is before we get started on his so called “property income”.
Forgot to say;
The alleged “inconsistency” in Marx, is an inconsistency he introduced into Marx, which he “solves” by removing the “inconsistency” he introduced!
He says that in the circuit M-C-M’ – capital can change value, the product of capital can change value – but the original money – which is now incorporated in the capital and product – cannot change value, ever.
He says that this original “M” cannot change value even after the completion of the circuit of production and the start of the next one. Hence “M” is the same in the original and every other subsequent cycle of production.
He rejects Marx’s insistence that commodities be valued at the socially necessary labour time incorporated in them.
AK’s method of determining Value, based on his insistence that any positive amount of labour time expended must be viewed as adding positive additional value, is in fact a return to Adam Smith’s Costs of production method of determining Exchange Value, which was criticised by Marx. Just because Labour was expended does not at all mean it was socially necessary. Moreover, he seems to confuse the Value of variable Capital with the amount of Value added, which is not surprising as that is the mistake smith made too. But, of course, for Marx it is precisely the difference between the labour-time required to ensure the reproduction of the Labour Power, and the socially necessary labour-time undertaken by the worker, which makes the existence of Surplus Value or its opposite a loss for the capitalist possible!
Non-physicalist readers may be interested in “Reclaiming Marx’s ‘Capital’: The Movie” @ http://youtu.be/7ajFOyBr8Bg .
A Reply To Kliman Using RAA
AK has asked myself an others under what conditions I would accept that I was wrong. I have replied to that saying that he would have to show that Marx does not say what I claim he says, or that my argument is logically inconsistent. He has done neither. On the former, he argues that it is a matter of interpretation. To a point that is always true. If I say the letters B L A C K spell black, and he says that is my interpretation, and he interprets them as spelling white it can simply be a matter that we speak different languages. But, for people speaking the same language, surely normal people would say that if the majority of people agree it says Black, and that conforms with the individual pronunciation of each letter, it is rational to agree that the former interpretation is correct, and the latter false. This is rather like the situation over Marx comments in relation to wages. For many years, the Stalinists argued that Marx argued that workers would be increasingly immiserated. As Mandel points out, Soviet economists performed all sorts of ridiculous acrobatics, to try to show that workers living standards in the West were falling not rising, in order to conform with that. But, again as Mandel points out, Rosdolsky trawled all of Marx’s works for instances of where he talks about wages, and in thousands of cases where he does so, there is nothing that supported the Stalinist contention, and only one that could in any way be used to justify the immiseration claim. It was that, of course, the Stalinists used to support their argument, ignoring all the other evidence. In fact, the immiseration claim was really an application of Lassalle’s “Iron law of Wages” against which Marx specifically spoke against in the Critique of the Gotha programme. I an others have produced a significant number of instances where on any rational basis, and in order to conform with the requirements of the LTV, Marx argues directly against the argument put forward by AK. Now, of course, AK could contend its all a matter of interpretation, but in the end that simply comes down to whether a rational person can interpret it in that way, and construct their theory upon it.
So we come to the logical test. AK has put forward a number of scenarios such as his Corn example, but I have demonstrated that even on his own terms these models are not consistent. He ends up either denying what is self evident, such as Capital consisting of 12 qtrs of Corn money becomes 9 qtrs of Corn Money, and denies that the Capitalist has suffered a loss of 3 qtrs. In order to deal with that he has to introduce a separate Money Commodity (£’s), and use it as though it has constant Value, when in fact, it is quite clear that at the end of the production process it has been devalued by 33.3%! In order to defend his interpretation of what he interprets Marx as saying in the quote he refers to in relation to Torrens he ends up arguing that 100 is contemporaneously more than 500, which is not only a complete contradiction in terms of the LTV, but a basic lack of logic. Of course, 100 can be more than 500 if the denomination units are different, including different because of time, but not identical units at the same time!
But, the test that AK sets in terms of logic also defeats his argument. Let us take the Corn example. We have the inputs Valued according to their historic price. So C £100 + V £20 + S 0 = E £120. In fact, his derivation here, and his insistence that because labour has been expended it must result in a positive addition to Value is wrong. Just like his definition of Total National Output as being divided into property Income (profits, interest, rent and taxes) and wages is a return to the Trinity Formula of Adam Smith, so his calculation of Exchange Value on the basis of the Labour-time costs of the inputs is a return to Smiths Cost of production model, which was disproved by Marx.
On the basis of this Total Exchange Value of £120, AK then is left with a situation in which the capitalist breaks even, despite the fact that it is plain to see that his Capital has shrunk by 3 qtrs of Corn! The basis of his argument is that the 9 qtrs of Corn sold have a Higher Exchange Value, than the 12 quarters of Corn implied at the beginning of the production process. Of course, in reality according to his latest contortion, the workers were not paid in advance in Corn, but were paid in £’s. But, this means that their wages would have to be higher than that he originally specified, because, the workers will be buying future Corn as they work, and the price of this future Corn is higher than it was when they were paid the £20. They cannot buy the Corn of today at the price of the Corn yesterday! So even at this stage his argument fails logically. But, it can be shown to break down even more catastrophically.
It is, of course, true that the individual Exchange Value of each unit of output rises, as the labour-time required for its production rises. That is adverse production conditions – a failed harvest – mean more labour has to be expended to obtain a given quantity of output. So, as output fell to 8 qtrs. 7 qtrs 6 qtrs and so on the price of each qtr would rise. This of course, is not the same thing as the total Value of that output rising! But, AK’s argument can be shown to fail catastrophically by Reductio Ad Absurdum.
If we continue to reduce the output, we will eventually arrive at a situation where the output is zero. A completely failed crop. Because, AK insists that the Value of the output is determined by the concrete labour-time embodied in the inputs of this production (£100 in Corn and £20 in Labour), and because he insists that the Value added by Labour must always be positive we end up with the ridiculous situation in which we have ) qtrs of output whose value is £120!!!! The Exchange Value of a Qtr of wheat is 120/0 = ∞!!!
But, the current reproduction cost model of Marx can deal with this situation, precisely because it values the output on the basis of the Labour-time required for its production, and is not constrained by the Cost of production model used by Smith and AK. What is the socially necessary labour time required for the production of 0 qtrs of wheat, it is 0. On this basis the actual Exchange Value of the Constant Capital and variable Capital employed in this production is also 0, because any expenditure was not socially necessary, it is completely wasted. We would then have C0 + V0 + S0.
Now AK may object that this leaves the capitalist in the position of having laid out Capital of £120, and getting nothing back, so he has made a loss of £120, not zero. But, this is to make the same mistake that most Neo-Classical economists make, which is to confuse Capital Gain/Loss with profit/Loss. The former is a consequence of changes in the actual Value of Capital or an asset, whilst the latter is the consequence of the extraction of Surplus Value, or the failure to do so i.e. to pay Labour at its Value, whilst that labour produces new value of a smaller amount.
For, example. If the capitalist has the £100 of Corn, and keeps it in a store. Then if a year later the conditions of Corn production have deteriorated such that a Qtr of Corn now has an exchange value of £12 not £10, his Corn will now be worth £120 not £100. But, this additional £20 is not profit in the Marxist sense, it has not arisen as a result of the extraction of Surplus Value, because no Labour Power has been applied to it. It is a Capital Gain. The same thing causes confusion to people in elation to house prices. A house that was worth £100,000 last year, and is today worth £120,000 has not produced a profit for the owner (unless the change in value is due to improvements made to it) but is merely a Capital Gain. If the owner sells it, and seeks to replace it with an identical house they will find they are no better off, because the price of that will have risen too.
In the example above, the Capitalist does not make a loss, but suffers a Capital loss, as a result of the capital they bought having been devalued.
I have now found the section on Ramsay, which is in Vol 33 not 3 as was cited by AK. But, agains Marx here differs from AK. The relevant section is:
“Ramsay remarks correctly:
“Wages … as well as profits, are to be considered each of them as really a portion of the finished product, totally distinct in the national point of view from the cost of raising it” (op. cit., p. 142).
“Independent of its results, it” (fixed capital) “is a pure loss… But, besides this, labour … not what is paid for it, ought to be reckoned as[r] another element of cost of production, Labour is […] a sacrifice […] The more of it is expended in one employment, the less … for another, and therefore if[s] applied to unprofitable undertakings … the nation suffers from the waste of the principal source of wealth… the reward of labour ought not to be considered as[t] an element of cost” … (loc. cit., pp. 142-43).
(This is quite right: labour, and not paid labour or wages, must be considered as an element of value.)
Ramsay describes the real reproduction process correctly:
“In what manner is a comparison to be instituted between[u] the product and the stock expended upon it?… With regard to a whole nation… It is evident that all the various elements of the stock expended must be reproduced in some employment or another, otherwise the industry of the country could not go on as formerly. The raw material of manufactures, the implements used in them, as also in agriculture, the extensive machinery engaged in the former, the buildings necessary for fabricating or storing the produce, must all be parts of the total return of a country, as well as of the advances of all its master-capitalists. Therefore, the quantity of the former may be compared with that of the latter, each article being supposed placed as it were beside that of a similar kind” (loc. cit., pp. 137-39).
As regards the individual capitalist
since the stock expended by him is not replaced in kind, because “the greater number [of its elements] must be obtained by exchange, a certain portion of the product being necessary for this purpose. Hence each individual master-capitalist comes to look much more to the exchangeable value of his product than to its quantity” (loc. cit., pp. 145-46).[v]
||1092| “… the more the value of the[w] product exceeds the value of the capital advanced, the greater will be his profit. Thus, then, will he estimate it, by comparing value with value, not quantity with quantity. This is the first difference to be remarked in the mode of reckoning profits between nations and individuals” (loc. cit., p. 146).
”
Marx On Ramsay
A bit of the quote was missed. Marx continues:
“”
I’ll try again.
For some reason the quote is not appearing. I’ve given the link to the section above. In it Marx makes clear that what is relevant is the reproduction cost not the historic cost. He says the nation can calculate the labour time required to reproduce the Constant Capital used up and that consumed by Labour.
In his response to Ramsay, marx makes his view that it is current Value not historic Value that is determinant in relation to calculation of the Rate of profit, he illustrates it by showing the situation of a new Capitalist entering production following changes in the Value of Constant Capital. he writes,
“Accumulation has taken place in the one case although the value of the capital advanced has remained the same (but its material elements have been increased). The rate of creating surplus-value increases, and the absolute magnitude of profit increases, because the effect is the same as if additional capital had been advanced on the old scale. Accumulation has taken place in the other case insofar as the value of the capital advanced, i.e., that part of the value of the total output which functions as capital, has increased, But the material elements have not been increased. The rate of profit falls. (The amount of profit only falls if either a different number of workers is employed or if their wages rise as well.)
This phenomenon of the conversion of capital into revenue should be noted, because it creates the illusion that the amount of profit grows (or in the opposite case decreases) independently of the amount of surplus-value. We have seen that, under ||1096| certain circumstances, a part of rent can be explained by this phenomenon.
In the way mentioned above (that is, if the remaining 20 quarters worth £20 are not used immediately to extend the scale of production, i.e., if they are not accumulated), a money capital of £20 is set free. This is an example of how redundant money capital can be extracted from the reproduction process although the aggregate value of commodities remains the same, namely, by a portion of the capital which existed previously in the form of fixed (constant) capital being converted into money capital.
How little the above phenomenon [conversion of a portion of the capital into revenue] has to do with Ramsay’s determination of the rate of profit, becomes clear if one considers the case of a farmer (or manufacturer) who enters business under the new conditions of production. Formerly he needed £120 to enter the business: £40 to buy 20 quarters of seeds, £40 to buy the other ingredients of constant capital, and £40 to pay wages. And his profit was £80. 80 on 120 is equal to 8 on 12, or 2 on 3, or 66 2/3 per cent.
He now has to advance £20 to buy 20 quarters of seed, £40 as previously [to buy the other elements of constant capital], £40 to pay wages, so that his outlay of capital amounts to £100. His profit is [£]80, that is, 80 per cent. The amount of profit has remained the same, but the rate of profit has increased by 20 per cent. Thus one can see that the fall in the value of seed (or of the price which has to be paid to replace the seed) has in itself nothing to do with the increase in [the amount of] profit, but implies merely an increase in the rate of profit.”
I made the following request to Boffy:
“Please acknowledge that, far from it being the case that I owe billj money, I’ve asked him numerous times to propose a question to the BEA in order to resolve the question of what they meant in their text, but he has never done so. If you do not acknowledge this promptly, I will not discuss anything further with you.”
He has not acknowledged this promptly. It is clear to me from this, and what has come before, that I am engaged in a discussion with people who are not discussing in good faith.
Moreover, I’ve received the following communication from a very reliable source, which provides additional support for this conclusion:
“Arthur Bough (boffy) stalks websites, where his presence metastasizes until he is finally banned. He always behaves this way and it is impossible to have a meaningful dialog with him. He was banned from the AWL website for this behavior just a few years ago.
“As your well wisher, I urge you to let that ******* get the last word and move on to some actual fruitful endeavor.”
So I’m out of here. He can Boff someone else.
For the record: my subsequent silence does not mean that I am unable to effectively refute everything that he, etc., say. I can certainly do so. But only under PROPER conditions. When one establishes, for instance, that
“far from it being the case that I owe billj money, I’ve asked him numerous times to propose a question to the BEA in order to resolve the question of what they meant in their text, but he has never done so”
but this fact is not ACKNOWLEDGED as having been established, the proper conditions are absent. It becomes impossible to refute anything.
Michael asked us to act with respect, which I ahve agreed to do, and the response is an outright lie, and personal attack by Andrew Kliman. None of his comment has anything to do with any of the points at issue, and whatever he says, it is clear that he has looked for a way out, because his position was no longer sustainable.
He should state WHICH websites I have stalked, and been banned from. The facts are well known, and many of those facts have been contained on my own website. As a former member of the AWL’s predecessor organisations, I was asked some years ago if I would like to write a Blog for them, after I had remade contact. I did so for several years, during which time it was clear that on a range of issues I had fundamental disagreements with their current positions. It was only at this point, and as some of the arguments I had been raising in relation Iraq, were also taken up by the Minority in the AWL, that I began to be told that I was writing too much. No such complaint had been made a year or so earlier whn I was writing copious amounts for them defending their position in respect of the Danish Cartoons, of course.
The asked me to conform to certain limits on how much I wrote, down to a ridiculously small number of words. I com,plied with those requests, but had my account closed by them. When i raised that they claimed it had been a technical error, and it was restored. But, like many other people who have written comments to the AWL website that they find uncomfortable to deal with, they simply delete commenst willy-nilly. In fact, I was not banned form the AWL website, I decided that under those conditions of Stalinist censorship and tactics, there was no point bothering with them.
Far from being banned by otehr websites, I have been asked to write articles for the Weekly Worker, and for permanent Revolution, and I regularly contribute to those discussions boards, without anyone ever suggesting that I was “stalking” them, or threatening to ban me. In fact, many of the things i have written on my Blog, have also been picked up and referred to by otehr organisations on the left, as part of tehir discussion programmes.
Clearly, AK has no intention either of acting respectfully in the way Michael requested, and has resorted once more to the kind of slurs that are all to frequently experiecned amongst some sections of the Left, when they cannot answer the criticisms of their position.
Incidentally, rather than hiding behind the supposed “reliable source” who provied you with this thoroughlly libellous information, you should provide the actual examples of what websites I have supposedly stalked and been banned from. If you cannot do that, you should immediately retract this libellous statement, or provide the name of the “reliable source”, whose identity I can probably guess anyway, in order that they can justify their allegations.
Don’t worry Boffy, he’s blatantly lost the argument so he’s running away.
Its clear to anyone who can read, that it’s been Kliman who was rude. It was Kliman who made the stupid bet – and lost. It was Kliman who won’t address any of the quesions.
But most importantly its Kliman who’s theory doesn’t stand up to close scrutiny.
Funnily enough I’ve just remembered I was banned from the AWL web board too – but in that case it was because I objected to the fact that they’re Zionists who supported the USA occupying Iraq and the Israelis bombing Iran.
AK has referred to the section of Theories of Surplus Value Pt3, where Marx deals with the theories of Ramsay. Having read the section he refers to, I can see nothing in it that supports AK’s position. On the contrary, the whole of Marx’s argument in this section is to demonstrate the way in which the Rate of profit is raised as a result of a depreciation in the Vlaue of Constant Capital, the very thing that AK denies, because he confuses Capital i.e. that employed in the production process (raw materials, machines etc and Labour Power) for the Money that was paid for them. This is the heart of his confusion, as it was with Ramsey. Near the beginning of his account in this regard, Marx makes it clear.
“On the other hand, Ramsay again confuses the purely material element of the fixed capital thus defined with its existence as “capital”. Circulating capital (i.e., variable capital) does not enter into the real labour process, but what does enter, is living labour, which is bought with circulating capital, and which replaces it. What enters in addition into the labour process is constant capital, that is, labour embodied in the objective conditions of labour, in the materials and means of labour…
What is really expended in the production of a commodity are raw materials, machinery, etc., and the living labour which sets them in motion.”
The important phrase here is ” what does enter, is living labour, which is bought with circulating capital, and which replaces it.” because it is precisely in dealing with the reproduction of capital that marx is interested in the “living labour”, and not in the “circulating capital”, which it replaces. The latter has gone forever once it has been spent, it plays no part in the productive process. But, the living labour power, and the Constant Capital, which have been bought continue in existence, and take part in the productive process. And, in the course of doing so, their Value is not at all fixed, but is constantly changing in accordance with the changes in the economic condiitons within society in general, which condition their reproduction!
Boffy, I’ve been reading this discussion off and on, and I’m a bit baffled. AK insists that you’re wrong because he argues that you and billj are confusing productive capital with money capital. You insist that he’s wrong, above, for the same reason. Jumping back, I can see the two of you say basically the same thing, then proceed to make arguments which are to my eyes largely indistinguishable. Indeed, I could well have written the post to which this reply is addressed a few days ago, when I was actively participating in the discussion – before, I think, it had degraded beyond salvageability. And I would have done so, to the best of my understanding, in AK’s “camp.”
I’ve finally started reading his recent book, and I am already seeing passages on this topic that I am sure you would not find objectionable in the least. For instance, on page 23:
“Imagine, for instance, a business that can generate $3 million in profit annually. If the value of the capital invested in the business is $100 million [I am reading this as the value of the money capital advanced -H], the owners’ rate of profit is a mere 3 percent. Yet if, as a result of the destruction of capital value, new owners can acquire the business for only $10 million instead of $100 million, their rate of profit – the return they receive on their investment – is a healthy 30 percent. A tremendous incentive to invest, expand production, and employ more workers has been created. Notice that this is the case even in the absence of new markets or rising demand that would lead investors to expect greater profits.”
Then, two pages later:
“For instance, arguments that the rate of profit must trend downward in the long run, because technical progress leads to falling profit, overlook the fact that profit is only one determinant of the rate of profit. An equally important determinant of the rate of profit is the capital value that is advanced, the magnitude of which depends largely upon how much capital value has been destroyed through crisis. If capital value has been destroyed on a massive scale, the peak rate of profit in the boom that follows is likely to be higher than the prior peak. And if major slumps become increasingly frequent, the tendency for the rate of profit to fall between slumps has less and less time in which to operate, so it is likely that trough rates of profit rise over time.” (emphasis his)
This is exactly what you were saying earlier, in response to my example, which only incorporated a single M-C-M’ cycle for a single producer: that future capitalists would find themselves in an even more profitable situation, despite the crushing fall experienced by the one I had mentioned. Remember?
I recall reading billj also say that he agreed with me, but disagreed with AK. Yet all I believed I was doing was restating part of AK’s case. Was I perhaps being clearer than he was?
This is not the first acrimonious exchange of this sort I’ve come across on the fundamental disagreements between the various Marxian factions. What on earth prevents y’all from seeing that when you are saying:
“The important phrase here is ‘ what does enter, is living labour, which is bought with circulating capital, and which replaces it.’ because it is precisely in dealing with the reproduction of capital that marx is interested in the ‘living labour’, and not in the ‘circulating capital’, which it replaces.”
…and the person with whom you arguing is saying:
“He writes, ‘Kliman’s theory asserts that the fixed capital stock must always be valued at its purchase price.’ I say no such thing. I say that the advanced capital can’t be revalued.
In other words, the capital advanced is the historical cost (net of depreciation). This doesn’t contradict the fact that the values and prices of the physical assets that are bought with the capital advance are always changing.”
…that maybe banging your respective skulls to dust against one another is not the appropriate response? To give an example, the last time that I found myself saying the same thing as someone I thought myself to be at odds with, we shared a laugh about it. No skull dust anywhere.
To be clear, I am not trying to single you out, here; I think once everyone got going, it was an all-around miserable episode. I will not attempt to give any one raindrop credit for the ensuing flood.
Mostly I am just trying to figure out why it even rained.
The problem with Kliman’s theory is that he insists the money capital advanced “cannot change”.
That’s obviously wrong as once that money has been advanced its incorporated in fixed capital and labour, the value of which can change, and the product of that investment, which can also change.
Let’s look at this statement;
“An equally important determinant of the rate of profit is the capital value that is advanced, the magnitude of which depends largely upon how much capital value has been destroyed through crisis”
That’s absolutely not true. Crisis is one way of destroying capital value, but depreciation does the same thing every day. Kliman attempts to say that moral depreciation does not exist, as this destroys his theory that the “historic” i.e. purchase price of the fixed capital stock must be used as the denominator. When the fixed capital stock is valued net of current price depreciaton.
There’s basically a series of logical holes in his theory. Unfortunately, as we’ve seen here, its difficult to get to the bottom of all this, due to Kliman’s “debating style” being diplomatic.
BTW I obviously agree with you about skull dust!
Hi billj, thanks for taking the time to respond.
I see what you’re describing as the fundamental theoretical variance between his take and yours, but I am once again confused as to where the actual disagreement lies. By “actual” here I mean the difference between “what he actually says” and “what you actually say,” as compared with the way folks tend to represent one another’s remarks.
For instance, I am looking through this whole discussion and I cannot find a single place where “cannot change” appears in one of AK’s comments that wasn’t a direct quote of someone else. Meanwhile, you attribute that quote to him throughout this discussion, and even insist in the comments below your review that “those are his exact words.” This is the sort of activity that, I think, can mask just how similar the views of two disputants actually are.
You said you agreed with me the last time I spelled out how what I believe he is saying is that the M is distinct from the C it purchases. However, to dismiss said M as “no longer existing as money” seems to me to miss the important point that the value contained in the M still does exist, just not for the capitalist in question. If they pay ten ounces of gold for something that is shortly thereafter only worth five, then someone else is still in possession of the amount of value contained in ten ounces of gold, yes? In this case, the person who sold the machine has more value from that sale than they could get from reselling the same quantity at the new value. This is because that M isn’t revalued in this example.
As I said, I think you previously agreed with this explanation. You concluded: “You should have bought gold.”
Regarding your second remark, that AK denies the existence of moral depreciation: this is something you’ve stated several times, but I am not sure why. I haven’t seen him say so. Further, I’ve reread your review, and you never make that claim, there; if anything, you acknowledge that there is a discussion of moral depreciation as a relevant part of the total depreciation. It may even be considered the most important part, since depreciation due to wear and tear in the line of use is seen as being transferred to the output, and therefore still available to the capitalist in possession of the fixed assets. This is quite a bit different from saying it “does not exist.”
You quote what you claim is a contradiction at one point: “Moral depreciation ultimately boosts the measured rate of profit because it first causes the rate of profit to fall,” And yet, is this not what we’ve just discussed? The capitalist on whose watch the value of the fixed capital assets sank saw a loss in profitability in that one cycle (i.e., from M to M’), but the capitalist who picks up the pieces, perhaps buying the machine at its depreciated value, will see a higher rate of profit.
I am still not far enough in the book to evaluate the chapter in full, but just based on what I’ve been given here, I am once again left wondering: Where does the actual disagreement begin? So far, virtually all of the discord appears to hinge on remarks that either weren’t made.
I am not saying that there isn’t a real dispute in here somewhere; I am just having a devil of a time finding it!
Part of the problem here is a confusion of Capital Gain/Loss and profit/loss arising from actual production. Your point that the Money, expended is now in someone else’s hands, it seems to me is irrelevant from the pespective of calculating the actual Rate of Profit on the Capital, which that Money bought.
On the question of the depreciation, and the consequence that Bill suggests in reducing the Rate of profit initially, I disagree with him on that point, and said so in my comments to his review. We have discussed it as part of that, and i continue to think he’s wrong, but I have not yet convinced myself he is, or been able to demonstrate to myself, why that is. I am still re-reading Marx on the whole subject to try to clarify it in my own mind, but I think the answer comes down to the fact that what is experienced is a Capital Loss, not a Loss from productive activity i.e. negative Surplus Value.
But, to be fair to Bill, in his model he only shows that having a one off effect, with the Rate of profit in subsequent years rising. Marx deals with it in his Chapter in Capital on Appreciation & depreciation in relation to the changing value of Constant Capital at different stages of the production process. But, I must admit I haven’t fully got my head around that bit of the argument yet.
What about academic sectarians?
Hedlund, I have considerable sympathy for the points you are making, which is why I tried from the beginning to simply keep to the facts, and to present in as respectful a way as I could a reasoned argument. But, when having done that the person you are addressing rather than responding in like manner simply writes as AK did “Oh I guess Kliman never thought of that he must be real dumb fuck”, it rather does set the thing off on the wrong track, as does replying to someone by betting them $10,000 that they are wrong, which is rather like the rich poker player who makes up for holding a bad hand, by using the size of their bank account to bully other players into folding. When it ends with that person also excusing themselves from the discussion by making a libellous accusation against one of the other participants, I think it necomes obvious where the burden of guilt lies for the discussion degenerating!
On the substantive point the importance of the difference of opinion is not contained in the nuances of the different ways of calculating profit, but in the conclusions that AK draws from that in relation to the real economy, the points on which BJ and otehr economists have taken up elsewhere. It is the use of Historic Cost as the measure of the Rate of profit i.e. the use of the Money Paid, rather than the Value of the Capital employed in production, which AK employs, that is at issue. But, as BJ and others have pointed out, if you do those calculations poperly, then even on Historic Pricing bases, you do not get the conclusions that AK reaches. Part of the reason for that is that there are more things wrong with his argument than just Historic pricing. For example, he lumps together everything in the economy otehr than the payment of wages under the heading of “Property Income”. That is a return to Adam Smith’s “Trinity Formula” or an acceptance of the Neo-Classical notion that everything can be reduced to the prices of the factor inputs (Wages, profits, Interest, rent and taxes), whereas of course, Marx illustrated that this leaves out Constant Capital used up in production!
But, more than that. AK includes as part of “Property Income” all Government revenue, which is clearly false. The vast majority of Government revenue, in the US as elsewhere, goes to cover things such as Benefits, Pensions, payments for State Capitalist provision of Healthcare, Education and so on. It would only be corect to include the revenue for all these things as “Property Income” if they were a deduction from the Surplus Value of the Capitalists, but clearly they are not. The money comes in from workers taxes, and goes back out to workers (not necessarily the same ones) in the form of the Social Wage. So these revenues are not a deduction from Surplus Value, but from the Wage Fund, they comprise a part of the Social Wage, which as much as any other part of wages, forms a necessary component of the Value of Labour Power. The consequence of that is to grossly overstate the volume of profits.
BTW ignore that point it appeared in the wrong place. Kliman says;
“Andrew Kliman Says:
January 14, 2012 at 8:14 pm | Reply
@ billj You say, “The amount of value the fixed capital stock can contribute to production is priced at the current socially necessary labour time for its production, not its historical purchase price. Marx reiterates this point over and over. This mistake is part of the reason your book is so wrong.”
See what I mean when I say
“the denominator is advanced capital (aka net book value, aka accumulated investment after depreciation), NOT the value of the physical assets.Conflation of these two things is the foremost error that physicalists make. It’s one of Jefferies’ bigger mistakes (and that’s saying a lot).”
It’s NOT the case that “Kliman’s theory asserts that the fixed capital stock must always be valued at its purchase price.” I say no such thing. I say that the advanced capital can’t be revalued.
Is your problem that you don’t understand the difference between “value of the fixed capital stock” and “advanced capital”?”
Fair point insasmuch I transformed “can’t be revalued” into “cannot change”. But that clearly means the same thing.
Kliman says that denominator is “advanced capital” that cannot be “revalued”. Even though he measures it net of depreciation, that is after it has been revalued!
Kliman gives a special status to the “book value” over the actual value of the assets that the money advanced (the book value) have purchased. But those money assets, the amount advanced, does not exist once it has purchased those assets. A mistake he attributes to the “physicalists” is nothing of the kind. Kliman simply wants to remove the physical reality of value in social production and replace it with an ideal measure in the capitalists head i.e. “the book value.”
Once it has been spent that Money = 0. It only exists in the form of the assets it has purchased. Kliman says that it continues to exist separate from the assets it has purchased in the mind of the capitalist or their “book”.
In other words he separates money from the commodity form. This refutres the labour theory of value.
As you point out you do not have the same method as Kliman insofar as you accept that the “M” can change each cycle. Whereas Kliman says the net book value “can’t be revalued”.
Bill,
“Kliman says that denominator is “advanced capital” that cannot be “revalued”. Even though he measures it net of depreciation, that is after it has been revalued!”
What he is saying is the “changed” Value of the Constant Capital (the machines etc. not the Money that bought them) is the price that was paid for them, less the depreciation of them as shown in the books, due to wear and tear, and age. In that sense the initial Value cannot change, though the current book value does due to that depreciation. But, what this then means is that it ignores “Moral depreciation”, as described by Marx. That is a devauing of the machine because new levels of productivity mean it can be produced more cheaply, or because a new machine has been developed which is itself more efficient than the old machine.
Marx specifically says that in these instances the real Value of the Constant Capital (and in similar way Variable Capital) is devalued as a result of such changes, and in multiple palces he specifically says – this in fact is the thrust of his argument against Ramsay in Theories of Surplus Value – this does not just mean a devaluation of the physical machines, labour etc. bought to replace those used up, but applies to those already bought, and not yet used up in the production process.
A similar thing can be seen in relation to the Banks today. The Banks have on their books assets made up of the value of the property against which they have advanced mortgages, as well as the Bonds they have bought from various companies and countries. But, in reality, the Value of those assets have fallen catastrophically. This was the essence of the debate, particularly during the Sub-prime crisis, of whether Bank Assets should be Valued at Book Value, or marked to market. Doing the latter, which everyone agreed was the realistic thing to do, would have massively reduced the Capital Value of the Banks, meaning they would have been in breach of regulations on reserve assets.
But, Capital itself simply revalued the Capital, in the way it does nowadays – through the Stock market. The shares of the Banks crashed, reflecting that revaluation. But, the capitalists who then invested in those shares – again the method today by which Capitalists do invest rather than as in Marx’s day, by setting up their own business – made their calculation of profit/return on those shares not in relation to any historic pricing of those assets, not on the book Value of the Baks assets, but on what they had paid to pick up those now cheap shares.
On the point about moral depreciation, there’s a lengthy section of his recent book that denies this – although you’re right the discussion is very confused. I’ve dealt with it, including page references etc. in my review.
The advanced capital “cannot be re-valued” in one sense, all past actions are historical and cannot by definition be changed. The point is that the advanced capital no longer exists – except in the books – once it has been spent. I cannot spend the same money twice. By definition.
If I could then nothing would have any value.
So once the money has been spent the value of that money is nought. That money has now been transformed into commodities and labour power – M-C. If the capitalist wants to get his original money back he has to sell the commodities – or more accurately their product – that he has bought with his advanced capital.
Labour power adds value to those commodities to produce commodities with a higher value (assuming sold etc. blagh, blagh), this is the origin of surplus value M’. But M’ is not the same money as the original M.
So the statement the original investment cannot be revalued is a meaningless and misleading assertion. As that original investment now only exists in the capital (labour and commodities) it has purchased.
Kliman does not agree with this, so in effect he does not agree with Marx’s circuit of accumulation;
“That’s because the denominator is advanced capital (aka net book value, aka accumulated investment after depreciation), NOT the value of the physical assets.”
Further advanced capital is NOT equal to net book value aka accumulated investment after deprecation. First as its just not – the advanced capital is gross not net of depreciation – second as all depreciation even wear and tear reflects current socially necessary labour time. Once you allow depreciation valued at current rates to deflate you “advanced capital” then you are no longer asserting that the advanced capital “can’t be revalued”.
That’s a mess but it is Kliman’s theory.
@Hedlund
“Mostly I am just trying to figure out why it even rained.”
I know what you mean!
Part of the problem is that AK has done little to explain his interpretation – not just state it – on this blog, though perhaps we should all think about tone before hitting submit.
As far as I can see, AK has provided one substantive example (the 10v + L = 9v corn example from earlier) that I tried to deal with earlier today. Plenty more was also said on it!
He has also taken Marx in two instances – Torrens and Ramsay – to claim support. But in his first book he admits that these numerical examples needed “reconstruction” to fit with his interpretation. Again, this has been covered. To be honest, there’s a good reason why most Marxists have accepted replacement cost – the weight of evidence from the texts support it.
On depreciation, my understanding (again I don’t think it’s been clarified) is that AK’s historical cost is net of wear of tear depreciation but not moral depreciation – he ignore it. IIRC, Bill makes this point in his original review of Kliman’s new book – and that Marx included both when determining the value of fixed capital.
Hedlund
I agree with your assessment of the debate and the way it has gone. I’ll try and put up my own views in a future post but who knows if I shall be treated with respect or diplomacy by those who disagree. I don’t who are worse debating scientific issues: academics or sectarians.
The above remark about academic sectarians should have obviously appeared here.
There is a bigger issure of methods of debate. As I pointed out in my review, a minor sub-plot of Kliman’s book is to question to the integrity of people who disagree with him. He questions the ethics of people who support the “current” value of the fixed capital stock. And accuses Dumenil and Levy – outrageously imo – of cherry picking the data.
His behaviour on here is absolutely on a par with that theme of his book.
Michael, as I said above I began this debate by showing the greatest respect for othes point of view, and arguing the facts dispassionately. But, if others do not do that, it is hard to deal with bullying bets, or flippant responses that do not deal with the substantive points you have made, otherwise than responding in some like manner.
AK has potsed a libellous slur against me on your Blog. I have not been banned by any website, including the AWL’s. In fact, when I challenged the AWL some years ago about the fact that my account seemed to have been blocked, they specifically responded that I had not been banned, but that it was due to a “technical error”. In the end I simply stopped posting anything to tehir website, because like many more people I found that even the smallest of comments (including ones which simply said “I have dealt with this here”, with a hyperlink to my blog, were being willy nilly deleted. It was not worth the bother in responding to what is after all an insignificant Stalinist sect. The only reason anyone would have for paying them any attention is because their perniciousness is in inverse proprtion to their size.
The libellous slur made by AK, which you have published here, can be easily disproved. The only website I “stalk” is my own! The number of other websites I make comments upon is extremely limited, and I only comment on them, when there is something of interest for me to comment on, which is how come I came to this debate here, having been asked by BJ to make comments on his own review. Far from being banned, a number of those other palces such as The Weekly Worker, have asked me to write articles for them! PR asked me to write articles on the Long Wave and on Catastrophism nearly a year ago, which unfortunately I have not been able to get round to doing yet. The other places where I occasionally post comments are listed on my own blogroll. Anyone can contact them, to ask if I have been banned. Most of them probably can’t even remember the last time I posted a comment to them – such is the degree of stalking!
The only other website I have posted comments on to any great extent in the last year has been Dave Osler’s, over the issue of the revolutions in the Middle East. That experience was itself illuminating. For several weeks, I was arguing against SWP sympathisers, and others the AWL would characterise as “Idiot AntiImperialists”. I was doing so largely on the basis of the ideas that the AWL’s predecessor organisations were putting forward in the early 1980’s over the Falklands War, but which they have now abandoned. Far from being banned, I was supported in those discussions by Dave Osler, and otehrs such as “Modernity”.
When the War against Libya, began, however, I found myself arguing against both the “Idiot-Anti-Imperialists”, and agtainst those like the AWL who were acting as apologists for Imperialism, and for the Islamist forces in Libya. At this point, Clive Bradley, intervened and rather than responding to the arguments, or what I had actually argued then, and in the previous weeks, AGAINST, the “Idiot Anti-Imperialists”, his opening salvo was to simply accuse me of having the same position as those very “Idiot Anti-Imperialist against whom I had been arguing!!!
That is typical of the Stalinist politics and practices of the AWL, who adopt the position of the Popular Front, of Stagism, and as in this case of the amalgam. It looks like the same approach has been taken here.
AK’s libellous assertion is groundless. As you have published it, I would ask that you dissociate yourself from it. I will not ask that you remove it, that would be to follow the Stalinist practices of the AWL. Indeed, I am happy for it to remain in order that everyone can see the nature of the person who made it.
Oh dear! Now I’ve got to deal with whether something is libellous or not. And, as you say, you’ve made your case.
Maybe I’m naive (I obviously am) but I just wanted this blog and this debate to bring up issues and views on Marxist economics and raise understanding of the nature of capitalism. I am not going to get into who said what and who did what. I haven’t stopped people doing so, however. But I have asked people to stick to the issues and refrain from personal insults, libels and sneering. I’ve done my best.
In passing, BJ’s last comment did sum up his criticisms of the historical cost position and that was useful.
I think that’s fair enough Boffy, its not Michael’s fault of people write silly things. TBH I think people can judge them on their merits. And I agree sticking to the issues is the way to go.
Michael,
I too am interested in only discussing the issue without diversion. But, the fact is that AK has made a libellous statement that is quite easily disproved. That is quite different even from people being rude, or insulting in their comments.
I am not asking you to decide whether his statement is libellous, I am only asking that you dissociate yourself from it.
And of course, when I say that, I’m not trying to imply that I have never written anything silly!
This will be my final comment on this for a while as I have other things to write. I hope it helps to clarify the issue.
Two More Arguments In Favour Of Reproduction Cost Valuation
I think that to understand the reason for Reproduction Cost Valuation its necessary to move beyond M-C-M to think in terms of M-C-M-C.
Suppose we have a Capital made up:
C 100 + V 100 + S100 = E300.
This is materials consisting of 100 units requiring 1 hour to produce. Labour Power consisting of 20 workers, which require 5 hours to produce, and who work for 10 hours producing 5 hours of Surplus Labour. They produce a product whose Value embodies 300 hours of Labour-time as described. Assume 1 hour equals £1, so the Capitalist lays out £200 to buy these materials and this Labour. If we proceed M-C-M, we have M200 – C200 – P – C1 300 – M300.
Now assume, that due to a fall in productivity the cost of producing the materials rises, so that it now takes 200 hours to produce, so that it now costs £200. Of course, looked at historically, this does not change the fact that the capitalist only paid £100 for the materials currently being used. However, everyone agrees that the final commodity should be Valued at its current cost of production. In other words, E will be valued at C 200 plus 200 for the living labour used to transform it. That is E = £400. If we price the capital on an historic basis we will have:
C100 + V100 + S 200 = E 400.
In other words the increase in the price of the final product of £100, has been immediately transferred to profit. If things were to end there that would be fine. The capitalist would walk away with £200 profit rather than the £100 he had previously, not because of anything he had done, not because the workers had worked longer or more efficiently, not because the Rate of Exploitation had risen, but purely and simply because external changes had raised the Value of Constant Capital reproduced within the final output. From a Marxist perspective this increase in the amount of profit is itself objectionable, because it does not represent any real change in the actual productive process that is being analysed.
But, Capitalism is not predicated on Capitalist ceasing production after one cycle, taking the money and running, but is predicated on the idea of capital as self-expanding Value, of its incessant need to expand itself. So, we have to assume that production continues beyond M1, to a new cycle. Let us assume we are talking, here about what Marx calls Simple Reproduction, that is the Capitalist uses the Surplus Value to fund their own consumption rather than as a means of expanding production. So, they take the £200 of profit to spend on coke and champagne. So, now out of the proceeds of the sale M1 = £400, they now spend £200 leaving £200 to spend in the next cycle. In Money terms they have then exactly the same amount of Money Capital to spend as they did at the beginning of the previous cycle. But, the consequence of this is dire for the Capitalist, because we know that the cost of the Constant Capital has risen by 100%. The Capitalist comes to lay out their Capital to reproduce production, and finds they cannot. Now £100 can only buy 50 units rather than 100, and because the amount of Constant Capital has been cut in half, the capitalist now only requires half the number of workers to work with it. So:
C 100 + V 50 + S 50 = E 200. As a consequence of proceeding on an historic cost basis for capital, simple reproduction leads to output being halved, both in terms of the Use Values produced, and their exchange value compared to the previous cycle. Half the workers have been thrown out of the production process, which means only half the Surplus Value can now be produced. Both the quantity and the rate of profit are significantly reduced. But, this method of calculation is objectionable on another basis.
A fundamental aspect of Marx’s analysis of Capital is the concept of the average rate of profit. The idea is simple. Because Capital is forced to continually seek to expand, it will move from areas where the Rate of profit is low and into areas where it is high. In the former it is harder for capital to accumulate, because fewer resources/profit is available to be reinvested, whereas in the latter case the opposite is true. But, consider the consequences of this for capital if the historic pricing model is adopted. The historic pricing model means that where the Cost of Capital has fallen sharply the Rate of Profit will appear lower than it actually is on a current cost Valuation, whereas if the Cost of that Capital has risen the opposite will be true. But, Capital moving into say steelmaking is not interested in what existing capitalists paid for their furnaces and rolling mills ten year ago, it is interested only in what it will have to pay for those things today. Were it to look at the Rate of profit in the steel industry based on an historic cost basis, it would always be led to invest either too much, or too little depending upon whether the cost of Capital had risen or fallen. It would mean the process of formation of the average rate of profit described by Marx, as a result of Capital continually moving to where the Rate of profit was highest, would be made meaningless. It would lead to a permanent condition of misallocation of Capital, because it would be based on Valuations of Capital that no longer exist.
That, of course, is important for another reason, because the Average Rate of Profit, and the movement of Capital described above is central to Marx’s theory of how Exchange Values are transformed into market prices.
What historic pricing does is to fundamentally undermine the basis of the Labour Theory of Value.
Dear all,
I’ve downloaded the Carchedi paper (Behind and Beyond the Crisis). It is in Word 2007 format (*.docx).
I’m using Word 2003 and although it performs a format conversion, the charts are basically unreadable. I was wondering, is there any way I could get a version of Carchedi’s paper in PDF? Or at least the charts, say in JPG format?
Thanks
Magpie
Sure you can. You can find it on Michel Husson’s taux de profit site along with some excellent papers (including my own!).
http://hussonet.free.fr/tprof.htm
Michael,
Great link!
Thanks
1. Thanks for this review. Convinced me to pull the trigger on buying the book and I’ve really enjoyed what I’ve read so far.
2. What the hell happened in this comment section holy shit