Fred Moseley and Marx’s macro-monetary theory

In a previous post I reckoned that Anwar Shaikh’s magnum opus was probably the best book on capitalism this year.  Well, Fred Moseley’s 20-year work on his new book, Money and Totality, is probably the best on Marxist economic theory this year and for this century so far.

Fred Moseley is Professor of Economics at Mount Holyoake women’s college in Massachusetts and has been for decades. He is one of the foremost scholars in the world today on Marxian economic theory (as a theory of capitalism). He has written or edited seven books, including The Falling Rate of Profit in the Post-war United States Economy (1991), Marx’s Logical Method: A Re-examination (1993), Heterodox Economic Theories: True or False?(1995), New Investigations of Marx’s Method (1997), and Marx’s Theory of Money: Modern Appraisals (2004).

In Money and Totality, Moseley has made a major contribution to a clearer understanding of Marx’s method of analysis.  He shows that a Marxist analysis delivers money, prices and values integrated into a single realistic system of capitalism. Moseley shows that Marx had two main stages of analysis or theoretical abstraction. First, he analyses the production of surplus value in capital as a whole (Volumes 1 and 2 in Capital) and then he analyses its distribution through the competing sectors of many capitals (Volume 3). Marx starts with money so there is no need to ‘transform’ an underlying system based on value into a system based on prices.

At the beginning of the circuit of capital, money capital is taken as given or ‘presupposed’. So total value equals total prices in the ‘totality’ (this is what the title of the book alludes to – the subtitle for Moseley’s book is “A macro-monetary interpretation of Marx’s logic in Capital and the end of the transformation problem” a mouthful for most.  And all that happens with ‘many capitals’ is that the extra value (surplus value) created in each sector will be equalized by the market so that the rate of profit is equalized (or tends to equalize) across all sectors.  Total surplus value equals total profit but the prices of production vary in each sector to equalize profitability across all sectors.  And the whole circuit of capital is one that takes place over real time and is not completed hypothetically and simultaneously, as critics argue.

So there is one real capitalist system, advancing money in order to make more money, namely a profit (a surplus of value) over the money (or value in labour time) paid to the workforce and for the means of production (value contained in constant capital).  We do not start with a certain value of labour time or a certain amount of physical units of workers and technology and finish with that.  We start with money and we finish with money.

Yes, beneath the process of money making money, we can show that this happens through the exploitation of labour and the amount of exploitation or extra money made can be explained by the appropriation of surplus labour time (beyond that needed to keep workers alive and in production).  Thus money is value, or the form of value that we see.  Value explains money; surplus value explains profit.

When we go below the macro aggregates and consider individual prices of production for different products and individual profit rates for each capitalist, then values in labour time do not match prices.  This is the so-called “transformation problem”.  If labour is the source of all value and surplus-value, then one would expect industries with a higher proportion of labour to have higher rates of profit; but this is not the case in reality.

The critics argue that Marx attempted to resolve this contradiction with his theory of prices of production in Part 2 of Volume 3 of Capital, but he failed to solve the problem, because he ‘failed to transform the inputs’ of constant capital and variable capital from values to prices of production.  He left the inputs of constant capital and variable capital in value terms, and this is logically contradictory, because inputs in some industries are also outputs of other industries, and inputs cannot be purchased at values and sold at prices of production in the same transaction.  This was Marx’s crucial mistake, according to the critics.

Moseley argues that, contrary to the critics, that Marx did not ‘fail to transform the inputs from values to prices of production’ because the inputs of constant capital and variable capital are not supposed to be transformed.  Instead, constant capital and variable capital are supposed to be the same in the determination of both values and prices of production; C and V are taken as given as the actual quantities of money capital advanced to purchase means of pf productions and labour-power at the beginning of the circuit of money capital.

Marx solved this issue of the macro to the micro by showing that because individual capitals compete among each other, as a result, sectors with higher profitability get ‘invaded’ by other capitalists seeking to increase their profitability.  In so doing, profit rates tend to be equalised between sectors.  As Marx showed, this did not change the overall value created in an economy, but merely redistributed the surplus value over and above the cost of capital advanced from less efficient capitals to more efficient ones through the equalisation of profit rates across sectors.  This transformation solution was a brilliant one that Marx was very proud of.

“In Marx’s theory, total price = total value but individual prices = prices of production.  There is no contradiction with Marx’s logical structure of the two levels of abstraction” (Moseley, p39 note 13).   The logical approach of Marx is to look at the macro first to show how money makes more money and then look at the micro second to see how that extra money is distributed among many industries and capitals through competition and the equalisation of profitability.  The more efficient get a transfer of value from the less efficient through capitalist competition.  But profits come from the surplus value generated by the labour force employed in the whole economy and appropriated by capital as a whole.

This macro-monetary approach is a realistic view of capitalism.  The circuit and motion of capital starts with money and finishes with money.  It does not start with value (labour time) or with physical things (labour and means of production) and end with value or things.  So it does not need value or things to be converted or transformed into money.  There are not two ‘states of capitalism’ (one with values and one with money or prices).  Marx’s view is a single state system.  So there is no ‘mistake’ or logical contradiction in Marx’s explanation of the transformation of values into prices.  The so-called transformation problem of values into prices and money does not exist.

The mainstream critiques of Marx’s analysis make the mistake (deliberate or not) to argue that Marx had two logical analyses, first based on values which had to be transformed into prices.  They say, if you start with ‘inputs’ of labour and means of production measured in values (as they claim Marx does), surely you must convert these values into money prices?  And if you do so, then using simultaneous equations, you find that total values no longer equal total prices and/or total surplus value no longer equals total profit.  That’s because your original inputs in value will also be converted into prices.  Marx’s analysis is thus indeterminate or logically inconsistent.

This is the kernel of the critique first pronounced by Ladislaus von Bortkiewicz in the early 20th century, “the most frequently cited justification for rejecting Marx’s theory over the last century” (Moseley, XII).  This critique was enthusiastically adopted by mainstream economics as finally crushing Marx’s value theory of capitalism.  It was accepted by hosts of Marxist economists like Paul Sweezy and others, many of whom spent many years trying to reconcile Marx’s ‘mistake’ with a theory of capitalism or looking for an alternative interpretations of value theory – a “long 100-year detour”, as Moseley describes it.

The Bortkiewicz-Sweezy ‘standard interpretation’ of Marx’s value theory, as Moseley calls it, was destroyed with a seminal paper by the leading mainstream economist of the post-war period,  Paul Samuelson, the author of the major academic textbook on economics in my days at college.  Samuelson showed that if you started with two systems, one in values in labour time and one in prices, the labour values can be cancelled out and play no determination in the real world of prices.  Prices are then determined by the quantities of things produced and the demand for them (supply and demand).  “In summary, transforming from values to prices can be described as the following procedure, 1) write down the value relations; 2) take an eraser and rub them out; 3) finally write down the price relations – thus completing the transformation process”! (Moseley p 229.)  Samuelson’s sarcastic joke may have buried the ‘standard interpretation,’ but his own mainstream theory of prices was equally irrelevant. What determines whether the price of a car is $20,000 or $2,000? – it’s supply and demand.  But why $20,000 and not $2,000? – well, because the market says it is so (revealed preference of individual consumers).  Brilliant!

But as Moseley says, Samuelson was right about the standard interpretation.  If you interpret Marx to have two systems of capitalism, one based on values (in labour time or physical units) and another on prices, then you have to transform values into prices.  But why bother: values can be cancelled out.  Marx’s value theory then becomes a metaphysical unnecessary like the concept of God.  We can explain all in the universe without God and God explains nothing.

But Moseley takes the reader carefully and thoroughly through all the competing interpretations of Marx’s value and price theory, starting with the standard interpretation as expressed by the theory of Piero Sraffa, an epigone of Ricardo.  He shows not only that Sraffa’s approach of looking at capitalism as ‘the production of commodities by means of commodities’ is being unrealistic to the extreme[4]; it is also nothing to do with Marx’s analysis of capitalism as the process of money capital trying to make more money capital (pp. 230-243).

Sraffa ends up with a theory that implies capitalism can go on producing more things from things without any contradiction or limit – the example of automation (p233) shows that.  Marx’s own theory shows that there is an essential contradiction in capitalism between the production of things and services and the profitability of doing it for private capital.  That contradiction is real, explaining cycles of boom and slump, crises and the eventual demise of capitalism as a system.  Sraffa’s theory implies the universality of capitalism, Marx argues for its specificity.

Moseley then shows that other interpretations (Anwar Shaikh’s iterative way; the ‘New interpretation’; Rethinking Marxism etc.); all fail really to break with the standard interpretation and thus cannot resolve the apparent logical inconsistency (Bortkiewicz) or irrelevance (Samuelson) of Marx’s analysis.

However, it is somewhat different with the temporal single state interpretation (TSSI).  The essential points of the TSSI group of Marxist economists were summed up in another seminal work on Marx’s analysis from Andrew Kliman in 2007, with his book, Reclaiming Marx’s Capital.  Those points were that Marx’s theory is temporal.  Money advanced for means of production and the labour force are the initial capital, in time.  The production of commodities and their sale on the market come later.  So we cannot impute simultaneous equations in the conversion of value into prices, as the standard interpretation and others do.  Second, Marx’s theory is single state.  It is not a question of converting initial inputs (means of production and labour) as values into prices of production in the final commodity.  Capitalist start with money (prices of production) and end up with money (prices of production).  But they end up with a different value or price of production as explained by the exploitation of labour power, with its value ultimately measured in labour time in the whole economy.

The TSSI did provide the breakthrough in refuting the standard interpretation by returning Marx to the logic and reality of a money economy.  Moseley agrees.  However, he has two important disagreements with the TSSI.

First, Moseley reckons that TSSI makes prices of production as short-term movements that change with each production cycle to equalise profitability within sectors.  Moseley reckons that this cannot be right as prices of production are predetermined over the long term by the productivity of labour (new value) and the rate of surplus value in the class struggle (deciding the level of the real wage).  So prices of production only change if productivity and real wages alter.  Prices of individual commodities fluctuate around a ‘centre of gravity’ set by prices of production.  Indeed Moseley argues, that unless his interpretation of prices of production as long term centres of gravity for individual prices is accepted, then the two aggregate equalities (total price = total value and rate of profit = rate of surplus) would not hold over successive production periods, thus defeating the very objective of TSSI.

Second, Moseley disagrees that a temporal interpretation of Marx’s circuit of capital means that the cost price of the advanced money capital (for means of production and the employment of the labour force) is fixed and historic after production has commenced.  Moseley reckons that if the price of equipment and other means of production changes after production starts (as it does), it is still okay to revalue the value of the commodity produced to include the current cost of the means of production not the original cost.  So it is not necessary or correct to use historic cost in the measure of constant capital or in the profitability of capital.

This latter point is very important in any empirical analysis of profitability in modern capitalist economies.  Andrew Kliman’s view is that historic cost measures must be used and anything else is a distortion of Marx’s measure of profitability.  And this makes a difference when we try to measure to the movement in the rate of profit in a major capitalist economy like the US.  Kliman’s measure shows a ‘persistent fall’ in profitability of US capital since 1945 without any significant rise, even during the so-called neo-liberal period from the early 1980s to now.  The current cost measure, on the other hand, shows a trough in the early 1980s and then a significant rise through to the end of the 1990s at least.  Which is right has led to different views on the health of US capitalism, the role of the financial sector and what causes capital investment to change.  However, perhaps the differences between the two measures are overdone because, as Basu shows, over the long term, since 1945, the two measures have tended to converge.

One implication of Moseley’s interpretation of Marx’s analysis as a macro-monetary one that starts with money and finishes with money, is that it is perfectly open to empirical verification. There is a view among some Marxist economists as eminent as Paul Mattick Jr for one, that it is impossible to measure empirically a Marxian rate of profit on capital and use official price data to evaluate trends in modern capitalism.  That is because value cannot be calculated from money prices and Marx’s theory of capitalism is a value theory.  We are left with just recognising that Marx was right because of the very occurrence of exploitation and crises.  This is a bit like saying that we cannot determine the existence of black holes in the universe because their mass is so great and gravity so strong that nothing comes out of them.  So we can only tell they exist because of the wobbles they cause in other objects in space nearby.

But if we interpret Marx’s as a single system, an actual capitalist monetary macro-economy, then it is perfectly possible (with all the caveats of measurement problems and data) to carry out empirical analysis to verify or not Marx’s laws of motion of capitalism.  Indeed, Marx did just that.  In 1873, Marx wrote to Frederick Engels that he had been “racking his brains” for some time about analysing “those graphs in which the movements of prices, discount rates, etc., etc., over the year, etc., are shown in rising and falling zigzags.” Marx thought that by studying those curves he “might be able to determine mathematically the principal laws governing crises.” But he had talked about it with his mathematical consultant, Samuel Moore, who had the opinion that “it cannot be done at present.” Marx resolved “to give it up for the time being.”

Times have moved on and now we have lots more data and better methods of analysing it.  Testing theory and laws with evidence is now the name of the game.  Fred Moseley allows us to do that with confidence that we are testing a logical and consistent theory that is verifiable empirically.

A more substantial review by me of Fred Moseley’s book can be found in Weekly Worker here.

34 Responses to “Fred Moseley and Marx’s macro-monetary theory”

  1. Daniel de França Diniz Rocha Says:

    I think that there is also an alternative way to see why industries that use many workers are not the most profitable: they have to pay a hefty rent, due to the use o a trademark, to be able to sell their products. For example, suppose a company that employs thousands of manual labors in Vietnam to build luxury shoes. Although the price they sell is low, the actual realization of the price is on developed countries. So, a lot of surplus was transferred to capitalists that only own a trademark which is put on the shoes. The toll on the original capitalist is heavy, but we can see that Nike, Apple, and many large industries, are actually rent capitalists.

  2. jschulman Says:

    Is there a simple way of explaining Moseley’s differences with Gérard Duménil and Duncan Foley, authors of the “New Interpretation”?

  3. Apostolis Says:

    I am unsure whether Moseley takes into account Debt, the insertion of new money by Fed etc.

    If we do not take that into account, we are still trying to put the Marxist macroeconomic theory to explain temporary statistical data when it can only explain lasting/enduring statistical data.

    For the same reason, we need to understand that the organic composition of capital has an effect on the system temporally.

    We need to create a crisis theory that takes into account the lasting effects of the decrease of the cost of production or the fact that the variable capital continues to shrink, thus making it very difficult to make new profits.

    The rate of investment simply does not equal the rate of previous profit and that introduces crises.

  4. Boffy Says:

    “Moseley argues that, contrary to the critics, that Marx did not ‘fail to transform the inputs from values to prices of production’ because the inputs of constant capital and variable capital are not supposed to be transformed. Instead, constant capital and variable capital are supposed to be the same in the determination of both values and prices of production;”

    That is not consistent with what Marx actually says. Marx clearly states that he did recognise the need to transform the values of those inputs, but states that it was not necessary for his immediat purpose to do so.

    For example,

    Marx states,

    “The foregoing statements have at any rate modified the original assumption concerning the determination of the cost-price of commodities. We had originally assumed that the cost-price of a commodity equalled the value of the commodities consumed in its production. But for the buyer the price of production of a specific commodity is its cost-price, and may thus pass as cost-price into the prices of other commodities. Since the price of production may differ from the value of a commodity, it follows that the cost-price of a commodity containing this price of production of another commodity may also stand above or below that portion of its total value derived from the value of the means of production consumed by it. It is necessary to remember this modified significance of the cost-price, and to bear in mind that there is always the possibility of an error if the cost-price of a commodity in any particular sphere is identified with the value of the means of production consumed by it. Our present analysis does not necessitate a closer examination of this point.”

    Later in Capital III, Marx states that the process of social reproduction does NOT start with money and end with money, which was the Mercantilist perspective, but begins with an amount of physical capital, and ends hopefully with at least that same amount of physical capital, and usually with a greater quantity of physical capital, which enables a greater quantity of labour-power to be employed, which is the required basis for the production of a greater quantity of surplus value in the next circuit.

    Marx states there quite clearly that the basis of this reproduction is the replacement “on a like for like basis” of those physical elements of capital. It was precisely this that marx identifies as the advantage in analysis that the Physiocrats had over the mercantilists, and in places over Adam Smith.

    Moreover, the statement cited is contradicted by Marx in Capital III. Where he demonstrates both that the transformation of output and input values must be undertaken simultaneously, and that this affects the consequent mass and rate of profit depending upon whether prices are determined by values or prices of production, and this is again a consequence of physical use values having to be reproduced on a like for like basis.

    Marx says,

    “It is therefore possible that even the cost-price of commodities produced by capitals of average composition may differ from the sum of the values of the elements which make up this component of their price of production. Suppose, the average composition is 80c + 20v. Now, it is possible that in the actual capitals of this composition 80c may be greater or smaller than the value of c, i.e., the constant capital, because this c may be made up of commodities whose price of production differs from their value. In the same way, 20v might diverge from its value if the consumption of the wage includes commodities whose price of production diverges from their value; in which case the labourer would work a longer, or shorter, time to buy them back (to replace them) and would thus perform more, or less, necessary labour than would be required if the price of production of such necessities of life coincided with their value.”

    (Capital III, Chapter 12)

    In other words, if the price of production of wage goods is higher than their value, the value of labour-power will rise under a regime of prices of production. But, the total new value produced by labour is an objectively determined quantum, and remains the same whether determined in value terms or price terms. Consequently, as Marx says the rate of surplus value, and mass of surplus value would be lower in such conditions than they would be if commodities exchanged at their values.

    The amount of new value produced remains constant, but its division is changed, more going to wages and less to profits. But, the total amount of value produced in society remains unchanged at c + v + s. If v + s, the amount of new value produced remains unchanged, as it must because it is objectively determined by the amount of abstract labour undertaken, and is only differently distributed between v and s, then if c + v + s is also constant, c itself must remain constant, though different components of c may vary up or down depending upon whether they are produced with above or below average organic compositions, and rates of turnover of capital.

    In that case, as Marx says here, the mass of surplus value and consequently profit may be lower (or higher depending upon whether wage goods are more expensive or cheaper on the basis of prices of production relative to values) where commodities exchange according to prices of production compared to where commodities exchange according to values.

    In that case not only would the mass of profit be different but because v would be higher or lower, whilst c remains constant, the rate of profit must also be higher or lower where commodities exchange at prices of production rather than at their values.

  5. Boffy Says:

    There is also an obvious problem of saying that there is no transformation problem, because what exists to begin with is just prices of production. Firstly, it is at odds with Marx’s historical explication of how exchange values applying under pre-capitalist commodity production give way to prices of production, and Engels’ extension of that explication in his Supplement to Vol III.

    Marx’s explanation is that capitalist production spreads into different spheres of production precisely by moving first into those areas of production where the organic composition of capital is lowest, and where therefore, the potential rate of profit is highest. Marx’s explication here, is based precisely upon the existence side by side of capital and non-capitalist production, and so of prices of production alongside commodities exchanging at exchange values.

    Engels extends this explication in his Supplement, and makes the argument that it is precisely for this reason that the exchange of commodities determined purely by their exchange value ends in the 15th century, having applied for around 7,000 years prior to that.

    The reason for that is, he says, that as soon as capitalist producers begin selling their output at prices of production, rather than at their exchange value, the non-capitalist buyers of those inputs buy them at these prices of production, rather than at their exchange value – this is the point that Marx makes in the first quote I gave above. For the peasant producer of commodities, their cost price of inputs is now not equal to the value of the commodities that comprise their inputs, but is modified according to the prices of the commodities they buy from capitalist producers.

    But, the peasant producer does not then sell their own output at the price of production, but at its modified exchange value, i.e. the cost price of materials, plus the new value added by their labour.

    “In a word: the Marxian law of value holds generally, as far as economic laws are valid at all, for the whole period of simple commodity production — that is, up to the time when the latter suffers a modification through the appearance of the capitalist form of production. Up to that time, prices gravitate towards the values fixed according to the Marxian law and oscillate around those values, so that the more fully simple commodity production develops, the more the average prices over long periods uninterrupted by external violent disturbances coincide with values within a negligible margin. Thus, the Marxian law of value has general economic validity for a period lasting from the beginning of exchange, which transforms products into commodities, down to the 15th century of the present era.”

    (Engels Supplement)

    Moreover, even when capitalist production has spread to all existing spheres of production this explication given by marx and Engels continues to apply, because new spheres of production are continually being created, and capital moves into them too on the same basis. Indeed it is the same basis which determines that capital moves from low profit to high profit areas.

    If we are to believe that there is no transformation because only prices of production exist as money prices from the start, how are we to understand the basis of the process of the equalisation of profit rates? If we look at reality, then we find that there are not in fact equal rates of profit, but sometimes widely divergent rates of profit.

    If we take some new line of production, it will frequently require large amounts of abstract labour, often in the form of highly complex labour required for research and development, skilled production and so on. The Harvard Business School, Product Life Cycle model illustrates this. At this early stage a few producers, produce relatively small levels of output at relatively high prices, and because of the low organic composition of capital, this relatively large proportion of labour-power produces a large amount of new value, and surplus value, creating a higher than average rate of profit.

    As a consequence, capital migrates to this sphere of production in search of this high rate of profit. Supply of this commodity rises, pushing down the market price towards the price of production, and continues until market prices have been pushed down to the price of production, and so only average rates of profit are achieved.

    But, it is only possible to understand that process if you start with values (albeit modified values), and the underlying basis of the surplus value created in each particular sphere of production.

  6. Choppa Morph Says:

    Thank you, Mike. Brilliantly clear account of what is obviously a book that might prove as valuable as Rosdolsky’s The Making of Marx’s Capital.

    Back to the source is the best way to approach Marx’s work, and to get there we need to clear away the jungle and undergrowth (not to mention the snakes and spiders they harbour) that have thrived so luxuriantly on this territory.

    Looking forward to getting the book!

  7. Boffy Says:

    “Money advanced for means of production and the labour force are the initial capital, in time.”

    A look at what Marx says in Capital III, and in Theories of Surplus Value Part 1, shows that this was not Marx’s view of the process of social reproduction.

    “This entire portion of constant capital consumed in production must be replaced in kind. Assuming all other circumstances, particularly the productive power of labour, to remain unchanged, this portion requires the same amount of labour for its replacement as before, i.e., it must be replaced by an equivalent value. If not, then reproduction itself cannot take place on the former scale.”

    (Capital III, Chapter 49)

    In other words, for Marx, the circuit of reproduction is precisely about reproducing the physical use values consumed in production, out of that same production. Only if social productivity remains constant will the amount of social labour-time, i.e. value required to achieve that remain the same.

    If social productivity rises, the amount of social labour-time required for that reproduction will fall, the amount of social labour-time available as a surplus will rise, and the rate of profit will rise. If the level of social productivity falls, more social labour-time will be required to reproduce the means of production and consumption used in current production, the amount of surplus social labour-time will fall, and the rate of profit will fall.

    Moreover, Marx makes quite clear in Capital II and III, that the process of social reproduction does not begin with money-capital used to buy means of production and other productive-capital. In Capital II, Marx states clearly that the circuit M – C … P… C’ – M’, is only the circuit of newly invested money capital.

    ““… it is the form of capital that is newly invested, either as capital recently accumulated in the form of money, or as some old capital which is entirely transformed into money for the purpose of transfer from one branch of industry to another.” (Capital II, Chapter 1, p 61)

    In Capital III, Marx further emphasises this point.

    ““In the reproduction process of capital, the money-form is but transient – a mere point of transit.”

    And again,

    ““In so far as reproduction obtains on the same scale, every consumed element of constant capital must be replaced in kind by a new specimen of the same kind, if not in quantity and form, then at least in effectiveness.” (Capital III, Chapter 49, p 849)

    Marx discusses all of this both logically and historically in Capital II, where he goes through the process whereby this process of reproduction is inconceivable unless we begin from the premise that it starts not with an amount of money or money-capital, but with an existing quantity of already produced commodities that comprise the means of production and consumption that enable current production to take place.

    Even prior to capitalism even being able to get going, these commodities must exist, and must have been accumulated over millennia of production by previous modes of production. It was precisely this understanding of the Physiocrats that the circuit of capital begins not with this year’s production, but with last year’s harvest, that set them above the Mercantilists and Monetary School, and in places above Adam Smith where he lapsed into mercantilist conceptions.

    A look at Marx’s lengthy explanation of that process of social reproduction in Capital II, but more specifically in Theories of Surplus Value Part I, demonstrates clearly that it is with this already existing physical capital that the process begins and ends. In Marx’s analysis in Capital II, each example, begins with the two departments already holding commodities ready to be used in production or to be exchanged. The whole process then, as the quotes above illustrate is about how those commodities are reproduced “in kind” so as to return at least to the starting position.

    In Theories of Surplus Value Part I, in his lengthy analysis of Quesnay’s Tableau Economique, Marx sets out that the starting point is the possession of commodities by capitalist farmers, the result of last year’s harvest. The first use of money, Marx describes in this process, is not an outlay of money-capital to buy the elements of capital, but is the expenditure of money by landlords, to buy food from those capitalist farmers, and to buy manufactured goods that again are already in the possession of the sterile class (industrial capital).

    The capitalist farmers do not advance money-capital to buy constant capital, but use a portion of their last year’s output (seeds, livestock etc) in this year’s production, as the basis of this year’s production. Similarly, they use that existing stock of commodities to pay the wages of their workers in kind, so that labour-power is reproduced. If they pay money wages to those workers, that money is only as a means of circulation of those existing commodities, as opposed to simply paying them directly in commodities.

    By this process the capitalist farmers already begin the current production period by utilising the physical means of production and consumption in their possession to begin producing the physical commodities that will once again reproduce those use values that they are consuming in the current production process.

    The industrial capitalists use the money received from landlords to buy food and raw materials from capitalist farmers, so as to reproduce the means of production and consumption used in the production of the commodities previously sold to landlords. But Marx goes on to show that even this is misleading, because the money rent expended by the landlords, is really just the money form of the rent in kind obtained by landlords, which is nothing more than the surplus product of the capitalist farmers.

    The end result of this process Marx shows is that the capitalist farmers and the industrial capitalists have the same physical commodities with which they commenced the current production period.

  8. Boffy Says:

    One example of how to think about the process of transformation of values into prices of production is this. If we take three spheres of production we might have:

    I. c 1000 + v 2000 + s 2000

    II. c 1000 + v 1000 + 1000

    III. c 2000 + v 1000 + s 1000

    The total capital advanced is 8000, and total surplus value is 4000, giving a rate of profit of 50%. As Marx does we can make several simplifying assumptions that are not realistic but make the maths easier for the explanation, for example that each capital turns over at the same rate, that their is sufficient demand to take up all of the supply etc.

    If we examine the prices of production we would have:

    I. k 3000 + p 1500 = 4500

    II. k 2000 + p 1000 = 3000

    III k 3000 + p 1500 = 4500

    We could assume that 50% of profits are consumed by capitalists unproductively as simple reproduction and that the other 50% is accumulated. Suppose that as a consequence of this accumulation a situation has arisen whereby demand for these existing commodities has begun to be satisfied so that expanding production further would lead to overproduction, and unsold commodities, which would force market prices below these prices of production, so that the consumed capital is not fully reproduced.

    Instead, therefore, the 50% of profits destined for accumulation go to the creation of some new sphere of production. As Marx says in Capital III, Chapter 14,

    “These new lines start out predominantly with living labour, and by degrees pass through the same evolution as the other lines of production. In either case the variable capital makes up a considerable portion of the total capital and wages are below the average, so that both the rate and mass of surplus-value in these lines of production are unusually high. Since the general rate of profit is formed by levelling the rates of profit in the individual branches of production, however, the same factor which brings about the tendency in the rate of profit to fall, again produces a counterbalance to this tendency and more or less paralyses its effects.”

    But note that it is only by degrees that this process unfolds.

    2000 of surplus value is then accumulated in this new sphere. Let us assume in line with Marx’s comment here that it has a very low organic composition and high rate of profit.

    IV. c 200 + v 1800 + s 1800 = 3800.

    So, the rate of profit in this sphere is 90% compared to the average rate of profit of 50% which is enjoyed by all existing capitals. On the basis of the assumptions made that there is sufficient demand to soak up the existing supply the output of sphere IV sells at this modified exchange value. It is a modified value because, as marx sets out in previous chapters, the prices it pays for its inputs are based on prices of production not values, and the costs of means of consumption are similarly based on prices of production for wage goods, which means that the value of labour-power may be higher or lower than were those wage goods priced according to their value.

    What does not change, however, as with Marx’s historical explication of this process, is the amount of new value created by workers in Sphere IV. It is an objectively determined quantum set by the amount of abstract labour undertaken by Sphere IV workers. All that changes here as marx says earlier, is the potential difference in the allocation of this new value to the reproduction of the variable capital, and the surplus value left over.

    In other words here, we have the three existing spheres selling their output at prices of production, and sphere IV selling its output at modified exchange values. As Marx points out in Chapter 14, it is impossible for Sphere IV to sell its output immediately at prices of production, because the only means of that being achieved is via competition. It requires that capital continue to flood into Sphere IV, so that the supply of Sphere IV commodities is pushed down until it reaches the price of production, at which point only average profit is obtained. But, that simply does not happen immediately, and as marx sets out elsewhere, this process could take many years, and in practice is never fully achieved.

    On the basis of the above example, what could be expected to happen would be that the 50% of surplus value from Spheres I-III would continue to be accumulated in sphere IV, along with the accumulation of a proportion of the surplus value from sphere IV. The consequence is that the total social capital expands, via the expansion of sphere IV, and along with it demand rises.

    We would assume that as a result of this rise in demand, the demand rises for commodities produced in all 4 spheres. However, all accumulation here goes into Sphere 4, so only Sphere 4 output rises. As the demand for Sphere 1-III commodities rises, whilst supply of Sphere I-III commodities remains constant, the market price of Sphere I-III commodities will rise towards their new price of production. Meanwhile, the supply of Sphere IV commodities will rise faster than the rise in demand so that the market price of Sphere IV commodities will gradually fall towards its new price of production.

  9. Boffy Says:

    The idea that the process of social reproduction, and its specific historical form as the circuit of capital under capital begins and ends with the money-capital can be shown to be quite obviously logically flawed, as well as historically inaccurate by asking the following question.

    When this money-capital is advanced to acquire productive-capital, who provides the commodities that comprise this productive-capital, which at this point have not yet been produced? Money including money-capital produces nothing and cannot thereby magic up the commodities that comprise the means of production and means of consumption out of thin air.

    It is only the physical use values that comprise the means of production and consumption that are capable of reproducing themselves, and thereby of creating surplus value.

  10. ucanbpolitical Says:

    I agree with much of what Boffy said. I like to compare attempts at solving the transformation problem to D.I.Y. Most D.I.Y is bodged and instead of increasing the value of the property it devalues it. The same with the transformation problem. Most attempts, including Moseley’s, ends up devaluing Marx. Yes there is a transformation problem that cannot be ignored. Up until Part 2 in Volume 3, Marx deals with the circulation of commodities as products of labour in order to describe the capitalist social relation without distraction. Thereafter he deals with the circulation of commodities as products of capital, which is concretely. In the former, exchange is equal, prices equal values and in the latter exchange is unequal and prices deviate from values. Part two of Volume 3 is really about the laws that govern this deviation, such that an average rate of profit between industries may arise. Marx understood that there was a problem in moving from values to prices, not in the real world where competition reigns, but in moving from the abstract to the concrete, the process of reassembling reality by adding in that which has been removed which entails modifications. Part two is the modification of value into prices of production, or better still market prices of production which are the momentary prices of products in the market. In Chapter 9 Marx puts forward a solution which is actually an arithmetical solution that stops short of an actual solution. The proof that it is purely an arithmetical solution is understood in the following way. After the redistribution of value between the five capitals such that each capitalist receives 22 in profit, prices collapse back to values so soon as the capitalists withdraw their 22 in profits. All capitals are reset at 100 and the process has to beundertaken afresh, showing this to be an intellectual exercise not an actual process. In other words Marx stops short. In Chapter 11 and 12 Marx provides tantalising clues to a deeper explanation which I developed in my article on the transformation problem entitled TRANSFORMING VALUE INTO PRICES OF PRODUCTION WHICH YIELD AVERAGE RATES OF PROFIT NOT ON THE OLD CAPITAL, BUT ON THE NEWLY PRICED CAPITAL which can be found on my website theplanningmotive.com. There I used Marx’s tables to show it is entirely possible, while staying true to his methodology to compute the actual market prices of production. Obviously the tables relate to a closed economic system with all the qualifications that entails. The reason I combined this with part 2 based on Chapter 10 is that the original value of the five capitals at 100 are understood to be at market value. That is each of these five capitals are representative of the weighted average labour times of their industry. In real life there are two simultaneous transformations interacting, those between industries and within an industry. Hugely complex, one best left to the mathematicians. The important point is this. Both Marx chapter 9 and my posting is about presentation, revealing the process through which values are converted into prices, such that inputs and outputs are now measured by price.

  11. s.artesian Says:

    “Kliman’s measure shows a ‘persistent fall’ in profitability of US capital since 1945 without any significant rise, even during the so-called neo-liberal period from the early 1980s to now.”

    “Yes”…and then again “not quite.” Overall, the trend line of the rate of profit as Kliman calculates it, is down. This does not exclude internal cycles in the rate of profit– for example a persistent recovery between 1962 and 1966-67, with the peak of that rise not exceeding the 1950-1951 high, leading to another period of decline, leading to another recovery 1974-1978, with the 78 peak below the 66 peak, leading to another decline 1979-1992, the Great Asset Stripping Era, and another recovery through 1997, with the 97 peak below the 78 level, and another decline through 2001, leading to the uptick to 2006, with the 2006 peak actually above the 97 level, but below the 1978 level– this correlates pretty well with the actual reduction in fixed assets, in net property, plant and equipment that partially fueled the US recovery between 2001-2006.

    All of which means– that the rate of profit is dramatically important as the persistent trend but does not mean in and of itself that capitalism cannot “recover,” make money, expand value; that it can no longer accumulate capital, even at the lower rate. Profit can and does expand.

    That’s 1. As for 2, of course there’s an issue of the transformation of value into price– as price is the money form, the monetary expression of value. Such problems are inherent, not to Marx’s critique, but to capitalism as not all value is realized or can be realized, or corresponds to the “private” labor time specific to and incorporated in any commodity; as production itself is NOT social; is constrained by the value form, and the law of value itself. To overcome the “problem” of course, it is necessary to abolish the value-form; the organization of labor power as wage-labor, as a value to be exchanged itself. It cannot be overcome by achieving some sort of “true price” “rational price” or “undistorted valuation.”

    The transformation problem is not an accounting issue, but a property issue , inherent in the organization of the means of production as private property.

    That’s 2. And for 3– Cockshott has pretty much nailed the case for the direct correlation of prices with values, with values as the labor-time necessary for reproduction.

  12. s.artesian Says:

    And then we get this:

    “In Theories of Surplus Value Part I, in his lengthy analysis of Quesnay’s Tableau Economique, Marx sets out that the starting point is the possession of commodities by capitalist farmers, the result of last year’s harvest. The first use of money, Marx describes in this process, is not an outlay of money-capital to buy the elements of capital, but is the expenditure of money by landlords, to buy food from those capitalist farmers, and to buy manufactured goods that again are already in the possession of the sterile class (industrial capital).

    The capitalist farmers do not advance money-capital to buy constant capital, but use a portion of their last year’s output (seeds, livestock etc) in this year’s production, as the basis of this year’s production. Similarly, they use that existing stock of commodities to pay the wages of their workers in kind, so that labour-power is reproduced. If they pay money wages to those workers, that money is only as a means of circulation of those existing commodities, as opposed to simply paying them directly in commodities.

    By this process the capitalist farmers already begin the current production period by utilising the physical means of production and consumption in their possession to begin producing the physical commodities that will once again reproduce those use values that they are consuming in the current production process.”
    _____________________________________________

    The problem here is that the appearance of money as the intermediary is a secondary issue. The primary issue is what relations of production now make the agricultural stocks “commodities,” values, rather than means of subsistence, rather than purely personal possession for the sake of purely personal reproduction.

    The capitalist farmers may or may not begin the current production period by utilizing the physical means of production and consumption in their possession– but the issue is what has changed? And what has changed is that the agricultural producer has to have been made, forced, compelled into relying on the exchange of the totality of his/her output as VALUES in the markets in order to provide for a)personal subsistence and b)economic reproduction.

    Any portion of the physical output that is retained is retained to be capitalized through the submitting of the the products to market exchanges–just as a coal producer retains a portion of the coal produced to fire the steam boilers that power the pumps that pump the water out of the mine shafts where the coal is mined.

    Any portion of physical output that is retained is in fact a PURCHASE by the agricultural producer of the instruments of production for the extraction of surplus value.

  13. made Says:

    Hi,
    I really like your post but I’m a bit new to this topic. So could you explain, why total value of production equals the total price?

    thanks!

    • Boffy Says:

      The simple answer is that price is simply value expressed in money terms. Money is the universal equivalent form of value. In other words, if gold is the money commodity, and 1 oz. gold represents 10 hours of value, every other commodity that has a value equal to 10 hours can be represented instead as being equal also to 1 oz of gold.

      If we take all of the value of output, as being equal to 10 million hours, we could equally express it as equal to 1 million ounces of gold.

      The more complicated answer is that under capitalism commodities do not exchange at their values. Their individual prices are not equal to their values, and that is because each capital will seek to maximise its rate of profit. So, capital’s will tend to move to where the rate of profit is highest, and away from where it is lowest.

      Marx explains this by the Law of The tendency for The Rate of Profit To Fall. That is capitals which have a low organic composition of capital, i.e. they have low productivity, and use a lot of labour to the material processed, have high rates of profit. As you move to capitals with progressively higher organic compositions, the rate of profit will then tend to fall, because they will employ proportionally less labour-power, which is what creates surplus value.

      As capital moves into those spheres of production that have the highest rates of profit, the supply of these commodities rises. As this does not change the demand for the commodities produced in that sphere, the rise in supply leads to a fall in the market price. That process continues until the market price of these commodities has fallen to a level whereby the capital employed in that sphere, no longer produces higher than average profit. At that point capital will seek out some other sphere, where the rate of profit is higher, and increase supply there, so the same process occurs.

      The prices that result are prices of production, which is the cost of production plus this average profit. But, that means that production in some spheres will result in the prices of production being higher than the value of the production, and in others it will be lower. But, the two things overall must cancel out. Some of the surplus value produced in spheres of production with low organic compositions will be transferred to those spheres that have higher than average organic compositions, and this is affected by this movement of market prices as a result of competition, and the movement of capital which affects the level of supply in each sphere.

  14. ucanbpolitical Says:

    In reply to “made” question why total prices equal total value. Total value represents the exchange value of all the current socially necessary labour time expended in a period. Price has already been mentioned: it is the money name given to value. More precisely, the value of a specific commodity in any period is the weighted average of all the individual labour times that went into producing these commodities within an industry, say steel pots and which adds up to the total labour time. This weighted average is the market value of that product for it is the only this specific value which when multiplied by the number of pots produced will yield the total labour time that went into producing all these pots. If it so happens that the market value coincides with market price then the total price of all the pots will equal the value of the pots, will equal the labour time that went into their production. However, prices rarely coincide with value. Exchange is rarely equal, that is to say a sum of money of equivalent value is exchanged for a sum of commodities of equal value. More often than not, more money is paid or less money is paid compared to the value of the commodity at the other end of the exchange. Individual prices rise above values and fall below values. However, when viewed across the world economy under conditions of regular capitalist production where all value is realised, these plusses and minuses cancel out ensuring that world prices will equal world value will equal the global expenditure of social labour.

    • Boffy Says:

      “Total value represents the exchange value of all the current socially necessary labour time expended in a period.”

      Actually, to be pedantic and picky it is not the exchange value, but the value. As Marx describes in Theories of Surplus Value Part 1, exchange value is the relation between two commodities, the value of one expressed as a quantity (the equivalent form) of another. But, if you take the total output it has no exchange value, because that would mean it could only exchange with itself, which is irrational.

      The total output, therefore, marx demonstrates has a value, but not exchange value. The exchange value of total output can only be expressed as a price, i.e. the value of total output represented in its equivalent form as a given amount of money.

      “More precisely, the value of a specific commodity in any period is the weighted average of all the individual labour times that went into producing these commodities within an industry.”

      That again is not really correct, because that value is an historic cost, whereas Marx makes clear that the value of commodities is determined by their current reproduction cost. If three has been some huge revolution in productive technique that reduces the labour-time currently required for the production of commodities then it is that labour-time that determines the value of commodities, and Marx makes clear that this applies not just to all those commodities being currently produced to replace those consumed, but applies to all of those existing commodities that form the productive-capital and commodity-capital. They are all Marx says revalued retrospectively according to this current reproduction cost.

      I also don’t think that you can apply this in the way you have for the global economy, because Marx makes clear that variations in the productivity of labour between countries causes a modification of the Law of Value.

    • Henry Says:

      ucanbpolitical makes an important point though, namely that Marx’s aggregate rules are mathematical proofs that never actually exist in reality. It is purely at the theoretical level.

      Values will never = Prices. the way to think about it is that this rule is like gravity, so things gravitate to this reality, though as with real gravity things can get in the way.

      Helicopter money is an example of where this policy can work for a time but gravity will sooner or later assert itself.

      I think Marxism needs to develop a gravitational theory and not an aggregate theory.

  15. Al Harris Says:

    If commodities are used to produce commodities, then machine commodities and raw material commodities and labor power commodities (workers) are used to produce commodities. All of these can be measured in money.

    But what about the creative labor which produces the surplus value, profit? It has not been bought and sold like labor power. But what it produces, surplus value, is converted into money-profit as soon as the commodity is sold. So you start out with money, you create value with commodities paid for with money, more unpaid value is produced, then the final commodity is sold for money.

    The only part of the transaction where no money is paid, is for the unpaid value created by the worker’s labor. But that has no meaning for the capitalist because he thinks nothing has been created for which he owes money.

  16. Andrew Kliman Says:

    The Antichrist speaks:

    http://www.marxisthumanistinitiative.org/uncategorized/all-value-form-no-value-substance-comments-on-moseleys-new-book-part-1.html

  17. Andrew Kliman Says:

    The Antichrist speaks again:

    http://www.marxisthumanistinitiative.org/miscellaneous/all-value-form-no-value-substance-comments-on-moseleys-new-book-part-2.html

  18. Money and socially necessary labor time: A (Pre-)Review of Moseley’s new book | The Real Movement Says:

    […] raise questions about his argument. These pre-publication texts (here, here, and here, along with a recent review of the book by Michael Roberts, raise enough questions about Moseley’s so-called ‘macromonetary’ approach to […]

  19. Andrew Kliman Says:

    The Antichrist speaks yet again:

    http://www.marxisthumanistinitiative.org/miscellaneous/all-value-form-no-value-substance-comments-on-moseleys-new-book-part-3.html

  20. Andrew Kliman Says:

    The Antichrist speaks yet again:

    http://www.marxisthumanistinitiative.org/miscellaneous/all-value-form-no-value-substance-comments-on-moseleys-new-book-part-4.html

  21. Andrew Kliman Says:

    The Antichrist speaks yet again:

    http://www.marxisthumanistinitiative.org/miscellaneous/all-value-form-no-value-substance-comments-on-moseleys-new-book-part-5.html

  22. Andrew Kliman Says:

    The Antichrist speaks yet again:

    http://www.marxisthumanistinitiative.org/miscellaneous/all-value-form-no-value-substance-comments-on-moseleys-new-book-part-6.html

  23. Andrew Kliman Says:

    The Antichrist speaks yet again:

    http://www.marxisthumanistinitiative.org/miscellaneous/all-value-form-no-value-substance-comments-on-moseleys-new-book-part-7.html

  24. Andrew Kliman Says:

    The Antichrist speaks yet again:

    http://www.marxisthumanistinitiative.org/miscellaneous/all-value-form-no-value-substance-comments-on-moseleys-new-book-part-8.html

  25. Andrew Kliman Says:

    The Antichrist speaks yet again:

    http://www.marxisthumanistinitiative.org/uncategorized/all-value-form-no-value-substance-comments-on-moseleys-new-book-part-9.html

  26. Andrew Kliman Says:

    The Antichrist speaks yet again:

    http://www.marxisthumanistinitiative.org/miscellaneous/all-value-form-no-value-substance-comments-on-moseleys-new-book-part-10.html

  27. Andrew Kliman Says:

    The Antichrist speaks yet again:

    http://www.marxisthumanistinitiative.org/miscellaneous/all-value-form-no-value-substance-comments-on-moseleys-new-book-part-11.html

    “Fred Moseley has just tacitly accepted the temporal single-system interpretation (TSSI) of Marx’s value theory. He now recognizes (more or less clearly) the contradiction between Marx’s theory and simultaneous valuation of inputs and outputs, and he takes a stand in favor of Marx’s theory. He doesn’t say this openly, and he is trying to wriggle out of the contradiction, but the handwriting is on the wall.”

  28. Andrew Kliman Says:

    The Antichrist speaks yet again:

    http://www.marxisthumanistinitiative.org/miscellaneous/all-value-form-no-value-substance-comments-on-moseleys-new-book-part-12.html

    Part 12 includes Phun with Physicalism! interactive spreadsheet.

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