Originally posted on from here to there:
I’m happy to say that my article on Marx’s transformation problem has now been published in the Cambridge Journal of Economics. After a little negotiation with Oxford University Press, I am able to link to a free version of the article from my website. Here it is. Marx’s…
“You know, my analogy is if you want to understand the significance of great work of art, you don’t necessarily interview the artist.”
One of the great tragedies of Moishe Postone was that he was never able to extend his profound grasp of Marx’s thinking to the problem of strategy in the 21st century before his death. In this video he explains the likely reason for his failing at about the 31 minute mark while commenting on Marx.
Preferring to focus on unworkable, half-baked solutions like “an economy-wide cap-and-trade program, plus a suite of complementary policies to boost energy efficiency and the use of renewable energy in key economic sectors” that will never be supported by Washington nor win even a modicum of political support among ordinary citizens, the Union of Concerned Scientists has completely neglected the idea, originally proposed by Keynes in 1930, that by 2030 society could produce everything it needs with little more than a 15 hours work week.
Such a reduction of working hours would easily achieve UCS’s stated goal of reducing the threat of climate change — AND FIX MASSIVE SOCIAL INEQUALITY AND POVERTY. But that would be too easy for these addled brainiacs because it doesn’t involve math, I guess.
The executive summary of the silly UCS proposal can be read here.
We have seen that with the transformation of the value of labor power into wages, the conversion of the values of commodities into their prices also undergoes a conversion.
If before the price of an individual commodity was the direct expression of the individual socially necessary labor time required for its production, this is no longer true. While the sum of prices still equal the sum of labor values, the price of any individual commodity no longer equals its individual value. Rather, the price of the individual commodity equal its price of production, i.e., the value of the constant capital and the value of the labor power consumed in its production plus an average rate of profit.
This average rate of profit is calculated against the total capital of society and divided among capitals as their share of the total loot.
The capitalist mode of production establishes a new form of sociality that directly conflicts with the sociality of exchange relations found in simple commodity production. In this form of capitalistic sociality, the act of production is mediated as a totality. The labor power consumed in the production of commodities is mediated as a single homogenous labor power. The product of this labor power, the surplus value produced by it, is treated as a single product to be divided up among the various shareholders of the total capital in proportion to their share in it.
This new sociality of capitalistic production works to the direct advantage of those owners of capital who most aggressively replace the employment of living labor in production with machines. It concentrates and centralizes capital in their hands.
This, Marx argues, has real implications for the employment of wage labor, which Moseley and his various Marxist colleagues completely neglect in their discussion of the transformation problem:
“And whilst centralisation thus intensifies and accelerates the effects of accumulation, it simultaneously extends and speeds those revolutions in the technical composition of capital which raise its constant portion at the expense of its variable portion, thus diminishing the relative demand for labour.
The masses of capital fused together overnight by centralisation reproduce and multiply as the others do, only more rapidly, thereby becoming new and powerful levers in social accumulation. Therefore, when we speak of the progress of social accumulation we tacitly include — today — the effects of centralisation.
The additional capitals formed in the normal course of accumulation (see Chapter XXIV, Section 1) serve particularly as vehicles for the exploitation of new inventions and discoveries, and industrial improvements in general. But in time the old capital also reaches the moment of renewal from top to toe, when it sheds its skin and is reborn like the others in a perfected technical form, in which a smaller quantity of labour will suffice to set in motion a larger quantity of machinery and raw materials. The absolute reduction in the demand for labour which necessarily follows from this is obviously so much the greater the higher the degree in which the capitals undergoing this process of renewal are already massed together by virtue of the centralisation movement.
On the one hand, therefore, the additional capital formed in the course of accumulation attracts fewer and fewer labourers in proportion to its magnitude. On the other hand, the old capital periodically reproduced with change of composition, repels more and more of the labourers formerly employed by it.” (Marx, Capital, V1, ch.25)
“We’ll have so much winning, you’ll get bored with winning” Donald J. Trump
We have seen in the previous note that Capital “A”, employed 30 hours of labor power in its production of widgets and created 30 hours of surplus value, while capital “C” employed no labor power in its production and produced no surplus value.
Despite this fact, the commodities sold by capital “C” realize a price in the market for its commodities above their value, while the widgets sold by capital “A” realize a price below their value.
The commodities sold by capitals “A”and “B” are thus sold not at their respective values, but at their prices of production. The commodities sold by capital “C” are sold at their value, but only because the organic composition of capital are the average for the three.
As noted by Moseley in a footnote on page 39, Bohm-Bawerk, who, apparently could read as well as (or perhaps better than) any Marxist, saw this bizarre result and remarked on it:
“Böhm-Bawerk 1949 criticised Marx for assuming that prices are equal to values (in Volumes I and II) and that prices are equal to prices of production (in Volume III), which he said is contradictory: prices cannot both equal values and not equal values. But Böhm-Bawerk did not understand Marx’s logical method of the two levels of abstraction – the total economy and individual industries. 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.”
In this footnote, three issues are being conflated:
Let’s take the second issue first, because it is easiest to to dismiss: as Thomas Lord notes in an earlier comment, Marx is not simply talking about the ‘total economy’ — whatever that means. The same principles Marx describes should generally hold as true between departments of a single capital, an industry, a region, a national economy or the world market as a whole. To be clear, there is no reason to assume this relationship holds for, say, a national economy or a certain industry, but not for a regional bloc, (like the EU), or the world market. Lenin’s superprofits can as easily be explained by Marx’s transformation of values into prices of production as by Lenin’s imperialist division of the world market.
So, is there a contradiction between the values of commodities and the formation of their capitalist prices of production or are we just seeing Marx’s labor theory of value going badly off the rails?
In first place, we know Marx was not the first theorist to encounter this conundrum. Ricardo and Smith ran into it as well. This would suggest that either labor theory suffers an intractable flaw that cannot be expunged, or that it is accurately revealing a more fundamental — and, for our purposes, more significant — flaw in the mode of production itself.
What flaw could this be?
While it generally holds true that the sum of prices equals the sum of values and the sum profits equals the sum of surplus value, this relation is no longer true in the case of any actual commodity.
Of course, under simple commodity production this is already true to some extent. Fluctuations in the market prices of commodities owing to supply and demand and other influences mean that only over the long-run will these prices reflect the value of the commodity on average. But under the capitalist mode of commodity production, the prices of commodities no longer equal their values even in the long-run. Individual prices and individual values have become permanently detached.
At the individual level, the relationship between labor values and prices have already begun to disintegrate.
Following up on my reply to Rory, in this note I offer a more complete model of Marx’s argument on the transformation problem.
In this case we have three capitals, each with an identical magnitude of 100:
I am assuming a rate of surplus value of 100%.
The first capital, “A”, consumes 50 hours for constant capital and 30 hours for labor power in a given period. It sets this labor power to work. At the end of the period, produces 100 widgets.
The second capital, “B”, consumes 50 hours for constant capital and 15 hours for labor power. It sets this labor power to work. At the end of the period, produces 100 widgets.
The third capital, “C”, however, pays nothing for labor power. The capitalist sets his machines to work for the period, while he goes fishing, hunting and criticizing. At the end of the period, he returns to his workshop to find 100 widgets has been produced by his machine.
Based on the above information:
For capital “A”:
For capital “B”, we get this result:
For capital “C”, we get this result:
To understand the logic of Marx’s approach, however, we again assume there are not three but only one capital in our original example. In place of capitals “A”, “B” and “C” we have only a single composite capital. The answer then becomes simplified:
If we treat the labor powers employed as if they were a single homogenous labor power, how the prices of production of capitalistically produced commodities form becomes a great deal easier to grasp. The value of each widget (including the value of the constant capital consumed in their production) is equal to about 48 minutes of socially necessary labor time. The labor power employed in the production of the widgets is about nine minutes of socially necessary labor time. The surplus value produced by the labor power is also about nine minutes per widget.
This means that for each capital on average we get roughly this result for 100 widgets:
Yet we know that Capital “A”, employed 30 hours of labor power in its production of widgets and created 30 hours of surplus value. While capital “C” employed no labor power in its production and produced no surplus value. Despite this fact, the commodities sold by capital “C” realize a price in the market above their value while the widgets sold by capital “A” realize a price below their value, as explained below:
For capital “A”:
For capital “B”, we get this result:
For capital “C”, we get this result:
It would appear that a portion of the surplus value produced by one capital (A) appears as the profits realized by another capital (C).
Thus, the transformation problem is not simply, (nor even mainly), about the conversion of labor values into prices of production. Nor is it simply about the production and subsequent distribution of surplus value. Finally, it is not simply about accumulation. Rather, Marx solution shows that concentration and centralization of capital is literally built into the system of wage slavery from its inception. This concentration and centralization operates to the advantage of capitals that most aggressively economize on the use of labor power in production.
Marx summarizes this result in Capital, volume 1, chapter 25:
It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals. This process differs from the former in this, that it only presupposes a change in the distribution of capital already to hand, and functioning; its field of action is therefore not limited by the absolute growth of social wealth, by the absolute limits of accumulation. Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many. This is centralisation proper, as distinct from accumulation and concentration.
The laws of this centralisation of capitals, or of the attraction of capital by capital, cannot be developed here. A brief hint at a few facts must suffice. The battle of competition is fought by cheapening of commodities. The cheapness of commodities demands, caeteris paribus, on the productiveness of labour, and this again on the scale of production.
What is taking place here, side by side the brutal exploitation of the working class, is the real expropriation of many capitals by a few with the relentlessness of a physical law.
Rory wrote this great comment to my previous post that I was very happy to read because it highlights a very important conclusion:
“If capital B does not employ labor after the division, yet still produces value, then apparently technology produces value.
“Or, it’s not correct to treat capital A and B in the second scenario equivalently to capital A and B in the first. Otherwise, it will need to be explained how capital B was able to continue producing value after it shrugged off labor.”
I think Rory is correct here: Capital B employs no labor power. It follow that B is unable to produce value. It further follows that the value of the commodity that capital B produces cannot be the result of the labor directly expended on its production, since no labor has been expended on its production.
Finally, we know that constant capital does not produce value, which is why it is called constant capital.
How do we explain the fact that despite the fact that capital B creates no value, it nevertheless produces a use-value with a value of four hours in the market?
According to Marx, the price of a commodity may sometimes conceal a direct or indirect real value-relation. An example he cites for this is the price of uncultivated land, which can have a price although no human labour has been incorporated in it. In this case, the price of the pair of shoes reflect that fact that as a use-value produced for exchange it is to be considered as an average sample of its class.
The average pair of shoes in the example require only four hours of socially necessary labor time to produce. Although this average is divided between one pair that requires eight hours of SNLT and one pair that requires zero hours of SNLT, the average for the two pairs is four hours of SNLT. Thus, one pair sells below its actual value, while the other pair sells above its actual value.
*****
The great thing about this is that the capitalist does indeed imagine Marx is wrong. He really and truly believes his constant capital can be a source of windfall surplus value. For this reason, he invests in completely automating his production and firing all of his workers in hopes of realizing massive super-profits.
In this way, capital abolishes itself.
In the previous note I offer this scenario:
Assume two capitals, one of which buys labor power to produce shoes and a second capital that employs no labor power in the production of shoes.
The first capital, “A”, pays out four hours for labor power and sets this labor power to work for eight hours. At the end of eight hours, one pair of shoes has been produced.
The second capital, “B”, however, pays nothing for labor power. The capitalist sets his machines to work for eight hours, while he goes fishing, hunting and criticizing. At the end of eight hours, he returns to his workshop to find one pair of shoes has been produced by his machine.
Based on the above information:
There are two approaches to answering these question. The first would initially address each of the questions for the particular capital concerned. Using this approach we get this result for “A”:
For capital “B”, we get this result:
In other words, capital “A”, employing four hours of labor power, would at first appear to produce a pair of shoes with a market price of 8 hours of value and four hours of surplus value.
On the other hand, capital “B”, employing no labor power at all, would produce a pair of shoes with a market price of zero and no surplus value. Whatever cost involved in the shoes would solely be the cost of the constant capital used up in the production of the shoes.
To explain the formation of capitalistic prices of production in the shoes industry, some might argue that they are formed through competition between capitals, while others might suggest they are formed by the movement of capital. Still others employ all sort of fancy math to dazzle us with their brilliance.
To understand the logic of Marx’s approach, however, let’s assume there are not two but only one capital in our original example. In place of capitals “A” and “B”, we have only a single composite capital. This composite capital has introduced new methods of production so that it can double the number of pairs of shoes produced in eight hours. This means that for a given eight hours of labor, the capital can produced two pairs of shoes.
The answer then becomes simplified:
If we treat the labor powers as if they were a single homogenous labor power, how the prices of production of capitalistically produced commodities form becomes a great deal easier to grasp. The value of each pair of shoes is equal to four hours socially necessary labor time. The labor power employed in the production of the two pairs of shoes is four hours of socially necessary labor time. The surplus value produced by the labor power is four hours.
If we now break out how this value is divided between capital “A” and capital “B”, we get this result for capital “A”:
For capital “B”, we get this result:
Contrary to what we might expect for a system of commodity production, it is precisely the capital that produces no value at all that realizes a profit. While the capital that produces all of the surplus value in this example finds, after accounting for the value of the labor power consumed in the production of its commodity, that it realizes no profit.
Have I missed something here?
October 16, 2018
Twenty-third note on Moseley’s “Money and Totality”
Next year will be the anniversary of a rather earth-shattering event. May 29, 2019 will be 100th anniversary of the famed first confirmation of Einstein’s Theory of Relativity.
One of the key tenets of Einstein’s theory is that space-time can be distorted by the motion and mass of objects moving through it. The light from one distant object would appear to bend as it passed near the body of another sufficiently large body on its way to still a third body.
One scientist came up with a way to test this outlandish idea: the effect, although small, might still be measurable not near any body we might encounter on Earth, but on the largest body in our Solar system: the Sun: during an eclipse, and given the right conditions, we might be able to measure the slight change in position of a distant object beyond our solar system consistent with the prediction of Einstein’s theory.
This photograph from the May 29, 1919 total solar eclipse shows one of the stars used to confirm Albert Einstein’s general theory of relativity. The red dot shows where the star would have been without the sun’s interference.
Credit: Royal Observatory, Greenwich
On May 29, 1919, this measurement was successfully accomplished, changing the natural sciences forever. Our conception of the universe was no longer that of a flat, static, unchanging space-time. Within a few decades of this confirmation of Einsteins new theory, the now expanding universe was populated by all sorts of strange new theoretical objects, including black hole singularities where the known laws of the physical universe — including Einstein’s — may no longer hold.
*****
Now, you may ask, what does any of this have to do with Moseley’s book, “Money and Totality”?
Good question.
Einstein’s theory of relativity was the answer to contradictory observations of natural phenomenon for which existing theory could not account. To explain these contradictory observations, Einstein was forced to re-conceptualize space-time itself. This new space-time was no longer flat and unvarying. Gravity, rather than affecting the trajectory of objects, described the shape of the space-time through which objects moved.
Similarly, Marx’s labor theory of value was the answer to persistent contradictions that arise in labor theory of value once prices have to account for the division of socially necessary labor time into the wages of the working class and the profits of capital. Bizarrely, it appears capitalistically produced commodities do not have prices that express their labor values. They have prices of production that no longer directly express the socially necessary labor time required to produce them.
According to Marx’s solution, once the value of labor power was converted into wages, the prices of commodities were converted into capitalistic prices of production, i.e., into the costs of the constant capital and variable capital plus an average rate of profit. The average rate of profit was calculated on the basis of the total social capital and apportioned among individual capitalists as if they were shareholders in a single capitalist firm according to the relative share of their stake.
Contrary to our expectation, division of the social product of the exploitation of the working class takes place not according the relative mass of surplus value squeezed out of the individual work forces of each capital, but by the relative share of capital controlled by each capital in the process of accumulation generally. The manner in which the average rate of profit forms means that even in the case of capitals that employ no labor power and thus create no surplus value they will realize the average rate of profit based on their total mass of employed capital.
Thus, although, ultimately, labor is the only source of profit in the mode of production, empirically it appears each capitalist firm can create its own profit by progressively shedding the costs of wage labor.
This then sets the stage for the self-negation of the capitalist mode of production.