The Real Movement

Communism is free time and nothing else!

Month: September, 2018

Reply to Rory’s comment on my “Nineteenth note”

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.

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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.

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Ninteenth note on Moseley’s “Money and Totality”

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:

  1. What is the value of each of the pairs of shoes?
  2. What is the value of the labor powers employed in the production of the shoes?
  3. What is the surplus value created by the labor power?

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”:

  1. 8 hours of value for the shoes
  2. 4 hours of value for the labor power
  3. 4 hours of surplus value created in the production of the pair of shoes

For capital “B”, we get this result:

  1. 0 hours of value for the shoes
  2. 0 hours of value for the labor power
  3. 0 hours of surplus value created in the production of the shoes

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:

  1. 8 hours of value for two pairs of shoes, or 4 hours of value embodied in each pair of shoes
  2. 4 hours of value for the labor power consumed in production, or about two hours of labor power per pair
  3. 4 hours of surplus value created in the production of the shoes, or about two hours of surplus value per pair

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”:

  1. 4 hours of value for the pair of shoes
  2. 4 hours of value for the labor power
  3. 4 hours of surplus value created in the production of the shoe
  4. 0 hours of surplus value realized in exchange

For capital “B”, we get this result:

  1. 4 hours of value for the pair of shoes
  2. 0 hours of value for the labor power
  3. 0 hours of surplus value created in the production of the shoes
  4. 4 hours of surplus value realized in exchange

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?

Eighteenth note on Moseley’s “Money and Totality”

In the last note we saw that although the capitalist only pays out four hours of labor for the labor power he employed in the production of the shoes, when he gets to the market he finds that the shoes themselves still have a value of eight hours. The value of the shoes he wants to sell is determined not by the duration of labor he actually paid out to produce his shoes, but the socially necessary labor time required to produce shoes under the normal conditions of production, etc.

At the same time, the capitalist has purchased the labor power of the worker. The value of this commodity, like the value of the shoes, is not determined by the exchange value the capitalist paid for it. Rather, the value of the labor power is also determined by the socially necessary labor time required to reproduce labor power under the normal conditions of production, etc. The value of labor power, like the value of the shoes, is socially, not individually, determined.

The value of the shoes forms the upper limit on the total surplus value that can be produced by the capital. If the value of the shoes is eight hours of socially necessary labor time, the surplus value created can be no more than this. At the same time, the magnitude of surplus value that can be produced by the capital is further limited by the value of the labor power that must be consumed in the production of the commodity. If the value of the labor power is four hours and the value of the shoes is eight hours, the magnitude of surplus value can never be more than eight hours minus four hours, i.e., four hours.

However, we must add this caveat: In the system of production based on exchange value, the magnitude of the value of labor power can never be zero for the obvious reason that labor power is the source of all value and surplus value. If the value of the labor power consumed in the production of commodities ever reached zero, the production of surplus value would cease altogether. Thus, no matter how small the magnitude of the value of the labor power employed in the production of commodities, this value can never be zero without bringing about the immediate collapse of capitalism.

While at least in theory it may be technically feasible to produce use values without any application of living human labor, this would be incompatible with the production of value and the capitalist mode of production. The system of capitalistic commodity production has its limit that it requires some application of human labor in the production of commodities.

Assume two capitals, one of which buys labor power to produce shoes and a second capital that has completely automated the production of shoes and employs no labor power at all.

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.

This brings us to an odd result that I will discuss next.

Seventeenth note on Moseley’s “Money and Totality”

We now have a thorny theoretical problem:

The capitalist has drawn four hours of labor from the circulation of commodities in the form of labor power. But this labor power is itself the source of all value. By working the worker longer than is necessary to reproduce the value of her labor power, the capitalist is able to introduce into the circulation of commodities not four, but eight hours of value. He pays the worker the value of her labor power as contracted, but how does he dispose of the additional four hours of value? How does he convert this surplus value into M’?

The conditions for the realization of the surplus value require more socially necessary labor time than the conditions for the production of the surplus value. The production of the surplus value required four hours of value, but the conditions for realization of the surplus value require four hours of value for the labor power, plus an additional four hours for the surplus value.

Eight hours is greater than four hours. The commodity (a pair of shoes) is purchased in the market at its value: eight hours of socially necessary labor time. But this value incorporates more value than was laid out initially by the capitalist. Four additional hours of value have appeared as if out of nowhere and the conversion of this new value into its corresponding exchange value must be explained.

This has led at least one writer to suggest there is what he calls a realization problem, which he defines this way:

“The realization problem was first considered by classical economists such as Ricardo and Sismondi. Keynes’s theory of effective demand has a bearing on it too. But it was Marx who gave it its most rounded — and controversial — treatment. At its simplest, the realization problem amounts to this: is there sufficient monetary demand for the commodities which have been produced to be sold, and sold at their value?”

The problem with this argument is obvious: the value of an individual commodity — say a pair of shoes — has nothing whatsoever to do with the actual duration of labor required for its production. Rather, the value of any commodity is socially, not individually, determined. As values, the pair of shoes are only an average sample of their class.

Although the capitalist only pays out four hours of labor for the labor power he employed in the production of the shoes, when he gets to the market he finds that the shoes themselves — the product of the labor of the worker — still have a value of eight hours. This value is determined not by the duration of labor he actually employed in production of his shoes, but the “labour time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time.” (Marx, Capital, v1)

The capitalist thus charges no more than the actual value of the shoes — eight hours of SNLT — yet, after paying the worker her wages of four hours, he pockets four hours of profit.

And no one — neither his workers nor his customers — is the wiser.

Some important comments from Fred Moseley on my notes on his book, “Money and Totality”

Fred Moseley has graciously responded to many of the criticisms I have made regarding his book, “Money and Totality”. My study of his book is not yet finished, but I want to post his response. I don’;t often receive direct feedback from writers whose books I discuss here. I think his response clarifies many of the differences I have with him on the subject for me. I hope it will have the same impact on anyone who has been following my notes as well.

I am grateful to Moseley for his response. I don’t mind being shown to be wrong so long as I learn more about the highly difficult and abstract subject of the transformation of labor values into capitalistic prices of production..

*****

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Is Obama serious?

I’m old enough to remember when even Obama’s own Democ-Rat economic policy adviser, Larry Summers, said Obama’s economic policy was failing to generate sufficient growth:

Oh, and btw, Obama likely just signaled that the Democ-Rats will go along with a cabinet vote to remove Trump from office under the 25th amendment. The anonymous writer is not a he or a she; it’s a they.

Sixteenth note on Moseley’s “Money and Totality”

So, I have a question that, perhaps, Professor Moseley can answer for me:

Leaving aside the value of the means required for its production, in simple commodity production the socially necessary labor time required for the production of a commodity — say, a pair of shoes — would be expressed in its money price, in the exchange value with which the commodity is purchased in the market.  If this labor time was eight hours, the price of the commodity would more or less be a sum of money that likewise required eight hours to produce.

What the producer sells is not his labor, but a commodity. If this commodity required eight hours to produce, the price of the commodity (with supply and demand at equilibrium) would require a sum of money equal to eight hours.

For the wage worker it is otherwise: the worker creates a pair of shoes with a value of eight hours, but receives in return for this labor a sum of money embodying only four hours of labor. Although the quantity of labor going into the shoes is eight hours, the worker receive for his labor only four hours.

In simple commodity production, the value of the shoes is equal to the eight hours of labor required for their production. In capitalistic commodity production, however, the value of the shoes is eight hours; yet the value of the labor power going into the production of the shoes is only four hours. In simple commodity production and exchange, the producer expends eight hours of socially necessary labor time and receives for his product eight hours in return. In capitalistic commodity production, the wage worker expends eight hours of socially necessary labor time and receives for his labor power only four hours.

In other words, the capitalist is withdrawing four hours of value in one form from the circulation of commodities and later adding eight hours of value in another form to the circulation of commodities.

Question: To whom is the additional four hours of value being sold? We know the worker herself only accounts for four hours of value and therefore has only four hours of exchange value to spend. But the capitalist realizes eight hours — the four hours of exchange value paid to the worker, plus an additional four hours of surplus value.

According to Moseley, since the circuit of capital begins with some quantity of money, there is no conversion of values into capitalistic prices of production. So, where did the means of exchange to realize this additional four hours of value come from? Or, to put this simply, how does this surplus value acquire a price in the market?

According to Marx’s theory, the conditions for the production of surplus value require only four hours of socially necessary labor time, yet the conditions for realization of the surplus value requires eight hours of socially necessary labor time. Where do the additional four hours of socially necessary labor time required for realization of the surplus value come from?

Fifteenth note on Moseley’s “Money and Totality”

According to Moseley:

“The ‘transformation problem’ is usually conceived as a transformation of individual labour values to individual prices of production. But that is not what Marx’s theory of prices of production is about; Marx’s theory is about the transformation of aggregate price to individual prices of production and the transformation of the total surplus-value into its individual parts. The standard interpretation misses entirely the all-important macro aspect of Marx’s theory and logical method, and the logical priority of the total surplus-value over the individual parts.” (Moseley, 2006, pg.6)

Perhaps I am missing something here, but in Capital, v1, Ch.19, Marx first discusses the transformation problem not in terms of the transformation of aggregate prices into individual prices, but explicitly in terms of the transformation of the value of labour-power into wages.

Marx defines the problem this way:

“On the surface of bourgeois society the wage of the labourer appears as the price of labour, a certain quantity of money that is paid for a certain quantity of labour. Thus people speak of the value of labour and call its expression in money its necessary or natural price. On the other hand they speak of the market-prices of labour, i.e., prices oscillating above or below its natural price.” (Capital, v1, Ch19)

To understand the problem posed by production of capitalistically produced commodities, Marx points out that while a pair of shoes might contain the equivalent of a day’s labor of eight hours or so, the labor that actually went into the production of the shoes only required four hours of labor to produce.

The monkey wrench thrown into the discussion of the transformation problem is that the commodity produced by labor now has two conflicting measures of its value: the labor time directly expended on its production and the labor time required to produce the labor power that is consumed during its production. Thus, there are not just one, but two transformations of values into prices taking place.

Fourteenth note on Moseley’s “Money and Totality”

Based on the historical relation between productivity and prices in the post-war period that I presented in the previous note, I think we have prima facie evidence that the relation between the values of commodities and their prices of production have broken down. This should not be a surprise in my opinion.

The prediction that the relationship between values and prices would break down has been made by a number of writers, including both the Marxist theorist, Henryk Grossman, and the neoclassical economist, John Keynes. Both writers argued that, after the Great Depression, the continuation of production for profit would be incompatible with the premises of simple commodity production.

I have cited Marx in a previous note on the breakdown of production based on exchange value, but here is Grossman making the point that past a certain point in capitalist development, labor power could no longer be sold at its value:

“I have shown that even if all conditions of proportionality are maintained and accumulation occurs within the limits imposed by population, the further preservation of these limits is objectively impossible. The system of production described in Bauer’s own scheme has to breakdown or the conditions specified for the system have to be violated. Beyond a definite point of time the system cannot survive at the postulated rate of surplus value of 100 per cent. There is a growing shortage of surplus value and, under the given conditions, a continuous overaccumulation. the only alternative is to violate the conditions postulated. Wages have to be cut in order to push the rate of surplus value even higher. This cut in wages would not be a purely temporary phenomenon that vanishes once equilibrium is re-established; it will have to be continuous. After year 36 either wages have to be cut continually and periodically or a reserve army must come into being.” (H. Grossman, 1929)

Grossman was not alone in this prediction. Keynes also thought that his proposed measure to escape the Great Depression — state deficit spending — would lead to inflation, i.e., the detachment of the prices of commodities from their values. In fact, Keynes thought this was the point of such expenditures, at least in part:

“It is often said that it costs £500 capital expenditure on public works to give one man employment for a year. This is based on the amount of labour directly employed on the spot. But it is easy to see that the materials used and the transport required also give employment. If we allow for this, as we should, the capital expenditure per man-year of additional employment is usually estimated, in the case of building for example, at £200.

“But if the new expenditure is additional and not merely in substitution for other expenditure, the increase of employment does not stop there. The additional wages and other incomes paid out are spent on additional purchases, which in turn lead to further employment. If the resources of the country were already fully employed, these additional purchases would be mainly reflected in higher prices and increased imports. But in present circumstances this would be true of only a small proportion of the additional consumption, since the greater part of it could be provided without much change of price by home resources which are at present unemployed. Moreover, in so far as the increased demand for food, resulting from the increased purchasing power of the working classes, served either to raise the prices or to increase the sales of the output of primary producers at home and abroad, we should to-day positively welcome it. It would be much better to raise the price of farm products by increasing the demand for them than by artificially restricting their supply.” (J.M.Keynes, 1933)

Thus we have two economists, working separately, and in the tradition of separate schools of thought, predicting the imminent collapse of the relation between value and price with the mode of production.

The first guy says:

“We have now reached the point where, if capitalism is to continue, values and prices will be detached.”

The second guy says:

“Hey, we can fix the depression, but this will cause inflation.”

Somehow, and absurdly, neither prediction made its way into Moseley’s discussion of the transformation of values into capitalistic prices of production!

Thirteenth note on Moseley’s “Money and Totality”

Moseley writes:

“(1) Marx’s theory is structured according to two main levels of abstraction: the production of surplus-value and the distribution of surplus-value, and the production of surplus-value is theorised prior to the distribution of surplus-value, which means that the total surplus-value in the economy as a whole is determined, logically, prior to its division into individual parts; (2) the subject of the theory throughout is a ‘single system’ – the actual capitalist economy – which is first analysed at the macro level of the total economy and is then subsequently analysed at the micro level of individual industries; (3) the logical framework of Marx’s theory of the production and distribution of surplus-value is the circuit of money capital, which is expressed symbolically as:

M – C … P… C’ – M’,

where M’ = M + ΔM and the main goal of the theory is to explain the origin and magnitude of the total ΔM in the economy as a whole; (4) the initial money capital M at the beginning of the circuit of money capital is taken as given, as initial data, both in the macro theory of the total surplus-value and in the micro theory of the individual parts of surplus-value; (5) the given initial M is eventually explained in two stages, first partially at the macro level and then more completely at the micro level; and (6) the variables in the theory are determined according to the logic of sequential determination (not simultaneous determination), in the above senses.

In this book, it will be argued that, if Marx’s logical method is interpreted in this way, then there is no ‘transformation problem’ in Marx’s theory, and that Marx’s theory of prices of production is logically coherent and complete.”

Anyone who has ever tried to explain inflation based on the premises of Marx’s labor theory of value knows immediately that the neat relation (alleged by all schools) between the value of a commodity and its price in Marx’s theory is, at the very least, highly problematic. The history of prices for the last century suggests, if anything, that the prices of commodities are inversely correlated to their values.

Thus, as the productivity of labor has increased since 1950:

United States Nonfarm Labour Productivity 1950-2018: Productivity in the United States averaged 60.17 Index Points from 1950 until 2018, reaching an all time high of 105.08 Index Points in the second quarter of 2018 and a record low of 26.03 Index Points in the first quarter of 1950.

The prices of the commodities produced by this increasingly productive labor increase with it:

United States Consumer Price Index (CPI) 1950-2018: Consumer Price Index CPI in the United States averaged 110.91 Index Points from 1950 until 2018, reaching an all time high of 251.29 Index Points in July of 2018 and a record low of 23.51 Index Points in January of 1950.

 

If, as Moseley suggests, Marx’s labor theory of value simply proposes that labor values of capitalistically produced commodities are expressed in their prices of production and no more, it is obvious Marx was wrong. If anything, prices of production appear to be positively correlated with labor productivity — as the socially necessary labor time required for production of a commodity falls, its price rises.

Empirical evidence seems to suggest that the alleged neat relation between labor values and money prices begins to break down almost immediately with the capitalist mode of production.