Fourteenth note on Moseley’s “Money and Totality”

by Jehu

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!