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Category: Schrodinger’s Capital

Money as superposition of value and self-expanding value

This is from Moseley:

“Marx’s theory of the circulation of capital also begins in the sphere of circulation (in Part 2 of Volume 1), with the advance of definite quantities of money constant capital and money variable capital to purchase means of production and labor-power (with the famous passage at the end of Part 2 about moving from the “noisy sphere of circulation” to the “hidden abode of production” marking the transition from the sphere of circulation to the sphere of production). Thus, when the second phase of the production of value and surplus-value begins, as analyzed in Part 3 and beyond, the quantities of constant capital and variable capital are assumed to have already been advanced in the sphere of circulation to purchase means of production and labor-power. These already existing quantities of constant capital and variable capital are taken as given as an empirical fact in Marx’s theory of how this previously existing given quantity of money capital becomes more money in subsequent phases of the circulation and the valorization of capital. In this way, the presuppositions of Marx’s theory of surplus-value in the sphere of production come from already existing quantities of money capital previously advanced in the sphere of circulation.”

So, here is my question: Where did the money come from? Where did the commodities come from?

What Marx shows in part 1 of Capital is that capital is logically premised on the prior existence of commodity production and exchange. The production of surplus value is premised on the production of value. Capital assumes not the prior existence of money capital, but of money-becoming-capital. The preexisting money doesn’t actually become money capital until it is exchange for labor power.

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Schrödinger’s Capital: How the value-form school bet on a dead cat bounce

NOTE 27: Avoiding empirical proof at all costs

As I showed in my last post, the classical theorists prior to Marx held that the rate of profit had a definite tendency to fall. Since the capitalist mode of production is essentially production for profit, this immediately raised the question whether capitalism has a definite shelf-life beyond which it must collapse.

A falling rate of profit is inherently incompatible with the indefinite continuation of the capitalist mode of production for the rather obvious reason that the capitalist mode of production is production for profit. If the capitalist cannot realize a profit on his investment, he has no incentive to invest.

Marx had two tasks regarding this alleged tendency: first, to establish whether it in fact existed and why; second, to establish that the falling rate of profit in fact actually limited the life-span of the capitalist mode of production.

The value-form theorist, Michael Heinrich, has produced a critique of Marx’s effort in an essay published in Monthly Review, Crisis Theory, the Law of the Tendency of the Profit Rate to Fall, and Marx’s Studies in the 1870s, in which he argues Marx’s theory is not scientifically valid. Read the rest of this entry »

Schrödinger’s Capital: How Marxists erased Marx’s prediction of capitalist collapse

NOTE 26: The contradiction between the two rules within the capitalist mode of production

In my last post, I discussed the odd coincidence between quantum theory and economics. The coincidence is that, in both disciplines, the respective processes appear to be determined by two different sets of rules.

In economics these two different sets of rules are given expression in the division of economics into what is today known as macroeconomic and microeconomic theory. Behaviors at the level of the firm are determined by the rules of microeconomic theory, while behavior of the economy as a whole is determined by the rules of macroeconomic theory.

I argued that this division occurred because bourgeois economics takes as it starting point not production of commodities, but the consumption choices of agents on the margin. Neoclassical theory thus overlooks the fact that the act of production is also a form of consumption.

There is another feature of this split of bourgeois economics into separate microeconomic and macroeconomic rules that may not be obvious at first: both sets of rules are valid and reflect a real contradiction within the capitalist mode of production.

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Schrödinger’s Capital: Two Rules to Ring Them All

NOTE 25: The strange parallels between Schrodinger’s equation and microeconomic theory

In his book, From Eternity to Here, Sean Carroll discusses the peculiar nature of the universe as seen from the perspective of the Copenhagen school. This peculiar nature can be described by four characteristics of matter at the quantum scale:

1. Matter behaves both like a discrete particle and like a less discrete wave.

2. Matter suddenly changes from wave-like behavior to particle-like behavior whenever we attempt to observe it. i.e., whenever we interact with it.

3. The instantaneous transition from wave-like behavior to particle-like behavior is such that it is, a. irreducibly random: Which is to say, we can only approximate its final result in advance; and, b. irreversible: which is to say, we cannot know the previous state of the particle, our interaction with a particle irretrievably destroys the information regarding its previous state.

4. There is an irreducible level of uncertainty when we try to measure a process.

In classical physics the development of a process can be accounted for by a single set of rules based on Newtonian physical laws; but in the natural world described by quantum mechanics the development of a process appears to be governed by two completely different sets of rules, which Carroll explains this way: Read the rest of this entry »

Schrödinger’s Capital: Why Chris Arthur followed Bohm-Bawerk in rejecting the law of value

NOTE 24(c):  The superposition of socially necessary labor time

As I showed in my last post, bourgeois simpletons have tried to expunge the law of value from economics without success. This is because, as Bohm-Bawerk admitted, the law of value provides a weapon for the working class in its conflict with the capitalist. Assuming Marx is correct, says Bohm-Bawerk, “the difference in value that falls as surplus to the capitalist” is revealed by the law:

“And this principle, entirely unfounded as it is, the socialist adherents of the Exploitation theory do not maintain as something unessential, as some innocent bit of system building; they put it in the forefront of practical claims of the most aggressive description. They maintain the law that the value of all commodities rests on the labour time incorporated in them, in order that the next moment they may attack, as ‘opposed to law,’ ‘unnatural,’ and ‘unjust,’ all formations of value that do not harmonise with this ‘law'”

It is obvious why Marx’s law of value might be a problem for Bohm-Bawerk and the neoclassical school, but it is not at all evident why the value-form school should spend so much time trying to 2000px-Schrodingers_cat.svgexpunge the law of value from Marxism as well. In any case, this effort by the value-form school is just as impotent once the content of their criticism of the law of value is explained.

According to the Chris Arthur and value-form school, it is not value that determines the prices of commodities,  but prices that create a ‘value dimension’ allowing use-values to then be compared with one another as values:

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Schrödinger’s Capital: Why price never equals value in Marx’s labor theory of value

NOTE 24(b): Why Marx’s argument on value causes such controversy

A reader of this blog made this excellent statement regarding my last post:

“Yes indeed, after having to offer so many caveats about value, bourgeois economists and most ordinary people start to wonder what good the concept is in the first place. Especially if it is not directly visible, if nobody really knows the value of any commodity, and if it doesn’t directly determine prices, fretting over it starts to sound to people like a bunch of obsessive woo-woo pseudoscience, like worrying about ghosts and such.”

If the value of a commodity cannot be detected or measured by any known means, why do I spend so much time talking about it? The answer is simple: qualitatively, value, exchange value and prices are all the same thing: they are each some definite quantity of socially necessary labor time. Unless you can explain value, you cannot explain prices nor the constant, apparently random, movement of the price of a commodity in the market.

Before we can explain why prices randomly shift according to supply and demand, we have to explain why prices even exist; i.e., we have to explain what price itself is.

To approach the problem from another direction, it might help to think of it this way: In Capital Marx never needed to prove that labor lay behind the prices of commodities. Almost every economist in his own time accepted that this was true.

Folks like Bohm-Bawerk challenged the idea that labor is the source of value not because it was unproven, but because of its implications for capitalism. As Bohm-Bawerk argues in his critique:

“And this principle, entirely unfounded as it is, the socialist adherents of the Exploitation theory do not maintain as something unessential, as some innocent bit of system building; they put it in the forefront of practical claims of the most aggressive description. They maintain the law that the value of all commodities rests on the labour time incorporated in them, in order that the next moment they may attack, as “ opposed to law,” “ unnatural,” and “ unjust,” all formations of value that do not harmonise with this “ law,”—such as the difference in value that falls as surplus to the capitalist—and demand their abolition. Thus they first ignore the exceptions in order to proclaim their law of value as universal. And, after thus assuming its universality, they again draw attention to the exceptions in order to brand them as offences against the law.”

As he honestly explains, Bohm-Bawerk’s opposition to labor as the source of social wealth was based on his view that it provided a political argument for the working class against capitalist exploitation. (By contrast, Harvey and the value school have yet to explain the grounds on which their opposition to labor theory of value is based.)

However simply saying labor time is behind the prices of commodities explains almost nothing. Even if labor value lay behind the prices of commodities, Marx still had to explain a problem for which no economist in Marx’s time could offer a satisfactory explanation: If labor was behind both value and prices, why did the prices of commodities almost always diverge from their values — something that is implied by what is often called ‘the problem of the transformation of values into prices of production’. Given the roadblock Adam Smith and Ricardo ran into trying to explain how the values of commodities were transformed into the capitalist production prices of commodities, Marx first had to explain what price was and the relation of price to value.

Unlike bourgeois simpletons, Marx did not accept price as a given. He argued price was the observable manifestation of something that could not be observed: labor value. However the relation between prices and value was nowhere near as simple and straightforward as was commonly assumed.

Let’s restate the critical points of the previous discussion

To begin his explanation, Marx had to first show why value, exchange value and price are not the same thing and must be distinguished from one another.

As I stated in the previous note, although Marx is often accused of having a mechanical view of labor value, where the price of a commodity is also its value, Marx held no such theory. In Marx’s labor theory value, exchange value and price are three separate and distinct properties, each of which almost always embody a different quantity of labor time and each of which must, therefore, be explained separately.

The relation between the value, exchange value and price of a commodity can be understood this way:

  • First, a commodity may have value without having exchange value or price.
  • Second, a commodity may have exchange value, without having any value at all.
  • Third, a commodity may have a price, without having either value or exchange value.
  • Fourth, even in a transaction involving a commodity that has value, exchange value and a price, nothing in labor theory states these three quantities of abstract homogenous socially necessary labor time will be equal.

A commodity may be a product of labor and thus have value. This, however, does not mean the commodity has exchange value or a price in the market. Nor does it mean the exchange value and price of the commodity are equal quantities of socially necessary labor time as is embodied in the value of the commodity.

On the other hand, a commodity may have a price in the market, without having either value or exchange value. Even if the commodity has a price, a definite value and a definite exchange value, there is nothing to say the price of the commodity embodies a quantity of socially necessary labor time equal to either its value or its exchange value.

Finally, a commodity may have exchange value without embodying a single instant of value. Even if the commodity possesses both value and exchange value nothing in labor theory suggest the same quantity of socially necessary labor time is embodied in each.

Defining terms

Surprisingly, in labor theory, although the value of a commodity, its exchange value and its price, all refer to some quantity of socially necessary labor time, they are three different and distinct things that can contain unequal quantities of socially necessary labor time.

In first place, the value of any commodity is the socially necessary labor time required to produce the good. This value arises from the expenditure of labor power on an object of nature in the course of producing the commodity. The value contained in the commodity is nothing more than some definite expenditure of labor power in some specific form. The relation between the value (socially necessary labor time) of the commodity and the commodity itself is peculiar to the commodity.

The exchange value of the commodity is the quantity of another commodity for which the first commodity can be exchanged. This second commodity, like the first, is also nothing more than some definite expenditure of labor power in some specific form. When the two commodities are exchanged, their owners attempt to estimate their respective values and this is a problem. According to Marx neither owner knows the value of his commodity nor the value of the other commodity. It follows from this that neither owner has any idea what the proper exchange ratio is for the two commodities. They are guesstimating or approximating the proper exchange ratio for the two commodities. Depending on the knowledge of the owners and market conditions, this guess may be more or less accurate, but it is always just an approximation. The exchange value — the quantity of a second commodity given in exchange for the first — can never be anything more than a more or less educated approximation of their actual exchange values.

Finally, we have the price of the commodity — which, of course, assumes a money of some sort. The exchange value and the price of a commodity are often assumed to be the same thing, but actually they are not the same. While the exchange value of any commodity is the definite quantity of one commodity paid out for another commodity, its price, however, can simply be a certain quantity of a token of money, rather than an actual commodity money. The token is assumed to stand in the place of the money commodity that is being exchange for the first, but this is not always the case. For example, when the dollar was debased from gold after 1971, price was also, at the same time, severed from exchange value. As a result, today the price of a commodity no longer represents any definite amount of a commodity money. The debasement of the token of money actually can lead to the oddest sort of result: a good for sale in the market may have a price without having either value or exchange value.

Bourgeois economists, value and price

Contrary to most explanations of Marx’s labor theory of value, there is nothing in the labor theory of value that says the price or exchange value of any commodity is its value. The argument that the value of a commodity is its price (or that the price of a commodity is its value) is not Marx’s theory of value, it is bourgeois simpleton theory. As the argument against Marx made by Bohm-Bawerk demonstrates, in neoclassical economic theory the terms value, exchange value and price are essentially three interchangeable terms for the same thing. By contrast, In Marx’s theory these three terms do not refer to the same thing.

Thus, it is the most bizarre thing that Marx, who alone states value, exchange value and price are not the same and can never be the same except by chance, is the one person everyone else accuses of saying the value of a commodity is its price. What is even more bizarre is that when bourgeois simpletons like Bohm-Bawerk make this charge against Marx, Marxists often rush in to defend the principle that value equals price!

What accounts for the incongruity between value, exchange value and price?

The question this raises is obvious: How can we explain the persistent inequality between the magnitudes of value, exchange value and price?

Since each of these categories is simply some definite quantity of socially necessary labor time in the form of a particular product of labor, the relation between the three cannot just be determined by the socially necessary labor time each embodies. All we have here are socially necessary labor time in three different and unequal quantities, embodied in three different objects: a commodity, a second commodity for which the first is exchanged and an object serving as money. Since the socially necessary labor times of the three are all simply a definite quantity homogenous abstract labor, i.e., the expenditure of a definite quantity of labor power, nothing differentiates them as labor values but the duration of socially necessary labor time that is embodied in them.

Socially necessary labor time, since it is the “substance” the three share in common, can explain why commodities can be compared to one another, but it cannot explain why they exchange in the market in proportions that persistently diverge from their actual relative values. Yet we know this persistent inequality of labor values in exchange not only happens, it is the general rule of exchange according to Marx. Since the three quantities of socially necessary labor time — value, exchange value and price — are simply three different durations of socially necessary labor time, their persistent inequality in actual exchanges cannot be explained by the quantity of socially necessary labor time they each embody.

We are thus forced to conclude that the persistent divergence between values, exchange values and prices cannot be explained by the socially necessary labor time they each embody and which allows them to be compared as values. Rather, this persistent inequality must be explained by something else having no relation to socially necessary labor time required to produce them.

We have to look elsewhere for an explanation.

Schrödinger’s Capital: How David Harvey borrowed from Austrian theory to criticize Marx

Note 24(a): How Harvey channels Bohm-Bawerk

In David Harvey’s introduction to Capital, Harvey makes the startling allegation that Marx never demonstrated that labor was the source of value; he simply made an a priori assertion that labor was the source of value by relying on the readers familiarity with Ricardo’s argument.

“One reason Marx could get away with this cryptic presentation of use-value, exchange-value and value was because anybody who had read Ricardo would say, yes, this is Ricardo.”

A surprisingly similar argument to Harvey can be found in, of all places, the Austrian economist Bohm-Bawerk’s 1890 book, Capital and Interest, where he levels the criticism Marx simply relies on Smith and Ricardo’s authority to make his case for the labor theory of value. But neither writer really proved labor was the source of value, argues Bohm-Bawerk. Smith and Ricardo only asserted “that labour is the principle of the value of goods simply as an axiom, and without giving any evidence for it.”

Harvey applies Bohm-Bawerk’s criticism of Smith and Ricardo into his own criticism of Marx, stating the latter did not offer proof for his a priori assertion that labor is the source of value because “we cannot isolate and conduct controlled experiments in a laboratory, so we have to use the power of abstraction instead in order to arrive at similar scientific forms of understanding.”

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Schrödinger’s Capital: What can the defunct Soviet Union tell us about value, exchange value, prices and money

NOTE 23: What can the Soviet-era rouble tell us about the inconvertible fiat dollar?

For one thing, it tells us that sometimes it is very difficult to look at a category like value in isolation and assess what about it is necessary and what is purely contingent.

To clarify what I mean, let me use two analogies, both drawn from evolution science:

At some point a feathered flying creature emerged that was no longer a dinosaur but not yet a bird. At another point an upright walking ape emerged who was no longer simply an ape, but not yet human. In either case, what we have learned by studying the fossil record is that the creatures were both specific forms of life and, at the same time, transitional forms to new forms of life.

We encounter a similar difficulty when trying to ascertain the significance of categories of capitalist society. Which of the phenomenon we observe are necessary and which are purely transitory expressions of the movement of society.

To show how this might be significant to the problem of value, exchange value, and money, it might help to do what Marx did: compare present society to social formations that had none of these categories.

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Schrödinger’s Capital: Heinrich’s hilarious ‘refutation’ of Marx on the falling rate of profit

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NOTE 22: The falling rate of profit and the collapse of production on the basis of exchange value

In part 2 of his 2013 essay, Crisis Theory, the Law of the Tendency of the Profit Rate to Fall, and Marx’s Studies in the 1870s, Heinrich argues Marx  makes a far-reaching assertion that is impossible to demonstrate empirically: in the long term the rate of profit must fall.  As Heinrich points out the very nature of the law — that it only points to a tendency — implies past historical data cannot simply be projected indefinitely into the future. The rate of profit may well have fallen in the past or it may have risen, but this does not mean a given historical trend will continue in the future.

The argument Heinrich makes in this section appears to challenge a long-standing Marxist assumption that there is at least an indirect link between capitalist crisis and social revolution. For some Marxists — notably, Andrew Kliman and company — the crisis produced by the falling rate of profit is a theoretically necessary assumption, because such a crisis is thought to be the material force that ultimately triggers a working class social revolution. Without the crisis, and the deepening poverty and political discontent it creates, many Marxists have no ready explanation for why the working class would overthrow capital. Thus, if we accept Heinrich’s argument about the falling rate of profit, what are we left with as a trigger for the social revolution?

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“Schrödinger’s Capital”: How Michael Heinrich deliberately twisted Marx’s Grundrisse argument

NOTE 21: The collapse of production on the basis of exchange value

In my previous note, I argued the exchange value paid out as currency wages since the collapse of Bretton Woods in 1971 has been zero. My assertion is based on the consensus among scholars within both the value-form and MELT schools. This consensus among Marxist scholars assumes that, since 1971 and the collapse of the Bretton Woods agreement, the money we use to purchase commodities has no value of its own.

However, although both the MELT school and the value-form school generally agree the dollar does not represent any exchange value after 1971, both schools deny this change has any material impact on labor theory analysis.

Both the value-form school’s argument and the MELT school’s argument that nothing changed after 1971 should, in all honesty, require empirical evidence prices behave the same irrespective of the labor content of money. Yet neither school has ever once produced any evidence for this view. Despite the fact neither school has ever shown prices behave the same even if the labor content of the object serving as money is zero, this, it seems, has no effect on the discussion, for the simple reason that, surprisingly, no Marxist has ever demanded empirical proof from either school of their claims. You really have to wonder how Marxists can see one of the fundamental assumptions of their theory simply dismissed out of hand and not demand empirical proof.

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