File spoon-archives/marxism-general.archive/marxism-general_1997/97-02-20.225, message 10


Date: Mon, 17 Feb 1997 00:55:58 +0100
From: m-14970-AT-mailbox.swipnet.se (Hugh Rodwell)
Subject: M-G: Value theory, prices and ground rent 1/2


The disagreements between Justin S and Mark J could well help us fathom out
Marx's views on the relationship between price, value and rent.

Mark writes:

>Justin also argues that Marx's Transformation Problem arises because:
>
>> In the only Capital III we have,
>> Marx points out that the rate of profit equalizas across departments with
>> different organic compositions of capital, so that prices systematically
>> deviate from values. This generates the transformation problem. It was
>> recognized as such by by 2dI, which set a prize for its solution. A
>> consequence of the deviation is that commodites exchange at prives of
>> production, not at values. Therefore, the law of value,w hich says that
>> commodities do exchange at value, is false.
>
>If one could point to one single source of these confusions, it is this.
>Both the Second International's theoreticians and Justin too assume that
>Marx's theory of the capitalist economy is one in where commodities
>acquire an average value, in which differences between more and less
>efficient producers are ironed out in the market.

Mark has put his finger on something very important here. The law of value,
as opposed to the labour theory of value, forces prices in a simple
commodity producing economy to approach their values. The quote from Engels
in a previous post makes this very clear, and also makes it clear that this
strong interpretation of the law of value doesn't hold in a developed
capitalist economy.

As for the Transformation Problem and the prize for its solution, I propose
we award it posthumously to Marx, and award a gold star (fools' gold) to
the 2nd International (which I would be much more careful about identifying
with Engels's influence than Mark, just think of the Critique of the Gotha
Programme etc, which wasn't just Marx's position) for inventing the thing
in the first place. The whole of book III is a demonstration of how an
average rate of profit is produced on the foundations of a
commodity-producing (ie value-driven) economy (by the workings of
competition, as Mark points out) and the effects this has on the formation
of and fetishization of such fundamental phenomena of capitalism as
interest and ground rent.


Mark continues:

>Justin:
>
>> In CIII he expressly abandons the law of value, that commodities exchange
>> at value equivalents. What remains of it in the more sophisticated model
>> of CIII is a "tendency" of prices to fluctuate around values, although
>> since valyes cannot be determined for individual commodities but only in
>> aggregate it's not clear how this proposition is supposed to be tested.

This is a specious argument, given the determinability in the final
instance of the value of individual commodities providing the labour input
is known together with all the other factors of production. It's just that
this isn't interesting. The important thing is the average value of
products in a sphere of production, and the superior or inferior
productivity of the individual capitals in this sphere (something
demonstrated by extra profits rolling in on the one hand, and bankruptcy on
the other, unless barriers to the free operation of capital are erected by
political means, thus introducing a monopoly distortion into the process.

Mark comments:
>
>In fact Marx's theory of average values clearly depends upon
>supply-and-demand in the market place to iron out the differences
>between more and less efficient producers and establish a marginal
>price. The 2nd Internbational, with its productivist orientation,
>heavily influenced by Engels, did not want to dwell on the implications
>of Marx's theory of market-values. But Marx himself is quite clear.
>Marx writes:
>
>'On the one hand, market-value is to be viewed as the average value of
>commodities produced in a single sphere, and, on the other, as the
>individual value of the commodities produced under the average
>conditions of their respective sphere and forming the bulk of the
>products of that sphere' (Cap III, p178 (1959 ed))
>
>In this definition the market-value is regarded as the average of
>different values of commodities produced under different conditions of
>production, or as the individual value of commodities produced under
>average and dominant conditions of production, i.e. the
>technical-average condition of production. This is the 'aggregate'
>Justin is talking about above. It does not require the input of the
>market.

This is correct and important -- but note that Mark deviates from it almost
immediately. He continues quoting Marx:

>But Marx goes on:
>
>'if the demand is so great that it does not contract when the price is
>regulated by the value of the commodities produced under the least
>favourable conditions, then these determine the market-value. This is
>not possible unless demand is greater than usual, or if supply drops
>below the usual level... if the mass of the produced commodities exceeds
>the quantity disposed of at average market-values, the commodities
>produced under the most favourable conditions regulate the
>market-value.'  (p 179)
>
>Marx never said anything without a reason, not in the crunchy bits of
>Capital anyhow, and this is one of the crunchiest. He means that
>conditions under which demand is high, ie, scarcity, produce a flow of
>super-profit (extra surplus-value) to the efficient producers in the
>sector, and that this profit comes from all sectors not just the one in
>question. When the relative scarcity has been eliminated because of a
>flow of new capital into this super-profitable sector, prices will fall
>to the marginal level determined by the costs of production of the most
>efficient producer in the sector. But it is clear that the trigger for
>all this is supply-and-demand in the market.

This is probably just too elliptically expressed, but as it stands it's
wrong. If relative scarcity is eliminated, prices will stabilize around the
aggregate average for the sphere of production concerned, not the costs of
the most efficient producer. For this latter to happen, relative glut must
occur.

Mark goes on:

>In this context, Marx says (p 185): 'It is one of the extremes which
>determines the market value.'
>
>I.e., in this scenario it is *not* the technical-average which
>determines market-value but precisely the extremes of high and low cost
>producers which determine the price at the margin. Here again Marx uses
>what is clearly a supply-and-demand theory of market-value.

In other words, Marx is accounting for real-world price fluctuations given
the free movement of capital between spheres of production.


>Note that Marx deploys this argument throughout Chapter 10. It is not a
>one-off; it is intrinsic to his whole argument. It is the point at which
>the logic of the anarchy of the market enters the Marxian analysis of
>capital. Reconciling these two counterposed views of market-value
>formation, the technical-average view and the supply-and-demand view, is
>the key to reconciling market-values and prices of production and
>therefore to the so-called Transformation problem, which in reality is
>not less a problem than the keystone in the arch of Marx's whole
>thoeretical endeavour. Note that this demand-and-supply theory has
>implications for the analysis of monopolistic prices and the source of
>differential rent (Justin's waterfall problem).

Exactly. The whole point of Marx's work in Capital is to explain the
economic phenomena of the real world on the basis of a scientific analysis
of the fundamental factors of commodity production. To do this, he first
has to establish the genesis of the capitalist mode of production
historically and conceptually, which he does in Grundrisse (and the genesis
of economic theory, which he does in the Theories of Surplus Value). Then
he devotes the introductory book of Capital, Book 1, to presenting the
operations of capital *in general*, *as such*. Book II clears the ground
even more by introducing real-world analyses of capitalist circulation and
of the interchange between the great departments of social production
(production of means of production, and production of means of consumption)
in reproduction and accumulation. In Book III he ties it all together by
showing how real-world competition redistributes the value produced by the
aggregate labour of society for the benefit of capital-intensive branches
of production by the mechanism of the average rate of profit.

Here I would disagree with Mark's way of putting it. "Reconciling the
technical-average view and the supply-and-demand view" is a non-dialectical
way of expressing what happens. Say rather that Marx sublated these
contradictory explanations, and took them to a higher plane. Or better,
that the supply-and-demand view was transformed from an *explanation*,
which it never has been, to a necessary setting for capitalist production
given the nature of use value and the social exchange of commodities
(indeed of any mode of production, see the first few pages of Grundrisse).
And the technical-average is another truism, really, given that it's only
on the basis of the constant fluctuations of real production and real
prices that an average is established. Mark goes on to deal with this:
>
>Market-value is the regulator of market-prices through the fluctuations
>of the market. It is the centre of gravity for prices, determining
>relative equilibrium. The functioning of supply-and-demand invokes flows
>of surplus value and capital between and within sectors. We do not
>observe shifts in the structure of production in value terms except
>through the price-signals of fluctuations around the equilibrium point.
>It is here that changes within production, within the organic
>composition of different capitals and of the rates of exploitation and
>surplus value, manifest themselves as the economy successively
>transforms its material and technical basis. Changes in natural inputs
>are also represented, ie land or resource scarcities which change to
>produce changes in rent.

This is the broader law of value in the kind of sense in which
Preobrazhensky uses it in The New Economics. Basically, the amount of
socially necessary labour required for the production of a commodity will
force itself into the awareness of the market (the brokering of demand and
supply) as soon as prices sink below that required for the reproduction of
the capital in the industry in question, or (the case of the young Soviet
workers' state) as soon as prices deviate too far (from a social point of
view) from the ideal price dictated in the general market (world market,
for instance) by the average amount of labour required in the average
production facility.

Now Mark proceeds to the thornier topic of ground rent by way of further
reflection on supply and demand:

>The theory of differential rent has always been seen as a general
>problem for Marx's procedures for transforming values into prices. The
>difficulty about ground rent is that it is always the worst marginal
>land which regulates the market-value, and not an average, so that all
>the crops harvested on better land have a higher market-value than their
>individual values and the difference between market-value and individual
>value cannot be explained by the simple transfer of value from less to
>more efficient producers within that sector. This seemingly free extra
>is what Marx called 'differential' rent and seems to be the basis for
>Justin's theory about waterfalls adding value.
>
>This is a special case of the more general objection to Marx's
>transformation procedure, where the difference between values and prices
>of production is not the accidental result of market anarchy but is
>*systematic*, since branches (like agriculture) with a low organic
>composition produce surplus-value in a logically-different proportion to
>capitals which have both a higher rate of relative surplus-value but
>also a higher burden of constant capital which that s-v must valorise.
>
>To deal with these questions it is necessary to return to a
>logically-prior question, namely the the relationship between prices of
>production and market-values. The Transformation Problem exercised the
>Engels-influenced 2nd International because their overly-productivist
>reading of Cap III divorced values from the market-anarchy determining
>prices. But Marx did not. For example, the supposedly-problematic
>chapter 10 of Cap III where this is discussed is headed 'Equalisation of
>the General Rate of Profit Through Competition. Market prices and
>Market-Values. Surplus Profit.' The title alone suggests the unity Marx
>identified in the process of creation of prices and values.
>It is a single process of competition in which both intra- and
>inter-sectoral competition help determine what Marx calls 'market prices
>of production' (p.198, Cap III). Marx obviously intended a single
>logically unified analysis of market-values and prices of production.
>
>As Engels points out in his otherwise problematic Postface to Cap III,
>where he tries to defend Marx's transformation procedure (which he has
>clearly not fully understood) by a historical account of the emergence
>of the capitalist economy, with its given set of inter-sectoral
>relationships and the historicaly-preset value and price relations
>obtaining between them, the representative or average conditions of
>production within sectors has only emerged historically through the
>protracted and anarchic working of the market and of inter-sectoral
>competition. He argues that this evolution was historically inevitable
>because it is also logically-entailed.
>
>Undoubtedly Engels was right about this, because without the emergence
>of average values based on embodied SNLT and of equilibrium prices, a
>diversified capitalist economy could not function, could not allocate
>capital between sectors. An average rate of profit is the sine qua non
>for overall capitalist reproduction to take place, and clearly it is
>inter-sectoral competition which predominates, not the much weaker
>intra-sectoral competition. But to answer his critics Marx needed to do
>more. He needed to capture the synchronic as well as diachronic logic of
>capitalist reproduction. He had to explain what happens *now* to create
>prices of production which can and indeed must 'systematically' diverge
>from values. Not just how we got here.
>
>His argument is that market-values are created within a sector, not
>between sectors. Market-values are therefore logically subordinate to
>prices of production in the same way that individual sectors are part of
>the total social capital and do not stand alone. Demand within a sector
>results from demand within the whole economy, and where demand for the
>products of a sector is higher than demand in general it is nonetheless
>the result of a general disequilibrium, not a sectoral one and it will
>be a general response which will equalise excess sectoral demand, by a
>flow of capital from other elsewhere seeking the temporarily-available
>surplus profit caused by high marginal prices in the given sector.
>
>Therefore sectoral demand is subordinate, but it is here that market
>demand works to set market-values, and this applies obviously to the
>whole economy. Therefore it remains the case that prices of production
>are not determined by marginal demand or scarcity in any absolute sense
>but by values, albeit embodied under conditions of surplus
>value-equalisation (so that an average rate of profit obtains throughout
>the economy). Scarcity is now just the scarcity of profit in one sector
>relative to another, or perhaps absolute scarcity can emerge in the
>economy as a whole, leading to crisis. It is obvious that
>'exchangability' has no bearing on any of this. The dynamics of
>capitalism remain the pumping of surplus-value from live labour.
>
>Thus there is no contradiction between Capital I and Capital III.
>Commodities exchange at their values, except where prices of production
>deviate from values insofar as the formation of an average profit rate
>entails they do. But in any case, value is conserved at the level of the
>total social capital, capital-in-general. There is no plussing or
>minussing going on, and there are no extraneous sources of value other
>than embodied socially-necessary labour times.

The conclusion here: "value is conserved at the level of the
total social capital, capital-in-general" is incredibly important and must
be emphasized. If it is possible to abstract from the differences between
the various branches of capital, and Marx does so throughout the whole of
Book I in order to analyse the processes of capital in general, then we
come to the average performance of the average capital. And here, as Marx
frequently repeats, value in fact equates to price.

Value is the reality in social production and exchange. Price is the
reflection, the appearance. (Hegel helps a lot in this respect.) Value will
out. Prices cannot force value to bend to them, but value can force prices
to bend to it. There is only a certain amount of social labour available
and being expended in an economy. This labour sets the limits to
proportions of exchange between the various products in which it is
embodied. If all the embodied labour in an economy goes to one or two
commodities with vastly inflated and unreal prices, there is none left for
the rest to exchange with, and crisis erupts.

The trouble with a lot of supply-and-demanders and vulgar economists in
general is that they seem to assume that the supply of money is totally
elastic. Completely subject to human/social will. In Marx,however, money
too is a commodity -- the universal equivalent -- and subject to the laws
of value determination the same as every other commodity. So however you
twist it, it all comes back to value in the end, and value comes back to
the expenditure of socially necessary labour time.


And so, at last, to rent, which I'll take up in a separate posting.


Cheers,

Hugh




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