Date: Wed, 2 Nov 1994 20:34:46 -0500 (EST)
From: Justin Schwartz <jschwart-AT-freenet.columbus.oh.us>
Subject: Re: Dispersion of profit rates


On 2 Nov 1994, Paul Cockshott wrote:

> Justin wrote:
> 
> >problems of logical consistency remain. I note further, or again, that
> >even if labor content predicts price that doesn't mean it determines
> >price. 
> 
> This is correct, it is always possible with a correlation of this
> sort that both variables are correlated to some third factor which
> is the underlying cause. However the Labour Theory of Value in Marx
> is non-causal, it merely says that exchange values are proportional
> to values, it does not explain why this occurs.

This strikes me as bizarre. I thought that insofar as Marx uses the LTV he
was offering an explanatory theory of price, accumulation, and
exploitation, not an empirical observation. After all, values are not
observable. They are theoretical postulates. In the simple models of C1,
value is assumed to be equal to price, i.e., the law of value (LV) holds by
stipulation, and commodities exchange at values. This is supposed to
explain some observable facts about the dynamics of capitalism, such as
endless accumulation, exploitation, and profit (with the labor theory of
surplus value). In later models in C2 and C3, when Marx takes into account
that the LV does not hold empirically, he tries to explain this by
reference to the tendency of the profit rate to equalize and some other
apparatus. But value is an explanatory category, at least for Marx.

 This is a genuine
> question for science, but it science always advances by posing new
> questions. It discovers empirically valid laws and then has to
> explain why they operate.  But for questions to be scientifically
> usefull, they have to be based on actual observation. The empirical
> observation is that there is an extraordinary high correlation between
> market prices and labour values. The LTV does not yet explain this
> in capitalist society ( Smith gave a reasonable explanation for
> pre-capitalist society ), but it recognises it as a fact.
> 
> Farjoun and Machover produce some very convincing statistical arguments to
> the effect that this correlation between values and prices is an
> effect of the narrow dispersion of rates of surplus value in different
> industries. I think that this is the most promising theoretical line
> to pursue.

This is somewhat cryptic. Is it an attempt to allude to the idea that rate
of profit does not tend to equalize because in part the difference in the
rate of SV is too small to pull capital across departments?

> 
> >Moreover: your result here looks like at best an empirical puzzle
> >for the general exploitation theorem, that you can plug anything (corn,
> >iron, etc.) in as a value numaire.
> 
> It is certainly possible, provided that one takes an actual system of
> market prices to express values in any commodity as a numeraire, and to
> get an expression for the rate of exploitation in terms of this commodity.
> But this is a different question from the one that I was addressing.
> I was concerned to show that that a price system computed in terms of
> labour values is much closer to the actual price system than one computed
> in terms of energy values, and that one can thus rule out oil or electricity
> as the substance of value.

That was my point.
> 
> 
> > Two further questions: did you test
> >your LTV against utility theory rather than value theory, i.e. against the
> >idea that price is determined in the conventional manner by supply and
> >demand? 
> 
> I do not consider that a utility theory of prices can meet the normal
> standards of scientific testing. If we take Poppers criterion, a theory
> must be falsifiable to be meaningful. The marginal utility theory of
> prices is unfalsifiable. All that is says is that consumers will adjust
> their level of purchases to ensure that the amount that they buy of each
> commodity will equalise marginal utilities. There is no set of prices that
> would be inconsisten with this assertion, so it is both untestable and
> vacuous as a theory of price. 

Well, that's so on revealed preference theory, but that's not the only way
to read utility theory. And utility-theory based economics is pretty
preductively powerful in the short run. It's not just pretty math.

> 
> >A related question but more theoretical question: how is it that a
> >quantity no one but Marxists are aware of and no one but a handful of
> >Marxists even think they know how to calculate enters into the
> >determination of price, insofar as this is the (unintended) result of
> >intentional behavior? No doubt capitalists have to cover their labor
> >costs and want to reduce these as much as possible, so there will be some
> >correlation with price. But they think about these in terms of the wage
> >bill, i.e., the price of labor. Value looks epiphenomenal.
> >
> 
> I agree that to capitalists the labour content of commodities is only
> represented indirectly in the form of wages. If one makes the additional
> assumption that the economic class struggle imposes a constraint on the
> variation of the rates of surplus value then that may well be the
> mechanism by which the law of value operates.

This is really quite startling. Such a view would basically overthrow the
whole logical structure of Marx's Capital, making class struggle over
market-determined wage rates the explanation of the LTV. Marx of course,
on the usual reading, wants a non-market based notion of value to explain
the possibility and operation of commodity production and the possibility
of exploitation in a labor market. It looks to me as if your defense of
the LTV throws out the baby in order to save the bath water. Value really
does end up being epiphenomenal on your story and it is unclear why we
should be interested in it, rather than in, say, class struggle.

> 
> >Earlier you disputed the truth of the proposition that the rate of profit
> >tends to equalize across "departments" or branches of industry. If capital
> >is mobile I do not see how this can fail to be true. If it is not true
> >>either capital is not mobile, which is false, or capitalists do not seek
> >the highest rate of profit, which is both false and inconsistent with
> >Marx. So the tendency is not an a priori truth but it is very robust. But
> >if the tendency exists then, as Marx noted, we have to deal with prices of
> >production, not the law of value (prices as proportional to values).
> >
> Your method of argument above is entirely a-priori. You simply assert that
> capital is mobile and that they seek the highest rate of profit. These are
> hypothesis that have to be tested. Even on a-priori grounds they are far
> from evident. Consider capital employed in newspaper production and capital
> employed in biscuit production. In what sense is there mobility between them?
> Clearly printing presses can not be used to bake biscuits even if biscuit
> baking offers a higher rate of return. A news paper proprietor can only take
> his capital out of the press over a lengthy depreciation period, perhaps
> 30 years or more. The only proportion of the capital that is mobile is
> the depreciation fund. In the meantime, he minimises his capital losses
> by keeping going even if he is making less than the maximum rate of profit.

Capital is not instantaneously mobile, to be sure. But what is highly
mobile is not the equipment but capital funds as found in the stock and
bond markets and elsewhere. These will seek the highest rate of profit (or
I'll find a new mutual funds manager!). It's also true that capitalists
with large investments in relatively unprofitable industries may find it
difficult or even irrational to get out to where the grass is greener, a
fact which contributes to overproduction tendencies, as Robert Brenner has
argued. But that does not mean that they will not try! As US Steel told
the United Steel Workers, we don't make steel, we make money. And shortly
afterwards they changed their name to USX and got out of steel.

> 
> I am not denying that there is some mobility of capital, merely that it
> is enough to produce an equalisation of the rate of profit in the face
> of the chaotic fluctuations that competition and the trade cycle give
> rise to. For 1984 in the UK we found that taking a sample of 98 industries
> the coefficent of variation (std deviation/ mean ) of the rate of profit
> was 0.608, which was wide compared to the coefficient of variation of
> prices from values ( 0.104) or the coefficient of variation of
> rates of surplus value ( 0.423 ). This  indicates that the tendancy to
> equalise the rate of profit is weaker than the tendancy to equalise the
> rate of surplus value.

The tendency of the rate of profit to equalize is a tendency, no more. But
it's enough, I suspect to induce enough mobility to vindicate Marx on this
point. I'd like to know how you calculate profit rates, a vexed issue.

--Justin Schwartz




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