RE: Re: FW: question on economics

["Devine, James" <jdevine@xxxxxxx>]

a student asked:
>>I am having trouble understanding Marx's labor theory of value. Is it true
that prices reflect the law of value because prices tend in the long term to
stay a certain price for some time relativly interupted by laws of supply
and demand ?(as Mandel says for example) From What i heard, prices cant
reflect labor inputs because a soda pop for example costs almost nothing to
build and costs 50 cents to sell which is acourse a high markup from the
costs of production. however Marxits say that the commodity  prices reflect
the value of the imputs put in them. Who is right ?<<

Rakesh answers:
> 1. Are Ricardo's cost prices and Marx's prices of production long
> term centers of gravity or equilibrium prices, as for example argued
> in Robert Paul Wolff's important *Understanding Marx*? I would argue
> not. Ricardo himself pointed out that techno organization change had
> become a daily occurence. From my perspective, Marx's prices of
> production are best understood not as centers of gravity but as
> counterfactual prices: what prices in any one period would have been
> had demand equalled supply and the profit rate equalized.
>
> I would therefore reject a quasi-Hegelian emananistic [??] or
> essentialistic logic by which the price of production is the inner
> necessity and market price merely an outer contigency. This
> epistemo-logic is more than a copy theory of knowledge; it is an
> identity logic in that the claim here is that the more capitalism
> develops and eliminates residues of earlier economic
> conditions--i.e., the more capital and labor mobility are
> achieved--the more does the approximation (market prices) approach
> the pure form (prices of production). I would recommend some Kantian
> skepticism here so that we remain aware of the one-sidedness in any
> relation between the concept and the conceived.
>
> Any equalisation of the profit rate after all is continously
> disrupted by the search for extra surplus value that drives the whole
> system forward.

Though I don't quite understand all of the above, I agree that the role of
prices of production should be radically downgraded in Marxian political
economy. These Smithian "natural prices" play a very small role in the real
world: though there is a tendency for market prices to "gravitate" toward
them, there is also the normal counter-tendency of capitalism's
disequilibrating nature (to which Rakesh refers).

> 2. Ricardo argued that the law of value best explained the change in
> relative prices over time rather than exchange ratios at one point.
> Marx found this reasonable, and there is complicated statistical work
> which now demonstrates the strength of the relationship.
>
> Malthus argued that as a theory of exchange ratios, the law of value
> failed: as capitalism developed, the compositions and the turnover
> times of the various capitals would ever vary while there was an
> observable tendency for the rate of profit to equalize. But an
> equalized profit rate would then contradict the labor theory of value.
>
> Marx brilliantly inverts the criticism: he attempts to show that not
> only does the formation of the average rate of profit not contradict
> the law of value, it becomes the form in and through which the law of
> value asserts itself.

what does it mean that "the law of value asserts itself"?

> 3. Marx's solution then is said to suffer from the transformation
> problem. Critics have tried to show that Marx's solution cannot hold
> in much the same way that 2 + 2 cannot equal 5. If interested, I
> would be happy to discuss why there are faulty assumptions in this
> logical criticism, e.g., Marx's inputs are in values, there should be
> two invariance conditions (total value=total price, total surplus
> value=total profit)....

I agree that the "tranformation problem" (TP) literature is almost totally a
misguided enterprise. A better way of thinking of it is as a "disaggregation
problem." The law of value "applies" at the macro-level, describing the
operations of the capitalist mode of production. (Marx confused matters in
volume I by using a microcosmic example, i.e., using the British cotton
textile industry to represent capital in general in conflict with labor in
general.) The TP should then aim to explain how this macro-level operation
is exhibited at the micro-level.

Jim Devine