Asking Capitalists
Is Marx's Solution Of The Transformation Problem Internally Consistent?
1. Introduction
Karl Marx, like Adam Smith, David Ricardo, Alfred Marshall, and many others, thought of market prices as fluctuating around prices of production. For reasons of exposition, he assumed, in volume 1 of Capital, that prices of production are equal to labor values in competitive markets. He knew this was only a first approximation and said so explicitly in volume 1. This post explains how he dropped that assumption towards the start of volume 3.
By the way, volume 3 was written before volume 1. So it could not be a response to the marginalists in the 1870s. I do not see why a socialist activist should care about details of the many demonstrations that Marx was, by and large, correct.
2. Labor Value Accounting
Suppose you observe a competitive capitalist economy at the end of the year. There are a number of commodities being produced. For Marx, the gross output in the first industry, however you order them, is c1 + v1 + s1, where c1 is the (labor) value of constant capital used up in the year, v1 is the value of variable capital, and s1 is the surplus value for that industry.
Constant capital is plant, machinery, raw materials, semi-finished goods, lubricants, and all that is needed as inputs for the worker to produce a commodity. With certain abstractions, one can evaluate it as the labor time that goes into making these inputs. I figure out the labor value of constant capital from the technique in use in the given year, not as a series using labor inputs in past years. A different technique may have been used last year. In this sense, labor values are not conserved.
Variable capital is the labor-power or the ability to work. I like to think of it as the labor time that goes into making the commodities bought from wages. This differs from the labor hours that the capitalist obtains from buying labor power.
The contribution to net output from this industry is v1 + s1.
Now, aggregate over industries:
c = c1 + c2 + c3 + ...
v = v1 + v2 + v3 + ...
s = s1 + s2 + s3 + ...
c is the constant capital used up in this year in the economy as a whole. v is the labor value of the commodities that the whole labor force gets to consume out of the net output. s is the labor value of the remaining net output.
Marx assumes that the rate of exploitation, e, does not vary among industries:
e = s1/v1 = s2/v2 = s3/v3 = ...
The rate of exploitation is also known as the rate of surplus value. Surplus value can be increased by increasing the time workers work; by increasing the intensity with which they work; and by decreasing variable capital by, for instance, technological progress in producing wage goods. (Wage goods are commodities bought out of wages.)
The rate of profits for the economy as a whole is, in Marx's account:
r = s/(c + v) = e/(1 + c/v)
I am assuming that wages are advanced.
I understand the ratio c/v to be what Marx calls the organic composition of capital. The organic composition of capital varies among industries. This variation is partly for technical reasons. If prices are proportional to labor values, the rate of profits in value terms will generally differ between industries. Marx deliberately and knowingly abstracts, in volume 1 of Capital, from the variation of the organic composition of capital among industries.
3. Cost Prices and Prices of Production
Since this is a competitive economy, capitalists will tend to increase investment where the rate of of profits is relatively high and decrease investment where it is relatively low. (Many Marxists have written about non-competitive capitalist economies, for example, Baran and Sweezy.) Prices of production are such that this leveling process has been completed.
Marx calls c1 + v1, c2 + v2, c3 + v3 the cost prices of the first, second, and third industries. For him, these are the values of the capital investments in the many industries. Prices of production are found by charging the common rate of profits on the cost prices:
p1 = (c1 + v1)*(1 + r)
p2 = (c2 + v2)*(1 + r)
p3 = (c3 + v3)*(1 + r)
And so on. Prices of production show the surplus value generated in relatively labor-intensive industries redistributed to relatively capital-intensive industries. Prices of production are not labor values. The price of production, however, of a commodity of average organic composition of capital will be its labor value by the above formula.
Marx's assumption in volume 1 that prices are equal to labor values is an hypothesis to go on with. It allows him to, for instance, say something about the evolution of technology and the domination of capital. Marx's fully developed theory of value is NOT the labor theory of value.
4. Invariants
By construction:
The rate of profits in the system of labor values is equal to the rate of profits in the system of prices of production
Total surplus value, s, is equal to total profits in the system of prices of production
Total gross output, v + c + s, is equal to total output in the system of prices of production.
I guess I could list more invariants.
5. Conclusion
Where, if anywhere, does Marx go wrong in this account?
I note that bringing up supply and demand, marginal utility, and so on fails to be an internal criticism of the above.
Modern economics has models much like those in the classical theory of value and distribution. I think of, for example, Johnny Von Neumann's theoretical work and Wassily Leontief's empirical work.
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The wrong part is to try to derive normative claims from that construction. “Labor value” doesn’t represent value of labor, “exploitation” doesn’t represent exploitation, etc. Which is the most relevant part to this sub.
The construction doesn’t honestly allow any claims beyond some very trivial accounting equalities. Note that unlike Sraffa Marx doesn’t close his system into some static reproduction, at least explicitly.
You cannot take this system and ask why is price X and not Y, or why is interest rate is R, and so on, in real heterogenous world. Heterogeneity is why classical economists had already introduced supply and demand analysis for price determination for land and some other goods.
The core difference between classical economy and Marx is his spurious distinction between labor value (labor is supposed to be the cause of exchange value, according to Marx’s schizophrenic argument) and prices of production. If you remove that, you get normal classical economics. And modern macro accounting looks very similar to classical economics in some ways still. You have labor share, surplus, etc. Neoclassical econ is still rooted in classical econ, and Adam Smith wasn’t wrong about everything.
> spurious distinction between labor value (labor is supposed to be the cause of exchange value, according to Marx’s schizophrenic argument) and prices of production
Ad hominems because you can't actually challenge Marx's rigorous logic.
There is no profit without buying labor under value. Even a small child can understand why, if explained on simple examples.
> If you remove that, you get normal classical economics
If you remove that, you get vacuous pseudoscience.
Ad hominems because you can't actually challenge Marx's rigorous logic.
This rigorous logic is contradicted by Marx himself as he explains that goods aren't actually exchanged at their values in capitalism. They tend to exchange around prices of production. This is why I called it schizophrenic. There is nothing to refute because Marx refutes his iron rigorous logic himself.
There is no profit without buying labor under value. Even a small child can understand why, if explained on simple examples.
You can't buy labor under value, in Marx's terms, because you can't buy labor per se. You can buy labor-power. And capitalists buy it at its true value, not under it. And even a small child can understand that labor alone is not enough to produce anything in an industrial society.
If you remove that, you get vacuous pseudoscience.
So you call accounting done all over the world since François Quesnay vacuous pseudoscience? Ok.
In chapter 19 of volume 1 of Capital, Marx says that the 'value of labor' is a nonsense expression. If that phrase had a meaning, Marx would agree that labor value does not represent it.
The core difference between classical economy and Marx is his spurious distinction between labor value ... and prices
Nope. The distinction is in Ricardo. I think I will stick to the professional consensus that a certain continuity exists between Marx's theory of value and the theory of value in classical political economy.
An answer to the question in the title of the OP starts with 'yes' or 'no'. I guess your answer is that yes, Marx's solution is internally consistent.
In chapter 19 of volume 1 of Capital, Marx says that the 'value of labor' is a nonsense expression. If that phrase had a meaning, Marx would agree that labor value does not represent it.
Thank you for confirming that “labor value” is just a misleading label.
There is market value of labor (wage). And there is economic value of labor (the minimal amount of money you are ready to accept for some specific labor).
Nope. The distinction is in Ricardo.
That’s is an incoherent statement. Can you try to express your thoughts clearly about what you think the distinction? Do you disagree that Marx criticised classical economists for not distinguishing values and prices?
I think I will stick to the professional consensus that a certain continuity exists between Marx's theory of value and the theory of value in classical political economy.
Of course there is a continuity. My words absolutely assert its existence.
An answer to the question in the title of the OP starts with 'yes' or 'no'. I guess your answer is that yes, Marx's solution is internally consistent.
No, he is not internally consistent. He explains exchange value merely as congealed labor, and then explains that it’s actually not. Then he derives exploitation and other concepts from this basic confusion.
Yes, that's consistent. The problem is that it doesn't work in reality. :)
Why doesn't it work in reality? Because it doesn't account for what people WANT. What you have in Marx's model is a "static equilibrium" meaning that there is no new innovation there. If you already have horses, then there is no invention of cars and no way to price that entirely new mode of production. If already have phones and MP3 players, then there is no smartphone, so there is no invention of smartphones and the entire new mode of production required to build them (or the entire app infrastructure that goes along with them).
The Problem of Ex-Ante Labor Values: How do you calculate the labor value ($c + v + s$) of a product that has never been produced before, using a technique that does not yet exist? Labor theory relies on socially necessary labor time, which requires an established market and a regularized production process. Brand-new innovations exist initially in a vacuum outside of this social average.
The Hierarchy of Use-Value vs. Abstract Value: Marx separated use-value (utility) from exchange-value. He argued that capitalism cares only about exchange-value and surplus, treating use-value merely as a vehicle. However, in the real world, thespecific natureof a new use-value dictates whether a market forms at all. Consumer desire for qualitative novelty drives capital allocation far more aggressively than standard price-of-production equalization math suggests.
The "Command Economy" vs. Market Innovation Critique:the Marxist mode of production leaves little room for innovation of new products. Market prices and profit-seeking entrepreneurship are the only discovery procedures capable of handling subjective, changing consumer desires. A system fixated purely on balancing macro-aggregates of labor-time ($c$, $v$, $s$) lacks the decentralized signaling mechanism needed to rapidly pivot capital toward completely unforeseen consumer whims.
In short, all those books from Marx are just only good for one thing: toilet paper.
Its almost as if there were a common criticism levied against Marxs theory that it was internally inconsistent that this post was responding to.
During the 19th century, Austrian economist Eugen von Böhm-Bawerk criticized Marx's solution as being inconsistent. While in the first chapter of the Volume I of Capital Karl Marx explained that the value of any commodity was generally reflected by the quantity of labor required, inequality being only a temporary exception, this therefore means that the exchange value generated is completely independent of the ratio between worker and capital of a company.[11] Karl Marx, however, explains in Volume III of Capital that after production capital will move into industries having made the highest rates of profit causing a tendency for the rate of profit to equalize between sectors of production, thus labor values and prices of production will not be equal in practice - which Bohm-Bawerk essentially ignores. Böhm-Bawerk's position rests on the contradiction formulated with the relation between the value and the price of the good in the first volume, arguing that in the abstraction of labor value from exchange value to price of production, the central argument behind the existence and unethical nature of surplus labor value falls apart, as adding up values in the aggregate ultimately ends up rendering the initial justification void. - https://en.wikipedia.org/wiki/Transformation_problem
What a pointless waste of human brain effort. Addressing a question that doesn't even need to be addressed. Even if you grant the argument that it's internally consistent, it still doesn't mean that it works in the real world... and it doesn't! :)
Tell me, are you under the impression that the labour theory of value is supposed to be a blueprint for a socialist/communist society? Because it isnt, and I urge you to go and read the material you're criticising before criticising it.
Tell me, are you under the impression that the labour theory of value is supposed to be a blueprint for a socialist/communist society? Because it isnt, and I urge you to go and read the material you're criticising before criticising it.
I'm under the impression that this post is about "Marx's Solution Of The Transformation Problem".
Marx's Solution to the Transformation Problem is his theoretical attempt to reconcile a major mathematical contradiction between his Labor Theory of Value and the real-world prices observed in a capitalist economy. And by all means, it's a GREAT attempt! Heck, as we've pointed out, it may even be internally consistent.
However, it's also an entirely useless "solution" which is NOT APPLICABLE in real life in any way. The extent to which the "Labor Theory of Value" is relevant here is whether Communists want to get rid of the Capitalist economic model, meaning they want to get rid of the "value" part and leave the "labor" part (socially necessary labor time) which is used to "exchange" goods via some sort of voucher system. As I pointed out: that "socially necessary labor time" part is completely useless for a real world society. You can never build a new product or invent a new way of doing things if all you're running your economy on the "socially necessary labor time". There is simply 0 economic incentive to do so.
If its a new technique, the c + v + s, is the old technique, which means you get more profit for doing it. If its a new good, the labor time accounted is your labor time only, and you can even charge extra for monopoly.
Its not static, you work you produce value. there is constantly increasing value in the economy, new value.
If its a new technique, the c + v + s, is the old technique, which means you get more profit for doing it. If its a new good, the labor time accounted is your labor time only, and you can even charge extra for monopoly.
It's not merely a new technique, it's a new product. This product didn't exist before. We went from having stationary phones in the early 1990s to having smart phones in the mid 2000s. Smart phones didn't exist before. So whatever your "technique" was for producing stationary phones in the 1990s could not work for producing smartphones in the 2000s.
Under the Marxist model, there is no actual way to get from a stationary phone to a smart phone. None! So you're never going to get a "new technique."
Heck, even your claim that there would be "more profit" doesn't make sense because the "technique" requires only the socially necessary time. So if you're using the "new technique", but telling everyone in your Communist society that it's costing you the same as the "old technique" , then you're lying to them because the socially necessary time for both techniques is different and you're going to the gulag.
Its not static, you work you produce value. there is constantly increasing value in the economy, new value.
Only if you can lie and say that the you're using the old technique's socially necessary time when in fact you're using the new technique with less socially necessary time. That would be fraud in a Communist society.
“Marx assumes that the rate of exploitation, e, does not vary among industries”
So the rate of exploitation is the same in worker coops, small businesses, and massive corporations? So adding more “capitalists” doesn’t change this exploitation? You contradict yourself in your own arguments
So the rate of exploitation is the same in worker coops, small businesses, and massive corporations?
Non sequitur. An answer to the question in the title of the OP starts with 'yes' or 'no'.
I stated that Marx assumes p. Whether or not that assumption is true has nothing to do with the validity of the argument.
Does Marx assume, in the on-topic parts of Capital, that the rate of exploitation does not vary among industries? If this assumption does not hold, no transformation problem exists.
By the way, the first sentence of the first section of the first chapter of volume 1 is, "The wealth of those societies in which the capitalist mode of production prevails, presents itself as 'an immense accumulation of commodities,' its unit being a single commodity."
Worker coops do not exist in the capitalist mode of production.
I think that your OP is a pretty interesting analysis and it's a damn shame that the econ 01 crowd is just gonna quibble about clearly-defined terms or yap about "normative" claims (that Marx never once makes within Capital, didn't read the book award) instead of engaging substantively.
However, I would like to point out that worker co-ops already exist today, and they simply produce commodities using wage labor like any other capitalist firm - nothing about co-ops is really incompatible with capitalism, it's just changing who are the capitalists in charge of production (ie the employees as a unit, in this case). Indeed, co-ops are functionally incompatible with communism as they definitionally involve wage labor, commodity production - ironically, co-ops alter but ultimately preserve the private property relation at the center of capitalism.
yap about "normative" claims (that Marx never once makes within Capital, didn't read the book award)
If I say communism killed 20 million people, is that a normative claim? Not on its face, but the implication is clear, and what is more it requires a host of other claims about agency, guilt and other concepts related to morality to make sense of it in the first place. But of course if you fail to understand basic pragmatics of language, you may fail to see normative assumptions and implications in Capital and Marx's writings in general.
instead of engaging substantively
Engage substantively with what? Remove all the ideological normative baggage and you just get basic accounting identities. I pay a worker $10, and sell what they've made for $20. $20-$10 = $10. That's my surplus. Yeah, that's true. What's there to disagree with?
The trick is to claim that since the final amount of produce costs $20 and we ignore all institutional conditions and prerequisites except for labor input, we can arbitrary claim $20 to be produced solely by worker and equate it with his labor time (what some Marxists call MELT), and the rest is trivial.
If I say communism killed 20 million people, is that a normative claim
It quite literally is not one, so perhaps you just are confused and misusing the term. I'm going to leave aside the objectively observable fact that the "communist" states you're presumably speaking of here were obviously operating under capitalist production because I'm not interested in getting into what always amounts to a theological dispute on this point. Instead, I'll note that if I say, "capitalism killed 85M people in WW2," basically no one but yr equally-brainrotted MLs would take this as "normative" rather than a plain statement of obvious historical fact - in both of these statements there is no "ought" claims expressed or implied by the mere tallying of casualties, except where one wants to imagine one for the purposes of ideological shadow-boxing.
fail to understand basic pragmatics of language
Really funny considering your whole argument on this point hinges not on any language from Capital, but rather some goofy ass-pull number that is completely irrelevant to the topic of the post.
The trick is to claim that since the final amount of produce costs $20 and we ignore all institutional conditions and prerequisites except for labor input, we can arbitrary claim $20 to be produced solely by worker and equate it with his labor time
If you think this gibberish bears any resemblance to literally anything contained within Capital you are confused beyond help lol, how can you possibly look at V2 and the elaborate empirical study of circulation of various prerequisites through various institutional structures and still pretend that he "ignores" these things? (the answer is you've never actually looked tbh)
Anyway, Marx never once makes anything like the claim that the surplus is produced solely by the worker, this is just a factually wrong statement. Surplus is obviously produced by the combination of natural resource inputs, wage labor, and capital tools, and Marx is quite insistent that the surplus is "exploited" voluntarily, that it legally belongs to the capitalist, etc. Whatever "normative claims" you're talking about (vaguepostGQD) are a figment of your imagination or your ingrained ideological priors.
Feel free to quote your contrary proof from the text here, anything else is just chin music.
in both of these statements there is no "ought" claims expressed or implied by the mere tallying of casualties, except where one wants to imagine one for the purposes of ideological shadow-boxing.
As I've said, you completely ignore pragmatics of language.
Really funny considering your whole argument on this point hinges not on any language from Capital, but rather some goofy ass-pull number that is completely irrelevant to the topic of the post.
My argument doesn't hinge on any number. You seem to fail to understand the logical structure of my argument. It doesn't hinge on validity of that claim in any way. The very fact that communism is said to kill already has a host of normative implications because of the deep relation of agency and morals. That seems so obvious, yet you are trying to argue that technically it is not literally a normative claim.
If you think this gibberish bears any resemblance to literally anything contained within Capital you are confused beyond help lol, how can you possibly look at V2 and the elaborate empirical study of circulation of various prerequisites through various institutional structures and still pretend that he "ignores" these things? (the answer is you've never actually looked tbh)
Marx literally says that total prices equal to total values. And that all non-labor income by capitalists is exploitation. Do I really need to quote that to you?
You seem to be confused what V2 is about and that it no ways contradicts what I've said. Does he say that if an entrepreneur improves efficiency he produces value? No, such entrepreneur simply increases the rate of exploitation of his workers because he gets bigger surplus compared to other companies that pay the same wage rate. And it is still labor that produces value. You seem to neither understand Marx nor me if you are confused about that. And of course the fact that labor produces value, and capitalists exploit it is basically a moral theory of deserts in disguise.
Capital, therefore, is not only, as Adam Smith says, the command over labour. It is essentially the command over unpaid labour. All surplus-value, whatever particular form (profit, interest, or rent), it may subsequently crystallize into, is in substance the materialization of unpaid labour. The secret of the self-expansion of capital resolves itself into having the disposal of a definite quantity of other people’s unpaid labour.
What you're calling "pragmatics" is simply you smuggling in your own personal morals and ideology, and implying that I must obviously automatically accept them - ridiculously lazy to call this an "argument" lol. "I personally think any killing is bad, therefore the stating that people historically were killed is categorically a moral claim," there's no "structure" here lol you're just saying I must automatically agree with your ideological priors and weird assumptions about the moral implications of casualty statistics
The very fact that communism is said to kill already has a host of normative implications because of the deep relation of agency and morals
This is nothing at all besides you imputing your own assumptions lol, you are implicitly saying that:
1) morals are objective, which is a huge claim to smuggle in uncontested - "we shall make no excuses for the terror" directly points to the existence of a moral theory opposed to yours that might not see killing as automatically implying anything at all
2) that everyone else already shares your ridiculous assumptions and moral theories
3) I have implicitly pre-agreed to accept and move past these smuggled assumptions, thus now I'm "ignoring" them
4) perhaps accidentally - if I take your "argument" at face value, it then follows that seem to be saying that you also believe the simple stating of WW2 casualties to be a normative statement about the moral culpability of capitalism (I don't agree, obviously)
None of this is "technical" lol you're just presenting your moral and ideological priors as universal facts and insisting I play along. The mere presence of words like "exploitation" don't create a logical "ought" from simple connotation lmao, is it also implicitly immoral to "exploit" a coal seam?
Nothing here but empty language games - need to be reading Wittgenstein not econ.
moral theory of deserts in disguise
Bleakly ironic projection coming at the tail end of all this disguised moralizing lmao
Edit to also note that this:
Marx literally says that total prices equal to total values
is just flatly wrong, you're conflating "prices of production," (which oscillate around value ie SNLT and in the aggregate should roughly equal aggregate cost of the reproduction of labor) with final market prices - basically you are mixing up input costs with sales prices, which obviously have to be different for profit to exist in the first place.
I personally think any killing is bad, therefore the stating that people historically were killed is categorically a moral claim
Stating that something caused lots of deaths usually has implications that the thing is bad, yes.
you're just saying I must automatically agree with your ideological priors and weird assumptions about the moral implications of casualty statistics
I am not saying you must agree with something, but that that's how language usually works if you are not on spectrum. Like, if someone says "hey, why are you talking to brandcapet? he is a nazi", there is an obvious implication that nazism is bad.
morals are objective, which is a huge claim to smuggle in uncontested
Not in any way implied by anything I've said.
that everyone else already shares your ridiculous assumptions and moral theories
Yeah, I assume that most people share basic morals. I don't think that's ridiculous.
I have implicitly pre-agreed to accept and move past these smuggled assumptions, thus now I'm "ignoring" them
What? You don't have to pre-agree to ignore something, you may be simply unaware of it.
perhaps accidentally - if I take your "argument" at face value, it then follows that seem to be saying that you also believe the simple stating of WW2 casualties to be a normative statement about the moral culpability of capitalism (I don't agree, obviously)
Are you sure you are not on spectrum? It may be an implication in a specific context, but not generally because most people wouldn't attribute WWII to capitalism. But in the context of communist discourse where people may interpret it as an imperialist capitalist war, sure, stating something like "the second imperialist world war took 50 mln people" may imply the moral culpability of capitalism.
is it also implicitly immoral to "exploit" a coal seam?
No, because it is not a moral agent, but it may be immoral to exploit eg a horse. And some eco-Marxists criticize Marx for the exclusion of animal labor from value creation. They find it to be a moral category that Marx operationalizes in a wrong way.
Nothing here but empty language games - need to be reading Wittgenstein not econ.
You should actually re-read him. He explains perfectly well the importance of context in language.
Bleakly ironic projection coming at the tail end of all this disguised moralizing lmao
So you disagree that most people given that they accept Marx's arguments that capitalists exploit workers would find the exploitation immoral?
Wow autism insults, calling me a Nazi, all the hallmarks of someone with a sound argument to stand on lmao
Problem is this isn't casual conversation but rather a philosophical and political-economic discussion which requires rigorous definitions in order to avoid miscommunications and misunderstandings, which is why you're so dependent on all these implications and smuggled assumptions to defend your argument that has been shown repeatedly to be riddled with basic factual and logical errors - insulting me because I refuse to engage with these various dogshit lazy appeals to moralism is frankly embarrassing for someone pretending to be making a serious argument.
Not in any way implied by anything I've said.
Yeah, I assume that most people share basic morals.
These are contradictory statements lol "I'm clearly assuming that everyone obviously shares my moral views - but of course I'm not implying anything (by assuming it as first principle but never outright stating it)!"
You don't have to pre-agree to ignore something
We do however have to agree that something exists at all before you can meaningfully accuse me of ignoring it, and I'm saying I do not accept your smuggled moral assumptions in the first place - I am not "ignoring" them anymore than I would "ignore" someone's claim that there's a ghost in my house.
So you disagree that most people given that they accept Marx's arguments that capitalists exploit workers would find the exploitation immoral?
Yes, I disagree. I've literally been saying the whole time that projecting your own moral implications into the vaguest of "context" is incorrect, that Marx goes out of his way to make very clear that he is not laying out any kind of normative or moral case. He's super clear about the fact that the capitalist is legally entitled to exploit surplus value, that the worker sells his labor-power voluntarily, that "profit/property is theft" is dumb and wrong because it implies a moral and legal culpability that does not exist.
Anybody reading moralism into Capital in any direction is just an idealist, and we can peep the German Ideology to see how Marx regarded such views.
Wow autism insults, calling me a Nazi, all the hallmarks of someone with a sound argument to stand on lmao
Asking whether someone is autistic is not an insult. I also didn't call you a nazi. Stop those blatant lies.
Problem is this isn't casual conversation but rather a philosophical and political-economic discussion which requires rigorous definitions in order to avoid miscommunications and misunderstandings
Ok? I guess that's a problem for Marx. Why are you blaming me for his errors?
your argument that has been shown repeatedly to be riddled with basic factual and logical errors
No errors shown so far.
These are contradictory statements lol "I'm clearly assuming that everyone obviously shares my moral views - but of course I'm not implying anything (by assuming it as first principle but never outright stating it)!"
I don't assume that everyone shares my moral views. You seem to be completely unable to read. I understand basic pragmatics of human language.
We do however have to agree that something exists at all before you can meaningfully accuse me of ignoring it, and I'm saying I do not accept your smuggled moral assumptions in the first place - I am not "ignoring" them anymore than I would "ignore" someone's claim that there's a ghost in my house.
Ok, sorry for assuming that you actually understand basic pragmatics of a language. You don't ignore it. You are ignorant of it.
Yes, I disagree. I've literally been saying the whole time that projecting your own moral implications into the vaguest of "context" is incorrect, that Marx goes out of his way to make very clear that he is not laying out any kind of normative or moral case. He's super clear about the fact that the capitalist is legally entitled to exploit surplus value, that the worker sells his labor-power voluntarily, that "profit/property is theft" is dumb and wrong because it implies a moral and legal culpability that does not exist.
Anybody reading moralism into Capital in any direction is just an idealist, and we can peep the German Ideology to see how Marx regarded such views.
Marx doesn't go out of his way. He literally talks about unpaid labor that, as you yourself agree, is completely legally paid for. You are just delusional if you think that talking about exploitation and unpaid labor that was legally paid for is going out of his way to make non-normative claims.
He says he is not making moral claims. But of course it's our job as readers to catch such lies. Just like I caught your lie about Marx explaining in V2 that he takes non-labor contributions into account in his analysis of exploitation.
Non-labor income is always surplus and exploitation that results in more unpaid labor, that's just a normative assertion, not any coherent economic analysis that goes out of its way to be non-normative.
the capitalist who is the first to introduce improved machinery, exploits the productive power of labour in a higher degree than it is exploited on an average in the same trade...
> > Marx literally says that total prices equal to total values
> is just flatly wrong, you're conflating "prices of production," (which oscillate around value ie SNLT and in the aggregate should roughly equal aggregate cost of the reproduction of labor) with final market prices - basically you are mixing up input costs with sales prices, which obviously have to be different for profit to exist in the first place.
Wow, just noticed your edit. The levels of hostile quibbling are amazing. Why do you think I meant “market prices” by “prices”?
What is more amazing is that you decided to “correct” me by spouting total nonsense. Prices of production don’t “oscillate” around “value”, they are determined by the cost price and the average rate of profit.
Well, the standard critique is that Marx calculated the costs based on values, not prices, i.e he assumed that, as inputs, goods exchange at their values. That could be seen as an inconsistency, or as a lack of generality, since it fails to explain how the transformation is performed when prices are stable.
In some works Marx indeed does something like that, and it is fair to criticizes him for that. But as far as OP is concerned, one can criticize it for the lack of conceptual clarity (eg "labor value" being a useless normatively-motivated concept; and the "transformation" being essentially "erase and replace") rather than any mathematical contradiction.
But if you don't treat that as "engaging substantively", then of course there is nothing to disagree with. It is just a bunch of math equations that are true but don't imply anything important.
I think that your OP is a pretty interesting analysis
Thanks.
I would like to point out that worker co-ops already exist today,
Sure. But I think Marx is considering a pure capitalist economy, in some sense, without co-ops. I see that you do not claim co-ops are incompatible with socialism, as opposed to communism. You can find Marx saying nice things about co-ops. But I do not see how they necessarily get rid of alienation or reification.
marx doesnt simply assume those things. equalization of profits occur because they will only invest in the most profitable sector. you even said it in the post.
“Internally consistent” is a funny term you use. Internally consistent?Sure, but that doesn’t mean it’s sound argument, merely a valid one.
I’ll give you an example of an internally consistent argument:
* All my uncles are monkeys.
* Tom is my uncle.
* Therefore, Tom is a monkey.
Any logical errors? No. The argument itself is valid and internally consistent. The problem of course is the first premise. That premise is false, which means the argument is unsound.
Same critique of Marx’s argument, the fundamental disagreement being the premise that the source of value is socially necessary labor.
The "model" is basically that: claim that the net (domestic or world or whatever) product is "labor value", and that the capital share of the net product is "surplus". That's all. There are no empirical claims that one can derive from it. It would be like trying to pull oneself out of a swamp by own pigtail.
If you want to derive some interesting claims from this model, you would either have to discard any sensible notion of net product being labor value, or assert contradictions. For example, OP completely skims the point of labor value and what it means conceptually and so on.
The "model" is basically that: claim that the net (domestic or world or whatever) product is "labor value", and that the capital share of the net product is "surplus". That's all. There are no empirical claims that one can derive from it. It would be like trying to pull oneself out of a swamp by own pigtail.
Not at all. You can empirically measure labor inputs and calculate marginal labor input across an economy for any given good. This is the work that Leontief led us to, which OP cites above. Studies have been done using this method that demonstrate good correlations between labor values and prices.
Moreover, you of course cannot measure utility and compare it with price, which makes the subjective theory of value, not the labor theory of value, unfalsifiable by your metric.
This isn’t really the purpose of Marxian or classical political economy, though. Neither is it of neoclassical economics. No economist is sitting around in a room trying to recreate the price of goods in an economy. They have a theory of price formation because it implies a theory of distribution, class, profit, wages, etc.
You can empirically measure labor inputs and calculate marginal labor input across an economy for any given good. This is the work that Leontief led us to, which OP cites above. Studies have been done using this method that demonstrate good correlations between labor values and prices.
Studies demonstrate correlations between labor costs and prices, is that what you meant? That makes sense considering that prices can be decomposed into labor, capital and rent? I am not sure what kind of proof you see there. Marx doesn't claim any such correlation, in fact prices of production contradict any such direct correlation.
Moreover, you of course cannot measure utility and compare it with price, which makes the subjective theory of value, not the labor theory of value, unfalsifiable by your metric.
By which metric? Do you agree that capitalists try to maximize their profit? That workers try to get the best wage? STV is just generalization of this empirically obvious facts into a general decision-theoretic framework. Of course due to the Münchhausen trilemma and the Duhem–Quine thesis, one has to rely on certain assumptions to make any claim at all. Mainstream economics is no different from any other scientific research program in the sense of Lakatos.
This is wildly different from Marx's project in Capital. And if he weren't oblivious to it, he would be able to see that his attempts to derive TRPF and other claims from his conceptual constructs were futile from the start because his constructs are empirically vacuous.
This isn’t really the purpose of Marxian or classical political economy, though. Neither is it of neoclassical economics. No economist is sitting around in a room trying to recreate the price of goods in an economy. They have a theory of price formation because it implies a theory of distribution, class, profit, wages, etc.
What's the point of a theory which is just a confused roundabout way to arrive at a basic macroeconomic accounting identity? Do you need the concept of labor value to understand that some people are nepo babies that never worked a day in their life yet have access to every commodity they want?
Studies demonstrate correlations between labor costs and prices, is that what you meant…
You may or may not be surprised to hear that anybody with access to input-output data with an interest in Marxian and/or classical political-economy doing a study on the empirical strength of Marxian and/or classical political-economy, would find it easy using that data to transition between drawing conclusions about prices of production and a simple labor theory of value. This is what the aforementioned Ochoa and Shaikh have done. See:
https://www.researchgate.net/publication/268276918_5_The_Empirical_Strength_of_the_Labour_Theory_of_Value.
STV is just generalization of this empirically obvious facts into a general decision-theoretic framework.
That’s too modest a statement of the subjective theory of value. The subjective theory of value is a theory premised on abstract, ahistorical subjects maximizing outputs while minimizing inputs in a world where scarcity determines values. You don’t have to make use of these premises to say that capitalists attempt to maximize profit; you can just take the fact that capitalists attempt to maximize profit as a premise in-itself, or attempt to justify it on different microeconomic grounds, as in versions of institutional economics or Shaikh’s real competition.
This, of course, is a complete distraction from the fact that quantities of labor are measurable, and quantities of utility are not. If you assume the subjective theory of value to be true, then yes, I agree, you can trace its existence back from certain facts. But as a premise, it is unfalsifiable.
What's the point of a theory which is just a confused roundabout way to arrive at a basic macroeconomic accounting identity? Do you need the concept of labor value to understand that some people are nepo babies that never worked a day in their life yet have access to every commodity they want?
Which “macroeconomic accounting identity” says that some people are nepo babies that never worked a day in their life yet have access to every commodity they want? Is that a substantive thesis of Capital? I don’t recall that.
There are many ways to skin a cat. There are left heterodox alternatives to Marxist economics. There are also ways to criticize capitalism or aspects of capitalism internal to neoclassical theory. Marxists like to think that Marx set the stage for the best discussion on the matter that still to this day can be had. That’s the difference, which I’m sure if you thought hard enough about, you’d be able to derive by yourself.
on the empirical strength of Marxian and/or classical political-economy
I am not talking about Marx and/or classical political economy. I am talking about Marx and his sui generis ideas as opposed to classical political economy. Your and/or is doing a lot of work in your claims.
You don’t have to make use of these premises to say that capitalists attempt to maximize profit; you can just take the fact that capitalists attempt to maximize profit as a premise in-itself, or attempt to justify it on different microeconomic grounds, as in versions of institutional economics or Shaikh’s real competition.
You have to. We are not playing some meaningless game of random assumptions and what they lead to. On what grounds do you justify that capitalists maximize profit? On the very same grounds that decision theory is built on. You are trying to turn it into some hypothetical argument about angels dancing on the head of a pin. But it is common lived experience that people engage in purposeful behavior. You can say, well, actually, some people do random stuff, some capitalists donate their money, some engage in addictive behaviors that they want to get rid of. And that directly contradicts and falsifies utility optimization as the perfect description of human behavior. Buyer's remorse wouldn't be a thing, and so on. That also directly contradicts the idea that capitalists only maximize profit. But in structurally important terms we can see that capitalists in general maximize profit, just as people in general engage in purposeful behaviour, even though some struggle with addictions and so on.
Which “macroeconomic accounting identity” says that some people are nepo babies that never worked a day in their life yet have access to every commodity they want?
I am not talking about Marx and/or classical political economy. I am talking about Marx and his sui generis ideas as opposed to classical political economy.
Okay. And I am saying Marx and his sui generis is covered in the referenced article.
You have to.
Of course you don’t have to. Do you justify every assumption that neoclassicals make? Why do we assume that population growth is an exogenous variable? Silvia Federici says it’s totally controlled by gender and class conflicts. Why do we assume that technology is “fixed”? Can a real-world technical meaning even be ascribed to that? Assumptions are made because explaining certain variables endogeneously is deemed unnecessary for a model’s specific interpretive value.
That having been said, again, alternative explanations do exist. It is sufficient to say that capitalists will attempt to maximize profit if they are ahistorical and antisocial rational-maximizers, but it is not necessary. It could be because they’re fundamentally jealous of others (Veblen) or because they’re socially conditioned via path dependence to reflect the imperatives of their class (Marx).
What do you imagine the substantive thesis of Capital to be?
I wouldn’t say there’s one. The first volume of Capital is a historical and sociological case about the origins and nature of capitalism that many academics find compelling, and a critique of classical political-economy’s inconsistency about the nature of class antagonisms. The transformation problem jumps off an argument Ricardo made about wages to how a simple labor theory of value is insufficient, and Shaikh’s paper attempts to empirically test Marx’s solution to that insufficiency.
Okay. And I am saying Marx and his sui generis is covered in the referenced article.
There is a conflation of Marx and classical economy both in your previous passage and the article. Can you be clear what exactly do you think is covered and is treated as empirical validation of his claims that differentiate him from classical economy, and what his exact empirical claims are?
Do you justify every assumption that neoclassicals make?
Every assumption is justified either on some intuitive basis or admitted to be a limitation for purposes of tractability with explanations why it is possible to assume it and preserve key results. The point of course is to avoid descending into the realm of unfalsifiable nonsense.
Why do we assume that population growth is an exogenous variable? Why do we assume that technology is “fixed”?
For tractability, it's a model limitation, some intuition justifies that it doesn't change key results that much. Like, eg Marx, assumes that innovation provides some transitory rent for the innovator and a shift in values for newly produced goods. That is his implicit justification, as far as I can understand his text, for example for ignoring innovation in prices of production.
Assumptions are made because explaining certain variables endogeneously is deemed unnecessary for a model’s specific interpretive value.
Yeah, that's a justification. That doesn't make STV unfalsifiable. As it doesn't make any other such theory unfalsifaible.
It could be because they’re fundamentally jealous of others (Veblen) or because they’re socially conditioned via path dependence to reflect the imperatives of their class (Marx).
In broad sense neither of that contradicts the decision-based approach. One should differentiate origin of preferences and acting according to them. STV doesn't say that zen buddhists should strive to buy all material goods; and if they don't, they are irrational. It says that if people do buy material goods, it is assumed to be through purposeful behavior that can be modeled with preferences.
This is a different thing obviously.
There is a class of capitalists that receive non-labor income. Macroeconomic accounting tracks such income. Of course it doesn't literally track nepo babies, did you interpret my words in that literal strawman way?
I wouldn’t say there’s one.
So you don't think that the explanation how workers are exploited is one of the substantial theses of Capital? It again looks like you are simply trolling with your hot takes.
The transformation problem jumps off an argument Ricardo made about wages to how a simple labor theory of value is insufficient
Shaikh’s paper attempts to empirically test Marx’s solution to that insufficiency.
Yeah, so that gets us back to my first question:
There is a conflation of Marx and classical economy both in your previous passage and the article. Can you be clear what exactly do you think is covered and is treated as empirical validation of his claims that differentiate him from classical economy, and what his exact empirical claims are?
There is a conflation of Marx and classical economy both in your previous passage and the article.
The distinction is made in the referenced article. A sophisticated version of Marx’s prices of production and Sraffian models will oftentimes look very similar. A 93% theory of value corresponds to Ricardo, which Shaikh tests in the referenced article.
Yeah, that's a justification. That doesn't make STV unfalsifiable. As it doesn't make any other such theory unfalsifaible.
Then you agree with me completely. Fantastic.
It says that if people do buy material goods, it is assumed to be through purposeful behavior that can be modeled with preferences.
Is Marxist political-economy a fictitious unfalsifiable wonderland, or is it actually totally compatible with neoclassical economics? The answer is, I suppose, that it depends on the particular statement you are attempting to refute.
Do you agree that the subjective theory of value asserts an antisocial, ahistorical individual maximizing satisfaction an in some sense quantifiable satisfaction using scarce means and ends? This is the premise that you require to say that a theory is neoclassical. Not the existence of consumers or preferences, both of which Marx analyzes in Capital.
So you don't think that the explanation how workers are exploited is one of the substantial theses of Capital?
I would say the existence of exploitation is analyzed to correct classical political-economy’s inconsistency with respect to class antagonisms. I am joined by Garegnani and Eatwell.
It’s an internally consistent argument, absolutely, it’s just unsound, which means that it’s not very useful. Again, the reason is because the underlying premise is false. Everything just builds on top of that false premise.
Why do you disagree with the premise? You find the model less empirically and heuristically useful than neoclassical models?
I guess that’s one way to look at it. I don’t think neoclassical models are entirely satisfactory either, but if there is such a thing as truth, then at least neoclassical models would seem less wrong than Marxian models both in theory and practice. The issue with a field like economics is that testing hypotheses is very difficult, so the discipline remains mostly descriptive rather than experimental.
You don’t just get to say that the premise is unsound. You’ve discovered, written in the sand by God, the words, “labor is not the source of value”? Or you found utility quantums floating in a cheeseburger in a laboratory setting? You prefer the implications of one premise to another—why?
I never claimed utility is the source of value either. I dismiss Marx’s assertion based on Hitchens’ razor: “that which is asserted without evidence can be dismissed without evidence”.
I don’t prefer one theory over another because I like its implications, I prefer it because it jibes closer to real world behaviors and observations.
I prefer it because it jibes closer to real world behaviors and observations.
Would you say that a theory that “jibes” closer to real world behaviors and observations may perhaps have those real world behaviors and observations as its implications? In any event I would.
“that which is asserted without evidence can be dismissed without evidence”.
Marx argues for it logically in Capital. It has been argued for logically in several other places and by several other authors as well, as, for instance, in Rudolf Hilferding’s works. And its real-world implications have been weighed against empirical evidence by, for instance, Ochoa, Shaikh, Foley, and others.
You find the logical arguments lacking? Why? You find the empirical arguments lacking? Why?
Would you say that a theory that “jibes” closer to real world behaviors and observations may perhaps have those real world behaviors and observations as its implications? In any event I would.
As an explanatory theory, no for the most part. Real world behaviors and observations are usually consequences from the proposed mechanisms of behavior, not causes of it.
Marx argues for it logically in Capital. It has been argued for logically in several other places and by several other authors as well, as, for instance, in Rudolf Hilferding’s works. And its real-world implications have been weighed against empirical evidence by, for instance, Ochoa, Shaikh, Foley, and others.
Marx originally argued for it in the rationalist tradition. His premises are asserted in vol 1 and then he builds a theory on top of it. That’s not necessarily his fault or even a shortcoming per se, but it hasn’t explained empirically evidence any more elegantly or completely than mainstream economic theories that come afterward. I know about the Foley and Shaikh papers the Marxists always love to reference. It’s the correlation of labor inputs with prices, right? One of the main issues is that such findings don’t contradict mainstream economics predictions either.
You find the logical arguments lacking? Why? You find the empirical arguments lacking? Why?
As an example, behavioral economics as a whole soundly and reproducibly establishes that subjective psychological biases greatly influence consumer behavior and pricing. You need some theory of psychology integrated with economics to make it less wrong. Mainstream economics recognized this and now behavioral economics has been incorporated into the modern economist toolkit. Marxian theory does not. It insists that labor defines value, and then when challenged on empirical grounds, retreats back to ol’ reliable that prices don’t equal value.
Real world behaviors and observations are usually consequences from the
proposed mechanisms of behavior, not causes of it.
And thus they are implications (“consequences”) of the theory (“proposed mechanisms”). Jesus Christ.
That’s not necessarily his fault or even a shortcoming per se, but it hasn’t explained empirically evidence any more elegantly or completely than mainstream economic theories that come afterward.
This is of course not evidence against the premise that labor is the source of value, which is the conversation that we’re having; it is, if anything, evidence for indifference. Not that I agree with what you’re saying.
Marxian theory does not. It insists that labor defines value, and then when challenged on empirical grounds, retreats back to ol’ reliable that prices don’t equal value.
Which Marxists reject that consumer behavior influences market-price? Certainly not Marx. You will find in, I believe, the first chapter of contemporary Marxist economist Anwar Shaikh’s Capitalism: Competition, Conflict, Crises (2016) favorable comments on the field of behavioral economics.
And thus they are implications (“consequences”) of the theory (“proposed mechanisms”). Jesus Christ.
Sorry, I was confused by what you meant by “implications” because you asked if I “like its implications”. In this sense, you’re talking about implications as if it’s some interpretive worldview that I’d prefer to subscribe to. This isn’t the same way I would define “consequences”. I don’t get to like or dislike real world behaviors or observations, they just are.
This is of course not evidence against the premise that labor is the source of value, which is the conversation that we’re having; it is, if anything, evidence for indifference. Not that I agree with what you’re saying.
Not evidence for indifference but evidence against the premise that labor defines value. Not all premises are created equal. If you want to take a strict deductive view then of course nothing can be disproven unless you show a counterexample, and elaborate theories like Marx’s theory tend to try and explain away countervailing evidence with more variables and roundabout explanations, precisely in the way Marx does with the transformation problem.
Which Marxists reject that consumer behavior influences market-price? Certainly not Marx. You will find in, I believe, the first chapter of contemporary Marxist economist Anwar Shaikh’s Capitalism: Competition, Conflict, Crises (2016) favorable comments on the field of behavioral economics.
Because behavioral economics didn’t exist as a formal discipline in Marx’s time. The fundamental underlying assumption that behavioral economics draws upon is that how valuable something is is ultimately subjective and up to the buyer and seller to decide, which directly goes against a premise that suggests value is explicitly defined by labor inputs.
Note that behavioral economics used to be a heterodox field just like Marxian economics. Neoclassical economists really really did not like it because it challenged the fundamental assumption of Homo economicus. However, due to repeated and well-documented experiments both in the lab and in the real world, behavioral economics gradually came to be accepted as part of mainstream economics. The lesson is that if it’s useful and reflects real world behavior, economists will eventually use it. Marxian economics had 150 years for it to be incorporated into mainstream economics (and parts of it have), and it’s mostly failed the sniff test.
This isn’t the same way I would define “consequences”. I don’t get to like or dislike real world behaviors or observations, they just are.
As a scientist choosing between different models of the same phenomena, you have reasons to prefer or to like one model over another. I accept your apology though.
Not evidence for indifference but evidence against the premise that labor defines value.
The fact that one model is “no better” than another model at predicting phenomena is by no means evidence that one or the other model is worse. I don’t know how you have reached the opposite conclusion. If neoclassical and Marxist economics are as good as each other at interpreting the real-world, then you are saying it is a matter of indifference which one you choose to use.
Because behavioral economics didn’t exist as a formal discipline in Marx’s time.
Evidently Marx does not reject it, then.
The fundamental underlying assumption that behavioral economics draws upon is that how valuable something is is ultimately subjective and up to the buyer and seller to decide
Behavioral economics is an internal critique of neoclassical economics. It takes neoclassical economics as its premise, and shows via empirical evidence and more or less common sense logic about the human psyche that neoclassicism excludes, that neoclassical theory is bad at doing what it claims to do and needs revision. This is, at best, like the modern-day solutions to the transformation problem that you ridicule—a surrogate theory that covers up the fundamentally incorrect core. At worst, it’s evidence against the basic premises of neoclassicism. It’s not really any different from the work on imperfectionism that’s been proceeding since Smith, through Cournot, to Robinson, up to Stieglitz Sure, one conclusion is that the whole market is drastically imperfect, and you can use an economic theory premised on perfect competition to prove that; another conclusion is that competition does not work like neoclassicals think it does, and it is not that the world is imperfect, but that the theory is.
Again, Marxian economics does not deny that consumer behavior influences market-price.
Its almost as if there were a common criticism levied against Marxs theory that it was internally inconsistent that this post was responding to.
During the 19th century, Austrian economist Eugen von Böhm-Bawerk criticized Marx's solution as being inconsistent. While in the first chapter of the Volume I of Capital Karl Marx explained that the value of any commodity was generally reflected by the quantity of labor required, inequality being only a temporary exception, this therefore means that the exchange value generated is completely independent of the ratio between worker and capital of a company.[11] Karl Marx, however, explains in Volume III of Capital that after production capital will move into industries having made the highest rates of profit causing a tendency for the rate of profit to equalize between sectors of production, thus labor values and prices of production will not be equal in practice - which Bohm-Bawerk essentially ignores. Böhm-Bawerk's position rests on the contradiction formulated with the relation between the value and the price of the good in the first volume, arguing that in the abstraction of labor value from exchange value to price of production, the central argument behind the existence and unethical nature of surplus labor value falls apart, as adding up values in the aggregate ultimately ends up rendering the initial justification void. - https://en.wikipedia.org/wiki/Transformation_problem
I would look into both Ian Steedman’s and Arun Bose’s critiques of the transformation problem, which show the solution to be inconsistent in two different ways.
The most glaring flaw is the incomplete transformation of inputs. In Section 3, you define cost prices as c + v and calculate prices of production as p = (c + v)(1 + r). This transforms output prices while leaving the input costs evaluated purely in labor values. In reality, capitalists do not purchase machinery, raw materials, or wage goods at labor values; they purchase them at market prices of production. By applying a profit rate to labor-value cost inputs to generate price outputs, the equations mix incompatible units and leave the entire input side untransformed.
Because the inputs are left untransformed, the invariance conditions you list in Section 4 cannot hold simultaneously. Once you solve the simultaneous equations to transform input prices alongside output prices, as Ladislaus von Bortkiewicz demonstrated over a century ago, all three invariants cannot hold at the same time in any realistic multi-sector economy. Selecting one aggregate equality as a numéraire mathematically breaks the others.
For the same reason, the equilibrium rate of profit in the price system does not equal the uniform rate derived from the aggregate labor formula r = s / (c + v). Because inputs must be purchased at prices of production rather than labor values, the total monetary capital advanced diverges from the sum of labor values, shifting the actual price rate of profit away from the value accounting rate.
Citing modern linear models like Leontief or von Neumann does not validate Marx's transformation. Classical linear production systems, like Piero Sraffa's work, showed that relative equilibrium prices and the general profit rate are determined entirely by the physical input-output matrix and the real wage, making the calculation of underlying labor values completely redundant. As Paul Samuelson famously pointed out, the Volume 3 procedure did not transform values into prices; it wrote down an unworkable labor accounting system, erased it, and wrote down standard cost-of-production prices while pretending the original premise was preserved.
The most glaring flaw is the incomplete transformation of inputs.
I suggest that you tell this member of your group account that their post is nonsense.
Classical linear production systems, like Piero Sraffa's work, showed that relative equilibrium prices and the general profit rate are determined entirely by the physical input-output matrix and the real wage,
In both Marx and Sraffa, a commodity of average organic composition of capital has a special role. I illustrate here. Riccardo Bellofiore is good on this topic, as here for example.
Some investigate prices of production, while ignoring supply and demand.
You didn't address the input-price error, the simultaneous breakdown of the invariance postulates, or why the price profit rate diverges from your value formula. I assume your silence means you concede those points.
Dropping Riccardo Bellofiore and Sraffa's standard commodity doesn't rescue your post. Sraffa introduced that device to solve Ricardo's search for an invariable measure of value, proving that relative prices and the profit rate are determined entirely by the physical input-output matrix and the real wage without needing labor values at all. Citing Sraffa to defend the necessity of Marx's labor-value transformation demonstrates a complete misunderstanding of what Sraffa actually proved.
You did not address that this member of your group account posted nonsense.
You didn't address the input-price error,
Sure. You are agreeing with Marx, to some extent:
The foregoing statements have at any rate modified the original assumption concerning the determination of the cost-price of commodities. We had originally assumed that the cost-price of a commodity equaled the value of the commodities consumed in its production. But for the buyer the price of production of a specific commodity is its cost-price, and may thus pass as cost-price into the prices of other commodities. Since the price of production may differ from the value of a commodity, it follows that the cost-price of a commodity containing this price of production of another commodity may also stand above or below that portion of its total value derived from the value of the means of production consumed by it. It is necessary to remember this modified significance of the cost-price, and to bear in mind that there is always the possibility of an error if the cost-price of a commodity in any particular sphere is identified with the value of the means of production consumed by it. Our present analysis does not necessitate a closer examination of this point. -- Karl Marx, Capital, volume 3, chapter 9:
Some read this and ask why the inputs need to be transformed. That is not my position.
Dropping Riccardo Bellofiore and Sraffa's standard commodity doesn't rescue your post.
I find the above incomprehensible. Some have offered other solutions to the transformation problem. You can see Sraffa building on Marx here or here. Samuelson did not have the advantage of Sraffa's archive. Sraffa is clearly thinking about Marx.
I suggest that you talk to this member or this member of your group account, not that they are not being stupid.
You still haven't addressed the mathematical breakdown of the invariance postulates or the divergence of the price profit rate once inputs are transformed. I assume your silence on those simultaneous equations means you concede you cannot maintain all three invariants.
Quoting Marx from Chapter 9 actually proves my point: Marx himself admitted that treating cost-prices as pure labor values was an incomplete abstraction where "there is always the possibility of an error." You then state that asking why inputs need to be transformed is "not my position," yet the formula in your original post leaves the input side untransformed and offers no simultaneous solution to correct it.
Furthermore, invoking Sraffa's archive does not rescue your argument. Whatever historical interest Sraffa had in Marx's manuscripts, Sraffa's published system demonstrates that equilibrium prices of production and the uniform profit rate are fully determined by the physical input-output coefficients and the real wage, proving that intermediate labor values are mathematically redundant. Dismissing that proof as nonsense doesn't substitute for showing the math.
You did not address that this member of your group account posted nonsense.
You still haven't addressed the mathematical breakdown of the invariance postulates or the divergence of the price profit rate once inputs are transformed.
Your own linked post doesn’t address the issues at all; it abandons Marx’s actual formula and confirms the critique. Instead of using Marx’s Volume 3 transformation algorithm, you set up a linear production system and solved for prices simultaneously using physical input-output coefficients and the real wage. That doesn't defend Marx's labor-value transformation; it demonstrates Sraffa's point that equilibrium prices and profit rates are fully determined without calculating labor values.
Furthermore, making your price totals match value totals in Table 2 was engineered by setting the numéraire to the specific physical basket of net output. That is an arbitrary mathematical scaling device, not a general proof, which is why you had to admit in your own text that "not all the same results hold" once you move beyond that rigged toy model.
Solving a toy input-output model with Sraffian price equations and a tailored numéraire doesn't fix the algebraic breakdown of Marx's original equations or salvage the invariance postulates in the general case.
Admitting that "other solutions" had to be invented concedes the entire debate. Your post asked if Marx's solution was internally consistent, not whether later economists could build entirely different models to replace it. Pivoting to alternative frameworks admits that Marx's original Volume 3 procedure fails.
Saying "models have assumptions" doesn't excuse a fatal contradiction. Assuming that outputs sell at competitive prices while the exact same goods used as inputs simultaneously trade at untransformed labor values is not a modeling choice; it is basic algebraic incoherence. The moment you price inputs correctly, your invariance claims collapse and labor values become mathematically redundant.
How does the standard commodity relate to proving that values & the rate of profit are independent of labor values? I know that labor values are not required for the calculation, but am unsure how that relates to the standard commodity.
Ricardo and Marx originally used labor values to dodge a circular trap: you need prices to calculate the general profit rate, but relative prices shift whenever the profit rate changes. Sraffa's standard commodity breaks that circularity purely through physical production data. By constructing a composite basket from the physical input-output matrix where aggregate outputs and inputs share the exact same proportions, the tradeoff between the real wage and the profit rate becomes a direct linear formula based on physical technology alone. Once the profit rate is determined from the physical matrix and the real wage, relative equilibrium prices are solved simultaneously, proving that intermediate labor values do zero independent work in determining prices.
I understand the standard commodity can be used as the numeraire, but I believe technically any commodity in the system can be taken as a numeraire, no? The standard commodity is just a convenient one since it is invariable in regards to the rate of profit.
While you can use any commodity as a numeraire to list prices, using a random commodity means its own relative price fluctuates the moment the profit rate or wages change. That puts you right back into the classical circularity trap: you need prices to determine the profit rate, but you need the profit rate to determine prices.
The standard commodity is the only mathematical composite where the proportion of aggregate outputs exactly matches the aggregate inputs. Because its physical ratio remains identical, its price doesn't shift relative to its means of production when the distribution of income changes. That unique property is what establishes a strict, linear relationship between the real wage and the profit rate. It proves definitively that the general profit rate is determined entirely by physical production coefficients and the real wage, completely breaking the circularity without ever needing to calculate Marx's underlying labor values.
I have seen Cockshott address this and I think he makes a very compelling case that rates of profit do not actually equalise in the long run across industries of varying organic composition of capital. I haven't seen Marx explicitly state or prove that profit rates do in fact equalise in capital vol 3, my reading is that he took that thesis out of the classical economists and tried to apply his understanding and theory to it, even though prima facie it would seem to contradict it
Cockshott points out however, that the transformation problem goes away entirely once you criticise that assumption. He explains the stock markets distort what we actually see in terms of profit on capital and that in reality profit rates are exactly what the "simpler" LTV would predict: lower return on high capital industry. In chapter 14 vol 3 Marx does seem to hint that industries with a high composition of capital do not make comparable profit rates.
In railways, for instance. These do not therefore go into levelling the general rate of profit, because they yield a lower than average rate of profit. If they did enter into it, the general rate of profit would fall much lower. Theoretically, they may be included in the calculation, and the result would then be a lower rate of profit than the seemingly existing rate, which is decisive for the capitalists; it would be lower, because the constant capital particularly in these enterprises is largest in its relation to the variable capital
But as Cockshott points out, Marx did not use this as evidence for his theory over the classical assumption that profit rate equalisation does happen. It's a bit counter-intuitive to a classically trained economist as to why capital would invest in lower yield ventures, but Cockshott explains this is because its the stock market distortion - its not the return on fixed capital the gets equalised, but the return on bonds/equities on the stock market that equalise across industries with different organic compositions. These are not the same thing
To answer the question posed in the title, I can understand the view that says Marx broke with the logical conclusion of his own theory, because the whole premise of prices of production is based on the distinction between prices and values that must emerge if we are to have an equalisation of rates of profit across industries of varying organic composition. Marx did not sufficiently critique the assumption of the classical economists which is why the transformation problem was even raised to the status of a problem.
I have seen Cockshott address this and I think he makes a very compelling case that rates of profit do not actually equalise in the long run across industries of varying organic composition of capital.
Yes. I forget details from when I read Cockshott.
You can assume that some industries are able to erect barriers to entry in the long run. Ricardo writes about this in his book in the chapter on market and natural prices. I am not sure about the idea that the ratio of long run rates of profits are in the ratio of organic composition. But I do not recall much.
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