Andrew Kliman and The Neo-Ricardian' Attack On Marxism, PT 1 - A Critique of Crisis Theory PDF

A Critique of Crisis Theory
From a Marxist perspective
Andrew Kliman and the ‘NeoRicardian’ Attack on
Marxism, Pt 1
[The following is the first of a twopart reply to a reader’s question. Since the reply had to be broken into
two parts due to its length, part 2 will be posted two weeks after this part appears. My plan is to return to
a monthly schedule after that.]
A while back a reader asked what I thought about the work of Andrew Kliman. Kliman is the author of a
book entitled “Reclaiming Marx’s ‘Capital,'” published in 2007. In this book, Kliman, a professor of
economics at Pace University, attempts to answer the claims by the socalled “neoRicardian”
economists that Marx’s “Capital” is internally inconsistent. According to the “neoRicardians,” Marx
was not successful in his attempts to solve the internal contradictions of Ricardo’s law of labor value.
The modern “neoRicardian” school is largely inspired by the work of the ItalianBritish economist and
Ricardo scholar Piero Saffra (18981983). But elements of the “neoRicardian” critique can be traced
back to early 20thcentury Russian economist V. K. Dmitriev. Other prominent economists and writers
often associated with this school include the German Ladislaus von Bortkiewicz (18681931) and the
British Ian Steedman.
The Japanese economist Nobuo Okishio (19272003), best known for the “Okishio theorem”—much
more on this in the second part of this reply—evolved from marginalism to a form of “critical Marxism”
that was strongly influenced by the “neoRicardian” school.
In the late 20th century, the most prominent “neoRicardian” was perhaps Britain’s Ian Steedman. While
Sraffa centered his fire on neoclassical marginalism, Steedman has aimed his at Marx. His bestknown
work is “Marx after Sraffa.” The “neoRicardian” attack on Marx centers on the socalled transformation
problem and the Okishio theorem.
The Okishio theorem allegedly disproves mathematically Marx’s law of the tendency of the rate of profit
to fall. The transformation problem is more fundamental than the Okishio theorem, since it involves the
truth or fallacy of the law of labor value itself. I will therefore deal with the transformation problem in
the first part of this reply and the Okishio theorem in the second part. However, Andrew Kliman seems
to be more interested in the Okishio theorem for reasons that will soon become clear.
I have already dealt with the transformation problem in an earlier reply
(https://critiqueofcrisistheory.wordpress.com/responsestoreaders%E2%80%94austrianeconomics
versusmarxism/valuetheorythetransformationproblemandcrisistheory/). But here I will take
another look at it in the light of Kliman’s work.
The ‘Temporal SingleSystem Interpretation’
Kliman is a leader of a school that has developed over the last 40 years in response to the “neo
Ricardian” attack on Marx, called the “Temporal SingleSystem Interpretation,” or TSSI for short. As a
supporter of TSSI, Kliman seeks to demonstrate that it is necessary to look at the formation of labor
values dynamically in time. According to Kliman and the TSSI school, the main mistake that the “neo
Ricardians” make is that they seek to calculate input and output prices simultaneously.
Kliman claims that such simultaneous calculations of input and output prices inevitably lead to what he
calls “physicalism.” Instead of calculating profits—surplus value—in terms of labor values, the “neo
Ricardians” end up calculating profits in terms of physical quantities of commodities. Or to use more
traditional Marxist language, the “neoRicardians” end up calculating surplus value in terms of the use
values of the commodities consumed by the consumers of surplus value, whether productively or
unproductively, and not in terms of the labor values of these commodities.
As Ian Steedman, the author of “Marx After Sraffa,” likes to put it, the rate of profit in terms of prices of
production is not determined by the (labor) value rate of profit. Instead, Steedman holds that the (labor)
value rate of profit and the rate of profit in terms of prices of production—prices that equalize the rate of
profit among the different branches of production—are not the same. Therefore, the rate of profit is not
determined by the value rate of profit but rather by the physical conditions of production and the real
wage. Steedman therefore came to the conclusion that the whole concept of labor value is meaningless
and should be abandoned.
This is what Kliman means by the “physicalism” of the “neoRicardian” school. Since the “neo
Ricardians” reject all forms of the law of labor value—Ricardo’s as well as Marx’s—they are forced to
reject Marx’s explanation of surplus value. To the extent the “neoRicardians” can be said to have a
theory of surplus value at all, they see the surplus value as a surplus of physical use values that arise in
the process of production.
Our modern “neoRicardians” turn the clock of economic thought back to not only before Marx but
before Ricardo and before Adam Smith, back to the French Physiocrats of the 18th century. (1) The
Physiocrats were the original “physicalists.” They saw surplus value arising physically in the sphere of
agricultural production, a view that in their time was a considerable advance over the older view that
surplus value arose in the sphere of trade or circulation.
The only real advance—leaving aside the mathematics—of today’s “neoRicardians” over their
Physiocratic forbearers is that they don’t insist that profit arises only in the sphere of agriculture.
However, even here, very much in the manner of the Physiocrats, they often use examples drawn from
agriculture and indeed are forced to do so for reasons that will become clear below.
The importance of the issues at stake
Frederick Engels went so far as to say that socialism became a science only with the discovery by Marx
that surplus value arose from the unpaid labor of the working class even if labor power was paid at its
full value. If the “neoRicardians” are right, however, Marx’s theory of surplus value is invalid.
Socialism is therefore no longer a science but once again a utopia. Therefore, the issues raised by Kliman
are indeed central to economic science and to the future of Marxism. How well he answers the “neo
Ricardian” challenge is, however, another question altogether.
Crisis theory, Kliman and the Okishio theorem
While my posts to this blog center on crisis theory, the transformation problem and the Okishio theorem
involve far more basic questions: the theory of value and surplus value and the determination of the rate
of profit. This reply, therefore, does not deal with crisis theory but with value theory.
However, in looking at Andrew Kliman’s work on the Internet I get the impression that his real concern
is crisis theory—a subject that has been on everybody’s mind since the events of 2008 and their
aftermath through which we are now living. In my blog, I have attempted to criticize crisis theory—the
aspect of economic theory that seeks to explain why the capitalist economy is periodically hit by
economic crises, such as the one that hit with such force in the fall of 2008, in the light of Marx’s value
theory. I think Kliman is trying to do the same thing.
However, if the “neoRicardian” critique of Marxist value theory is correct, then both Kliman’s work and
my own are misconceived. Kliman belongs to the school of crisis theory that explains crises by the
tendency of the rate of profit to fall—the insufficient production of surplus value—as opposed to schools
of thought that put the emphasis on the realization of surplus value. Kliman’s views on crisis theory are
broadly related to the GrossmanMattick school that I examined and criticized in my main posts. I will
not repeat these criticism here but refer the reader to the post
(https://critiqueofcrisistheory.wordpress.com/historicalmaterialismandtheinevitableendof
capitalism/economiccrisesthebreakdowntheoryandthestruggleagainstrevisionisminthegerman
socialdemocracy/).
If Okishio really proved that there is no tendency of the rate of profit to fall, then the rug is pulled out
from under the very school of crisis theory that Kliman supports. Therefore, Kliman, I believe, is really
interested in the Okishio theorem and how it might be disproved. However, since the “neoRicardian”
critique involves first and foremost an attack on Marx’s value theory, I must review the transformation
problem in the light of Kliman’s proposed TSSI answer to the claims that Marx’s theory of value, like
Ricardo’s, is inconsistent and therefore false.
The TSSI approach
According to Kliman, to understand Marx’s value theory we really must use the Temporal SingleSystem
Interpretation, or TSSI, approach. According to Kliman, it is not only “neoRicardians,” avowed
opponents of Marx’s value theory, but also certain Marxists—Anwar Shaikh, for example—who wrongly
support the SSSI (Simultaneous SingleSystem Interpretation), which holds that the values of inputs and
outputs are determined simultaneously.
For example, suppose a lathe is sold for $100,000 by an industrial capitalist to another industrial
capitalist. For the industrial capitalist who produces the lathe, it is an output, but for the industrial
capitalist who purchases the lathe it is an input. The lathe both as input and output has a price of
$100,000.
Kliman holds, if I understand him correctly, that if we build economic models where the input and output
prices are the same, two different rates of profit inevitably emerge: the rate of profit in terms of labor
values and the rate of profit in terms of prices of production. The “neoRicardians” draw the conclusion
that the only meaningful rate of profit is the rate of profit in terms of prices of production and throw out
the value rate of profit as both redundant and meaningless. After all, no practical business people are
interested in or even know the rate of profit in terms of value; they are only interested in the rate of profit
in terms of price.
If the the rate of profit were the same in value terms and price of production terms, the “neoRicardians”
reason, this would show that the value rate of profit determines the price of production rate of profit, and
the law of labor value and Marx’s theory of surplus value would be correct. But since this is not the case,
it is necessary to abandon Marx’s theory of labor value and surplus value.
Remember, if we can’t answer the “neoRicardian” criticisms, virtually all of Marx’s contributions to
economic science vanish without a trace, and the claims of Marxist socialism to be a science are refuted.
Kliman holds that the Temporal SingleSystem Interpretation resolves the contradictions that the “neo
Ricardians” believe that they have located in Marxist value theory. According to Kliman and the TSSI
school, what the “neoRicardians” leave out is the change of values over time.
Returning to the lathe example, assume that the price of $100,000 represents the labor value of the lathe.
Suppose a way is found to produce an identical lathe with half the amount of labor than it took before.
The value of a new lathe of the identical type will fall from $100,000 to only $50,000. For simplicity’s
sake, let’s assume that the fall in the value of the lathe occurs immediately after the industrial capitalist
who uses the lathe as an input has purchased it but before the industrial capitalist has begun to use the
lathe up in production.
What is the value of the capital that our latheusing industrial capitalist advanced when he or she
purchased the lathe for $100,000. Is it $100,000 or $50,000? Kliman says it is $100,000, but according to
him, “neoRicardians” calculating in physical terms will value the lathe at $50,000.
Corn models, or back to the Physiocrats
Kliman explains that the “neoRicardians” calculate the rate of profit not in terms of labor value but in
terms of physical quantities. In order to do this, we have to compare the inputs to the outputs. The
increase of the outputs in physical terms over the inputs is the physical rate of profit. But before we can
compare the inputs and outputs quantitatively, the inputs and outputs must first be rendered qualitatively
comparable.
In most industries, the use values of commodities that serve as inputs—fixed capital, raw materials and
auxiliary materials such as energy—are very different than the use value of the commodity that is
produced—the output. But let’s imagine a branch of capitalist industry that by way exception has the
same commodity as both an input and output.
So in the spirit of the Physiocrats—the original “physicalists”—the “neoRicardians” take examples
from agriculture where the inputs and outputs can with a considerable stretch be imagined to be
identical. Imagine a capitalist corn farmer who uses corn both as input and output. (2) Another possible
example would be a cattle rancher where cattle are both the input and output, but we will stick here to the
more popular corn model.
I am assuming a capitalist corn farmer. (3) Don’t capitalist farmers by definition have to purchase the
commodity labor power as inputs? If they don’t, they are not capitalist farmers. No problem, the “neo
Ricardians” proclaim, we will have our capitalist farmers pay the workers directly in corn. Presumably
our workers have no other needs; they work without clothes, live out in open and eat only corn.
Our capitalist corn farmer begins with a definite quantity of corn, let’s say 100 bushels—an example
taken from Kliman’s book. Some of the corn is used as seed corn, the rest is used to pay for the labor
power of our workers. Our capitalist farmer employs no plows, no machinery, no motive power beyond
human labor whether animal or fossil fuels or electricity. No fertilizer or pesticides of any kind or
improved land is used. (4) Now, having made all these totally unrealistic abstractions, we have rendered
both the inputs and outputs qualitatively identical making it possible to calculate the “profit” of our
“capitalist” farmer in physical terms.
At the beginning of the growing season, our capitalist farmer begins with a “capital” of a hundred
bushels of corn. He will use some of his corn as seed corn and some as wages to pay his workers. The
capitalist farmer has begun with 100 bushels of corn and harvests, to use Kliman’s example, 120 bushels
of corn. The mass of “profit,” calculated in physical terms, is 20 bushels of corn, and the rate of profit
on an initial “capital” of 100 bushels of corn is 20 percent.
If the real wages rise—remember, all wages are paid in corn—this means the workers get higher corn
wages. More corn would then have to be advanced to earn a “profit” of 20 bushels of corn. So the rate of
“profit” would be lower, since the 20 bushels of “profit” would have to be calculated on a larger corn
capital. Conversely if the real wage falls—the workers get less corn—the rate of profit rises, assuming a
corn “profit” of 20 bushels, since the corn “profit” will be calculated on a smaller corn “capital.”
Assuming the capitalist farmer advances a capital of 100 bushels of corn and harvests 120 bushels of
corn, we have a mass of profit of 20 bushels of corn and a rate of profit measured in physical terms of 20
percent. But, Kliman asks, what happens if the value of the corn falls because less labor time is necessary
to produce the corn than before?
Instead of selling for $1 per bushel, let’s say the the price of corn falls to $.80 reflecting the new lower
labor value of the corn. But wait a moment, where do prices come from? Haven’t we been dealing with a
natural economy where only one product, corn, has been produced? But then again if we are dealing with
a natural economy, how can we have a capitalist farmer at all since isn’t capitalism the highest stage of
commodity production where labor power has become a commodity? (5) Never mind, we are in the
dream world of the professional economist, and in this world this kind of nonsense is allowed.
Using our dream world dollars, the capitalist farmer lays out $100 worth of corn before the price drops
and sells the corn for $100 after the price drops. We can measure the profit of the capitalist corn farmer
in both physical terms—corn—and in terms of our dream world money.
Now, has the capitalist farmer made a profit or has he not? If we calculate in physical terms, the answer
is yes, but if we calculate in value terms or in our special dream world dollars, the answer is no. Our
capitalist farmer has just broken even, which is no good at all for a capitalist. Remember, like all
capitalists, even dream world capitalists, our capitalist corn farmer must make a profit.
Professor Ian Steedman, calculating in physical terms, reassures the capitalist farmer that he has indeed
made a profit. He started out with 100 bushels of corn and has ended up with 120 bushels of corn, a
profit of 20 bushels. Next year, it will take only $80 to buy 100 bushels of seed corn, Professor Steedman
explains. So after taking account of the negative rate of inflation—or deflation—the capitalist farmer has
done quite well for himself.
If we were dealing with a natural economy that produces only use values, this would be true. But since
we are supposedly dealing with a capitalist economy here—even if a “very simple one,” as the “neo
Ricardians” like to say—the capitalist farmer would send the professor packing, explaining that though
Steedman may be an excellent professor of economics, he has no head for business. The capitalist corn
farmer will explain to our Ian that in business we don’t calculate our profits in physical terms, we
calculate our profits in money terms. (6)
In contrast to Steedman, Kliman using the TSSI approach, believes that the capitalist farmer advanced
$100 in capital at the beginning of the corn growing season and not $80 in capital. Therefore, Kliman
believes that the capitalist farmer better value his advanced capital at $100 not $80. The capitalist farmer
would say that Kliman, unlike Steedman, seems to have the makings of a man of business. Though he
speaks in the jargon of the professional economist, he at least understands that in business we have to
have more money when we sell our commodities than we started out with or we have not made a profit.
Frankly, Kliman’s entire presentation of this point is complex and confusing because as we will soon see
he lacks any meaningful theory of money and price. Kliman is trying to explain the capitalist economy as
though money does not exist. He is not alone in this. Remember, his “orthodox” neoclassical marginalist
colleagues hold that money is only a “veil” that can be abstracted away when explaining the operations
of the capitalist economy. According to the neoclassical marginalists, money is a mere means of
circulation—this is the basis of Say’s Law, which the (bourgeois) economists use to “prove” that
economic crises of overproduction such as that of 2008 cannot occur. (7)
Kliman is therefore making a valid point. We cannot pretend that a system of capitalist commodity
production is the same as a system producing use values only. It does no good for capitalists to make a
physical “profit” in terms of use value if they do not make a profit in terms of money. And money profit
ultimately depends, as Kliman realizes, on labor value and surplus value—the unpaid labor performed
free of charge by the working class for the capitalist class.
According to Marx—and on this point you won’t find a business person who is not a “Marxist”—the
formula for capitalist production is M—C—P—C’—M’. It most certainly is not C—P—C’ like it is in
the contrived models of the “neoRicardians.” Why isn’t C—P—C’—where we leave out money and
look only at the real economy—a valid abstraction?
Not least because the first C—fixed capital, raw materials, auxiliary materials and labor power—outside
of the “corn” models of “neoRicardians”—in terms of use value are qualitatively different than the C’—
the commodity that industrial capitalists produce. Since the two C’s are qualitatively different, there is no
way to determine whether the second C, or C’, is in reality more than the first C. Looking at these two
C’s in use value terms, the capitalist has no idea whether he has made a profit or not.
The production cycle must therefore begin with money and end with money. It is only by comparing the
quantity of money that he ends up with to the quantity of money he started with that a real world
capitalist can determine whether or not he has made a profit. This is why all attempts to explain
capitalism with money abstracted, looking only at the real economy, are doomed from the start.
Kliman therefore draws the conclusion that if you use the SSSI approach—that is, if you ignore the
changes of value through time—you end up calculating profits in physical terms, abandoning not only
Marx’s theory of value but, far worse, abandoning reality.
But we don’t really need TSSI to avoid this error. All we need is Marx’s theory of exchange value as the
form of value, or in plain language Marx’s theory of money, to avoid the error of calculating profits in
“physical terms.” Unfortunately, as we will soon find out, Kliman has amputated this absolutely essential
part of Marx’s theory of value.
Kliman thinks with TSSI the contradictions that the “neoRicardians” claim they have found in Marx’s
economic work dissolve. Marx’s work is rendered internally consistent and the “neoRicardian” claims
are refuted. According to Kliman, TSSI does not actually prove that Marx’s scientific findings are correct
—they may or may not be. But if Marx’s work is internally consistent, then it is possible that it may be
correct. This is all that Kliman attempts in “Reclaiming Marx’s ‘Capital.'” With the help of TSSI, we can
reclaim “Capital” as a work that might actually explain the real world.
I would say that if we replace TSSI (8) with Marx’s complete theory of value, which includes his
analysis of exchange value and money as the form of value, Marx’s economic theory is perfectly
consistent. In my opinion, the entire “neoRicardian” critique is based on the failure to understand
Marx’s value theory. I think we can go further and say that the empirical evidence is overwhelming that
Marx’s economic theory is in fact true.
It is extremely unfortunate that Kliman wrote “Reclaiming Marx’s ‘Capital'” without fully mastering the
theory whose internal consistency he seeks to defend.
In my earlier post, I indicated that I thought that Anwar Shaikh’s very different approach to the
transformation problem was correct. Unlike Kliman, Shaikh in his work on the transformation problem
employs Marx’s real theory of value (9) and not the amputated version that Kliman uses in his work.
Let’s review the transformation problem and its whole meaning for value theory. Then we can compare
the approaches of Marx, Shaikh and Kliman.
A brief review of the transformation problem
The transformation problem has deep roots in classical political economy. It centers on the relationship
between values determined by the quantity of labor socially necessary to produce commodities and the
tendency of free competition in a capitalist economy to equalize the rate of profit among capitals of
different organic compositions and turnover periods in such a way that capitals of equal sizes earn equal
rates of profit in equal periods of time.
Ricardo, who developed the concept of labor value further and more consistently than anyone before
Marx, was stumped by the apparent contradiction between his law of labor value, which holds that the
value of commodities is determined by the quantity of labor socially necessary to produce them, and the
tendency of free competition to equalize the rate of profit that is yielded by equal capitals in equal
periods of time.
Since capitals invested in different branches of production have different durabilities (Ricardo did not
have any conception of the organic composition of capital) and if commodities sell at prices determined
by labor values, the rate of profit will be unequal between different industries. But Ricardo, like virtually
all other economists both before and after him, realized that if rates of profit are higher in some branches
of industry than in others, the capitalists always in search of the highest possible profit will move their
capital out of branches that are making less than the average rate of profit and into branches that are
making more than the average rate.
However, this will mean that the axes around which market prices fluctuate—the prices of production—
will deviate from the prices that would prevail if commodities sold at prices that were directly
proportional to labor values. This was a particular problem for Ricardo, since unlike Marx he made no
distinction between values and prices of production.
While to Marx values represented definite quantities of abstract human labor measured in some unit of
time embodied in commodities, prices in contrast were definite quantities of the use value of the money
commodity—for example, weights of gold.
Therefore, Ricardo’s theory implied that something other than the quantity of socially necessary labor
was determining the values of commodities. Ricardo frankly acknowledged the contradiction in his
theory of value and his inability to resolve it. He hoped that a future economist would find the answer to
this apparent contradiction. And this is how things stood when Ricardo died prematurely of an ear
infection in 1823.
None of Ricardo’s bourgeois followers were able to resolve the apparent contradiction between Ricardo’s
labor law of value and the tendency of free competition to equalize rates of profit among different
industries. This helped lead to what Marx called the disintegration of the Ricardian school.
Political economy made its great turn away from the law of value determined by the quantity of socially
necessary labor needed to produce a commodity—that is, it committed suicide as a science—and
eventually arrived at marginalism—the view that the value of commodities is determined by the
scarcities of commodities relative to subjectively determined human needs. (10)
Marx’s solution to the transformation problem and the ‘neoRicardian’ critique of it
First Marx raised the whole question to a higher level through his distinction between constant capital,
which merely preserves the value of capital, and variable capital—labor power—which alone produces
new value, including surplus value. If commodities sell at prices that are directly proportional to their
values, industries with an aboveaverage organic of capital—assuming equal turnover times—will make
a lower than average rate of profit, while industries with a lower than average organic composition
should make a higher than average rate of profit.
Yet Marx agreed with the classical economists that free competition would tend to equalize the rate of
profit among different industries. This would transform values into prices of production that would
equalize the rate of profit among industries with different organic compositions of capital. As a result,
the average prices around which market prices fluctuate—prices of production, or production prices for
short—would inevitably diverge from values.
Marx’s greatly improved theory of value helped clarify how this could occur without invalidating the law
of labor value. In a commodity producing economy, the values of commodities inevitably take the form
of rates of exchange between different commodities—that is, exchange values.
Therefore, the value of a commodity is not expressed directly in terms of quantities of abstract labor
measured in some unit of time but in terms of the use value of another commodity. Except in the most
primitive stages of commodity production, the commodity that measures the values of commodities in
terms of its own use value is a special money commodity. For thousands of years, the main money
commodity has been the precious metal gold.
Assuming gold bullion is the money commodity, exchange values are measured in terms of the quantities
of gold bullion as a material use value. The unit of measure of gold bullion is weight. Exchange value
expressed in terms of quantities of the money commodity—weights of gold—is nothing other than price.
This is true not only of concrete market prices but also of the abstractions that we call prices of
production.
It is perfectly possible for the value of a commodity to express itself in a weight of gold—price—that has
a different value than the value of the commodity whose value the gold is measuring. Indeed, Marx
makes clear not only is this possible, it is the rule.
Shaikh’s concept of direct price
Anwar Shaikh has clarified what Marx meant when he talked about commodities selling at their values.
A commodity, strictly speaking, does not sell at a “value” but always at a price. If the quantity of abstract
human labor embodied in a commodity and the quantity of abstract human labor embodied in the gold—
or whatever commodity serves as money—with which it exchanges is identical, the commodity is selling
at a price that directly reflects its value, or direct price for short. We can contrast direct prices to both
prices of production, which equalize profit rates and form the axes around which market prices fluctuate,
and market prices, the prices we actually pay in the supermarket, for example.
Marx used direct prices in his analysis of the origin of surplus value in the unpaid labor of the working
class. He explained that this is the case even if workers are paid the full value of their labor power, or
what comes to exactly the same thing, even if the workers sell their labor power at its direct price. Marx
stressed that if you cannot explain surplus value on the basis of commodities selling at their values—or
direct prices—you cannot explain surplus value at all.
Marx also used direct prices in his famous diagrams of simple and expanded reproduction. Only in
Volume III of “Capital”—quite late in the work—did Marx introduce prices of production that equalize
the rate of profit among branches of industry with different organic compositions of capital. Prices of
production play a crucial role in Marx’s analysis of differential and absolute ground rent, which is also
covered in Volume III of “Capital.” We cannot analyze differential and absolute rent only with direct
prices. In order to analyze ground rent, we need prices of production.
Marx’s solution to the transformation problem
In Volume III of “Capital,” Marx presented a model in which commodity prices instead of selling at their
direct prices—an assumption that Marx had made up until that point—sell instead at prices of production
that produce an equal rate of profit among five branches of production with differing organic
compositions of capital.
Marx’s model shows how a system of prices that directly reflect values is transformed into a system of
prices that equalizes the rate of profit among the branches of production with different organic
compositions of capital. Furthermore, in Marx’s model both the rate and mass of profit for the five
branches taken as a whole are equal in terms of labor values, direct prices and prices of production.
What Marx’s solution to the transformation problem demonstrates
Though it seems after the transformation from direct prices into prices of production that both constant
and variable capital are equally productive of surplus value, in reality only variable capital produces
surplus value or profit.
Did Marx make a mistake?
Starting with von Bortkiewicz, “neoRicardians” have claimed that Marx made a mistake in his solution
to the “transformation problem.” These critiques point out that Marx’s model does not transform the
input prices from values—or direct prices—to prices of production. In Marx’s solution to the
transformation problem, the industrial capitalists buy their inputs at values—direct prices—but sell them
at prices of production. In Marx’s model the individual commodities are partially transformed from
direct prices to prices of production, and the rate of profit is not affected. Whether you calculate the rate
of profit in terms of direct prices, or in terms of prices of production, you get exactly the same rate of
profit that you get if you calculate the rate of profit directly in terms of value.
In the text, Marx indicated his solution was an incomplete one. A full solution requires the
transformation of the inputs into prices of production. Therefore, Marx didn’t make a mistake but left us
an incomplete calculation that points the way to a full solution.
Completing the transformation of direct prices into prices of production
The full solution requires what mathematicians and computer programmers call iteration. After the first
calculation, you repeat it again with the prices of production derived from the first calculation serving as
the input prices in the second calculation. After you repeat it a number of times, the input prices and
output prices become completely consistent with one another.
The transformation of direct prices into prices of production is now complete. Both inputs and outputs
sell at their price of production. Not only that but if you assume that all commodities produced reenter
the reproductive process—that is, all commodities are what the “neoRicardians” call “basic
commodities”—the rate of profit in terms of values will always be equal to the rate of profit in terms of
prices of production.
While Anwar Shaikh accepts this solution, Andrew Kliman strongly rejects it. If we embrace this
solution, according to Kliman, we will end up calculating profits in physical quantities rather than in
values, and Marx’s whole theory of value including his theory of profit and surplus value will go out the
window.
I don’t agree with Kliman here. I do strongly agree with Andrew Kliman that calculating profits in
“physical terms” is a tremendous mistake that both “neoRicardians” as well as the marginalists make.
But I don’t think the problem lies in the iterativesimultaneous solution to the transformation problem.
Instead, I believe that leftwing “neoRicardians” fall into the error of calculating profit in physical terms
rather than in terms of the unpaid labor of the working class, because they fail to distinguish between
value and the form of value—exchange value. That is, it lies in incorrect “noncommodity” theories of
money.
One has not fully mastered Marx’s theory of value if one only understands that the values of
commodities are determined by the amounts of abstract labor needed to produce them. It is also
necessary to understand exchange value as the form of value, which leads to Marx’s theory of money and
price. As we will see below, Kliman lacks a theory of money—and therefore of price—worthy of the
name. With such an incomplete theory of value you cannot, in my opinion, answer the “neoRicardians.”
But why is this so? If we simply have to complete Marx’s partial mathematical calculation, why do “neo
Ricardians” have a case at all?
The problem arises from the fact that the rate and mass of profit are equal in terms of direct prices only
so long as all the commodities reenter the process of reproduction—or are “basic commodities” in “neo
Ricardian” jargon. It doesn’t matter whether the commodities in question enter into the process of
production as fixed capital, raw materials or auxiliary materials, or whether they enter into the process of
production as items of personal consumption of the productive (of surplus value) workers. As long as
this is true, any gains that an individual capitalist makes by selling his or her commodities above their
values is exactly counterbalanced by the extra cost of inputs that must be purchased by other capitalists.
Since we are assuming that all commodities function as inputs, anything some capitalists gain by selling
their commodities above value is lost by other capitalists buying the input above value.
The converse is true as well. Any loss that an individual capitalist suffers from selling his or her
commodity below value is gained by some other capitalist buying that commodity as an input below its
value. Therefore, the total mass and rate of profit remain unaffected by the transformation of values, or
more strictly direct prices, into prices of production. Therefore, the rate of profit in terms of values will
exactly equal the rate of profit in terms of prices of production.
So far so good. Even the amputated version of Marx’s theory of value employed by Kilman is sufficient.
But this is true only as long as all commodities enter the process of reproduction. But what, the “neo
Ricardians” ask, about the case of luxury commodities, the commodities consumed only by the
capitalists—or weapons consumed by the capitalist state? Once these “nonbasic commodities” are taken
into account, the mass and rate of profit will differ somewhat when they are measured in terms of values
on one hand and prices of production on the other. The equality between the rate of profit in terms of
value and the rate of profit in terms of prices of production will now only be approximately true, not
exactly true as before.
Money and the transformation problem
Why is this? In my opinion, to understand why this is so you have to understand both the role of money
as the measure of the values of commodities and its role as the standard of price.
When we talk about the prices of all commodities, we are by definition leaving one commodity out—the
one commodity in the capitalist economy that does not have a price. And what commodity by definition
has no price? The money commodity. Since the money commodity serves as the standard of price, it
itself cannot have a price. Only if we imagine that money is not a commodity can we talk about the prices
of all commodities. Let N equal the total quantity of commodities. The total sum of commodity prices
will always leave one commodity out. We can add up the prices only of N – 1 commodities.
Suppose that on average the capitalists buy their luxury commodities at prices of production that are
above values. This will mean that the capitalists as a whole will have a rate of profit that in terms of
prices is slightly higher than the rate of profit they will have in terms of values. But what they gain by
selling these commodities above their values they lose as buyers. Conversely, if they buy their luxury
commodities at production prices that are below their values, what they lose as sellers they gain back as
buyers of these same luxury commodities.
Therefore, when we calculate in terms of prices of production, value seems to be produced or destroyed
in the process of circulation, because we are leaving out the value of the money commodity. Throwing
up their arms, the “neoRicardians” give up on value at this point and return to dealing only with
physical use values.
But once we take into account the value of the money commodity—the one commodity that has no price
—the apparent creation or destruction of value in circulation disappears. It is a mere money illusion.
Therefore, at the end of the day the value the capitalists get to consume, whether unproductively as items
of personal consumption or productively as means of production, is nothing else but the surplus value
produced by the working class minus the surplus product embodied in the gold that is used as money,
since strictly speaking money is not consumed.
Not understanding that they are dealing with a money illusion, Ian Steedman imagines that he and his
fellow “neoRicardians” have finally overthrown the whole concept of labor value and surplus value as
the unpaid labor of the working class.
Why didn’t Marx complete his solution to the transformation problem, though in the text he indicates
that he was aware of all the problems raised by the “neoRicardians” over the last 100 years? This is, of
course, a matter of speculation. Remember, Marx was working in the days before those marvelous
devices we use today both to write and carry out complex arithmetic calculations, when we have to,
called computers. And remember, Volume III of “Capital” is only a draft. Perhaps Marx would have gone
through the laborious—in those precomputer days—arithmetical calculations if he had lived long
enough to complete his work.
But I think there is a more fundamental reason why Marx left his work as it was. Once we bring in the
role of luxury commodities—the nonbasic goods in “neoRicadian” terminology—we further obscure
the fact that only variable capital—living labor—creates surplus value. Once luxury commodities are
brought in, the appearance that constant capital—dead labor—can also produces surplus value—the
appearance that the “neoRicardians” fall hook, line and sinker for—is deepened.
As part of his fundamental method, Marx generally brings in the complicating factors—beyond
indicating to the careful reader that he is aware of them—only as needed. This is why he left the entire
subject of the prices of production and the “transformation problem” to Volume III of “Capital.” There
he had to deal with it, if only because the theory of ground rent required it.
And what does Steedman—and other “neoRicardians”—put in the place of Marx’s theory of value and
surplus value, which they first failed too understand and then abandoned? Simply the “commonsense”
(11) observation that the rate of profit is determined by the physical conditions of production and the real
wage. The “physicalism” that Kliman so correctly criticizes in the “neoRicardians” arises therefore in
my opinion not from their simultaneously determining input and output prices of production but rather
from their failure to understand the relationship between value, exchange value, money and price.
Like Kliman, they first amputated Marx’s theory of value. The “neoRicardians” then proceeded to refute
the amputated theory of value that they have put in place of Marx’s real theory of value. Kliman’s
mistake is that he attempts to defend the falsified amputated theory of value that the “neoRicardians”
have put in place of Marx’s full, genuine theory of value.
In reality, profits are measured in a physical unit but not in the physical units of commodities as a whole
—imagine trying to perform such a calculation in the real world as opposed to the corn worlds of the
“neoRicardian” dreamscape—but in the physical units of the money commodity—weights of gold.
‘MELT’—Kliman’s wrong theory of value, exchange value, money and price
“In recent years,” Kliman writes, “owing largely to the work of Alejandro Ramos … the term monetary
expression of labor(MELT) has become popular. If each hour of socially necessary labor adds $60 of
new value … the MELT is $60/hr.”
In a footnote, Kliman further clarifies the MELT theory of money. The MELT, he explains, “is the
reciprocal of the amount of labor a unit of money commands [emphasis added—SW].” “It is also the
economywide ratio of the total money price of output to the total labortime value of output.”
According to Kliman, the “ratio of the total money price of output to the total labortime value of output”
[emphasis added—SW] determines the value of the total quantity of money and its individual unit. This
allows the price of a particular commodity—such as a Big Mac or Macintosh computer, for example—to
deviate from its labor value. But at any time, in contrast to Marx’s theory of value, the sum total of all
prices must equal the sum total of values by definition. Like in all theories of “noncommodity” money,
money here simply reflects—or “commands”—the value of the commodities that it helps to circulate.
Perhaps like many others, Kliman is confused by the fact that today’s paper dollars, unlike in the past,
are not legally convertible into a fixed amount of gold. This gives rise to the illusion that the “real value
of a dollar” derives from the commodities it circulates and not from its relationship to gold, the special
money commodity. This is indeed the commonsense view defended by the upholders of “orthodox—neo
classical—political economy, but it is not the view of Marx.
According to Marx, money is a countervalue to the value of the commodity it is measuring and
circulating. It must have a value of its own that is separate from the commodity whose value it is both
measuring and circulating. This is why money must always be a commodity.
Therefore, there is always the possibility that the countervalue might differ from the value of the
commodity that is circulating in any given case. Indeed, Marx in many places makes clear not only that
this might be so, it almost certainly will be so in every real world case.
If we apply Marx’s concept of money and token money to a dollar bill, the apparent value of the dollar
bill stems not from the commodities it purchases like our commonsense economists proclaim, but rather
from the value of the amount of gold it actually exchanges for on the world market at this particular
moment in time.
Thanks to the Internet, I can tell you exactly what the value of a dollar bill is in terms of gold at the very
instant you are reading this and not the instant that I am writing this. The gold value is at this instant the
reciprocal of the dollar price of gold found on the Web site kitco.com. That is, a U.S. dollar now
represents 1/[the dollar price of gold as reported at Kitco.com] of an ounce of gold. Under the average
current conditions of production now needed to produce this quantity of gold, a given amount of abstract
human labor is required. The value a U.S. dollar bill represents is therefore exactly the quantity of
abstract human labor that is necessary to produce 1/[dollar price of gold as reported at Kitco.com] of an
ounce of gold under the prevailing conditions of production.
If the dollar price of gold were to be stabilized—the international gold standard were to be restored—the
amount of gold that a dollar represents would cease to fluctuate. But the amount of abstract human labor
that a dollar represents through the commodity gold would still fluctuate, though less than it does at
present. The amount of human labor measured in some unit of time that it takes to produce the given
weight of gold bullion that would define the dollar under the new international gold standard would
continue to fluctuate in response to the everchanging conditions of production in the gold mining and
refining industries.
Unlike the MELT theory of noncommodity money, Marx’s theory of money contains the possibility—
indeed the virtual certainty—that the sum total of money prices will not actually equal the sum total of
direct prices at any given point in time. Indeed, Marx hints at this in the very first volume of “Capital.”
In Volume I Chapter I of “Capital,” Marx writes, “Jacob doubts whether gold has ever been paid for at its
full value.”
Marx does not indicate that he agrees with the now longforgotten Jacob on this point, but he doesn’t
indicate that he disagrees with him either. Let’s assume for the sake of argument that our Mr. Jacob was
correct. If gold has never been paid for at its full value and if gold is the money commodity, this would
mean that the sum total of commodity prices have always exceeded the sum total of values, or more
precisely the sum total of direct prices.
Why does Marx even bring up the obscure Jacob’s opinion that gold has never been “paid for at its full
value” in the very first chapter of “Capital”? Is it because the Jacob quoted was so well known? Perhaps
he was in the 19th century when Marx wrote “Capital,” though I doubt it. Isn’t Marx warning us that
though he will assume as a general rule throughout the first and second volumes that prices equal values
—direct prices—and that therefore the sum total of all commodity prices equal the sum total of all direct
prices, this in fact might not necessarily be true?
Indeed, it might never be true in the real world. Marx is warning us at the very beginning of his great
work against the very mistakes the supporters of the MELT concept including Kliman have fallen into. If
you disregard this warning by the author of “Capital” at the very beginning of “Capital,” you are headed
for big trouble later on.
Kliman’s inconsistent theory of value and money
Kliman himself senses there is something missing in the concept of MELT. “Prices,” he wrote in an
article on the 2008 economic crisis, “have indeed consistently risen in relationship to the real values of
goods and services….” Presumably, he is referring to the period since the end of the 1930s Depression. I
don’t believe this is factually true, as I explained in my main posts, but this is not the point I want to
make here.
If the MELT theory of money is true, how could prices ever rise above the “real values of goods and
services” [Kliman should have said commodities—SW] at all—or fall below them for that matter?”
According to MELT, isn’t the sum of all prices equal by definition to the sum of all values?
Yet here when faced with a concrete problem of an economic crisis, Kliman instinctively—and this is to
his credit—throws MELT into the melting pot where it belongs, and talks about commodity prices rising
above the values of all commodities. How is this possible, though, unless we have a money commodity
that measures the values of commodities in terms of its own use value?
If Kliman follows his instinct here, I think he will find the correct answer to the “neoRicardians” as well
as greatly improve his own grasp of crisis theory.
Kliman’s lack of a solution to the transformation problem
Kliman’s rejects, as we saw, Anwar Shaikh’s solution to the transformation problem. Shaikh’s solution—
and Shaikh provides quotes from Marx’s text indicating that Marx was heading in the same direction—is
that the rates of profit in terms of values and in terms of prices of production are only approximately
equal, not exactly equal. The rate of profit in terms of money—prices of production—is a somewhat
distorted image of the value rate of profit. Still, the price of production rate of profit and ultimately the
rate of profit realized in terms of money in the real world are in the long run ultimately governed by the
value rate of profit as I explained in my reply on the transformation problem
(https://critiqueofcrisistheory.wordpress.com/responsestoreaders%E2%80%94austrianeconomics
versusmarxism/valuetheorythetransformationproblemandcrisistheory/).
If I understand Kliman correctly, he seems to be saying that the value rate of profit and the money rate of
profit are equal by definition—the MELT theory of money. But when he has to face the concrete
problems of changes in the industrial cycle and economic crises, he is obliged to tacitly throw MELT out
the window. It is clear that he is confused by the whole phenomena of almost uninterrupted inflation of
nominal currency prices that has occurred throughout the capitalist world since 1933 and the relationship
of these rising prices in currency terms and underlying labor values. The common ageold phenomena of
inflation caused by the devaluation of token money—paper money or in earlier times currency made of
base metals—against gold is simply beyond the ability of MELT to explain.
Kliman therefore doesn’t offer, as far as I can see, a meaningful explanation of the transformation
problem, let alone provide a convincing refutation of “neoRicardian” criticisms of Marx. If Kliman’s
defense of Marx was the best we had as far as the transformation problem is concerned, we would have
to admit that Marxist theory was in a bad way. Perhaps we would even have to acknowledge the
correctness of the “neoRicardian” critique and concede the collapse of scientific socialism in its Marxist
form.
Fortunately, in addition to the hints of Marx himself, and the power of Marxist theory in general, we
have the work of Anwar Shaikh, which points us toward the real solution to the transformation problem,
which has haunted economics in one form or another since the days of Adam Smith.
To be continued
—————
1 I don’t much like the term “neoRicardian,” because the “neoRicardians” reject Ricardo’s greatest
contribution to economic science, his labor law of value. To be sure, Ricardo’s theory of value was not
without its internal contradictions, or lacking in consistency as Kliman would put it. But this was not all
bad. As Marx put it, its very contradictions contained the seeds of further development, in contrast to the
sterility of postRicardian schools of political economy.
Ricardo himself began with building “corn models,” where he calculated rent—surplus value—in
physical terms in corn. But Ricardo realized the inadequacy of these models and turned instead to
valuing commodities in terms of the quantity of labor necessary to produce them. He realized that the
(capitalist) economy involved human beings engaged in production and exchanging the products of their
labor.
When Ricardo was unable to resolve the apparent contradictions of his law of labor value, he sensed that
they could be resolved, even if he was not able to do it.
The “neoRicardians,” in contrast, faced with the apparent contradictions of the law of labor value and
misunderstanding and rejecting Marx’s solution to the contradictions, turned in the opposite direction
back to the corn models and the calculation of surplus value in physical terms that Ricardo left behind in
his mature work. In my opinion, the “neoRicardians” represent a huge regression not only in
relationship to Marx but in relationship to Ricardo as well. It is really a great injustice to call this school
“neoRicardian.” It would perhaps be better to refer to them as “neoPhysiocrats.”
In respect to Ricardo’s memory, I place the term “neoRicardians” in quotation marks in this text.
The Physiocrats were a school of economists that arose in France before the Great French Revolution. In
their day, they represented a great advance for the emerging science of bourgeois political economy.
Their greatest contribution was to locate the origin of surplus value in the sphere of production and not
the sphere of circulation. Their advance remains valid even if they made the mistake of seeing only
agriculture as productive of surplus value and measuring value in physical terms rather than in terms of
quantities of human labor. They were, after all, living in what was still a preindustrial agricultural
society and were impressed by the ability of seed corn to produce a greater amount of corn—a physical
surplus that they, much like today’s “neoRicardians,” confused with surplus value.
But in justice to the Physiocrats, they unlike today’s “neoRicardians,” lived before not only Marx but
also Ricardo, and performed their work before Adam Smith, who was both a pupil and critic of the
Physiocrats. One of their members, Dr. Francois Quesnay (16941774) in his “Economic Tableau”
developed the first diagram of capitalist reproduction. It was not attempted again by another economist
before Marx, whose own work on reproduction was inspired by Quesnay’s work.
2 Corn here is used in the English sense as the main grain and not in the American sense as maize alone.
3 Remember, a capitalist farmer is just as much of an industrial capitalist as an industrial capitalist
engaged in some nonagricultural branch of production.
4 I suspect if he asked a real capitalist farmer what he thought of the corn models, the capitalist farmer
would answer that those professors of economics never put in an honest day’s work in a backyard garden
let alone on a real farm! Certainly, workers employed in agriculture would react this way. Their daily
work would demonstrate to them what nonsense these corn models really are. And they surely would
realize that they need more than “corn” to remain alive and reproduce the next generation of agricultural
workers.
5 Kliman should have called the “neoRicardians” to order right here. Unfortunately, he doesn’t, so we
are forced to try to follow the mad logic of this dream world conjured up in the minds of our “neo
Ricardian” economists.
6 At this point, I suspect that even Ian Steedman would say that maybe calculating in physical terms isn’t
such a great idea after all. But I admit I am only speculating here. Maybe the nowretired professor really
does live only on corn, though photographs of him, if I recall, directly show him wearing clothes, so
probably he does not live on only corn after all.
7 The fact that the crisis of 2008 and many other such crises, beginning with the crisis of 1825, have
occurred itself proves that neoclassical marginalism or any other economic theory that treats money this
way is wrong. Again, Kliman should have called the “neoRicardians” to order on this point, but since he
himself is totally at sea on the subject of money and price, he does not.
8 I am not saying there is no truth in TSSI. I am saying that the truth that is contained in the TSSI
approach is fully subsumed within Marx’s complete theory of value. However, if you have only Kliman’s
amputated theory of labor value, TSSI does not really answer the “neoRicardian” criticisms.
9 This is not to say that Shaikh has consistently applied Marx’s value theory in all his work. When he
attempted to demonstrate empirically a falling rate of profit, he in my opinion made an error when he
calculated the rate of profit during the inflationary decade of the 1970s after inflation—that is, in real
(physical) terms.
He should have calculated the rate of profit during the 1970s in terms of the use value of the money
commodity—in terms of weights of gold bullion. If Shaikh had done this, he would have found that
profits were strongly negative between 1970 and the Volcker Shock, after which they dramatically
recovered and became strongly positive once again. In order to determine whether or not the empirical
data demonstrates a falling rate of profit, he would have to average the huge losses that occurred in terms
of real money—gold bullion—in the 1970s with the huge profits that were made in the years following
the Volcker Shock.
But in his work on the transformation problem, which is what I am concerned with here, Shaikh
employed Marx’s real theory of value, exchange value, money and price, and prices of production.
Therefore, unlike Kliman, he arrived at the correct solutions.
10 We shouldn’t forget that while the very real logical contradictions in Ricardo’s law of labor value
played a role in the demise of classical political economy, the fundamental reason why the post
Ricardian (bourgeois) economists were not able to continue Ricardo’s work was the growing intensity of
the class struggle between the capitalist class and the working class. A further development of Ricardo’s
theory would have laid bare the real origins of surplus value—profit—in the unpaid labor of the working
class, and there was no political possibility of doing this on the basis of bourgeois political economy.
11 Marx observed—and this applies to natural science just as much as it does for social sciences like
economics—that if commonsense was sufficient, there would be no need for any science at all.
12 Responses to “Andrew Kliman and the ‘NeoRicardian’
Attack on Marxism, Pt 1”
Andrew Kliman and the ‘NeoRicardian’ Attack on Marxism, Pt 1 « A Critique of Crisis
Theory Says:
August 15, 2010 at 3:13 pm | Reply
[…] Read more … […]
kapitalism101 Says:
Hmm…. This critique of MELT is not something I’ve heard before. I’ll venture a brief counter
critique here, though as I’ve never heard your critique before I can’t promise that my thoughts are
fully formed or that I’m fully informed on the topic.
As Kliman points out, this MELT is a name more recently given for a procedure that Marx himself
uses at various times a procedure necessary if we are to talk about a valueprice relation at all. Labor
time expresses itself in money prices. So an hour of labor must have a price in money. If I produce 10
dollars of value in 1 hour then we could (almost) say the monetary expression of an hour of labor is
10 dollars. But unfortunately, this procedure doesn’t quite work in such a direct way because surplus
value is redistributed in exchange. So to find the MELT we must divide total prices by total labor
time. This procedure seems pretty commonsense to me. And even if you don’t like its implications it
seems hard to deny the obvious fact that say, if 100 hours of labor are expressed in $100 of
commodity value then 1 hour must equal $1.
The implication you seem to not like is that this seems to undermine the commodity theory of money.
I don’t think this is the case at all. Again, I’m not an expert on some of the debates over Marx’s
theory of money so I can’t speak from high authority on this, but I’d think that if MELT undermined
the Marx’s theory of money it wouldn’t be such a universally and uncritically adopted method of
calculating valueprice relations. Maybe there are other critiques of it… I’ve just never happened
upon them before…
I understand that your beef is that this MELT could end up different than the actual amount of labor
time that goes into making the money commodity: that MELT implies a quantity theory of money
rather than a commodity theory. It seems to me that this isn’t necessarily a problem at all. If there is
more commodity value that needs measuring than there is money commodity then we have a
situation in which the contradiction between money as measure of value and money as means of
circulation is highlighted. You’ve already pointed to the fact that money doesn’t have to trade at its
value (like any other commodity). And while the valueprice deviation in other commodities is a
result of prices of production, fluctuations of supply and demand, etc, in money this failure of money
to trade at its value is a result of the fact that it embodies the contradictions of commodity exchange.
(This is all laid out in the opening chapters of Kapital of course…) It must measure value and in
order to do this it must have a value of its own. It must also serve as a means of circulation and in
doing this it takes on all sorts of forms that contradict its ability to measure value well. If I
understand your objections you seem to be implying that the total labor time in the money
commodity has to equal the total sum of prices, which seems to ignore issues of velocity of money,
hoarding, rapid changes in the amount of commodity value that must be measured, etc….. I may be
misunderstanding your point. So please let me know if I’m missing something.
Andrew Kliman Says:
“A full solution requires the transformation of the inputs into prices of production. Therefore, Marx
didn’t make a mistake but left us an incomplete calculation that points the way to a full solution.”
As I wrote in _Reclaiming Marx’s “Capital”_ (p. 16n6): “SaadFilho … claims to ‘avoid[ ] the
inconsistency charges’ because, on his interpretation, Marx’s solution to the ‘transformation
problem’ is only ‘incomplete,’ not incorrect. Yet once SaadFilho ‘completes’ Marx’s solution––in
other words, revises it in the standard (simultaneous dualsystem) manner––his theories of value and
the falling rate of profit are once again riven with all of the usual inconsistencies!”
The same thing is true of the iterative “completion” or “full solution.” As is well known, in all
iterative “solutions,” the rate of profit and all price ratios are identical to the physicallydetermined
rate of profit and price ratios of Bortkiewicz and the “neoRicardians.” Only one of Marx’s three
aggregate valueprice equalities is preserved, and only by fiat.
“If the MELT theory of money is true, how could prices ever rise above the “real values of goods and
services” [Kliman should have said commodities—SW] at all—or fall below them for that matter?”
According to MELT, isn’t the sum of all prices equal by definition to the sum of all values?”
In Marx’s theory, commodities have nominal values and they have real values. Nominal values and
prices can rise relative to real values. The sum of all prices is equal to the sum of all nominal values.
I’ll supply references upon request.
Andrew Kliman Says:
“Perhaps privately Kliman believes that the Okishio theorem is valid in the abstract and that contrary
to Marx there is no longterm tendency of the rate of profit to fall.”
No, I privately and publicly believe that the Okishio theorem is false and has been disproved. And I
privately and publicly believe that Marx denied that there is a longterm tendency of the rate of profit
to fall *in the sense of* a tendency thatis not “overcome by way of crises.”
As I noted in _Reclaiming Marx’s “Capital”_ (p. 30): “Marx [did not] predict[ ] that the rate of profit
will actually display a falling trend in the long run. Despite a common belief to the contrary, he
seems nowhere to have put forth such a claim. On the contrary, he held that ‘[c]ounteracting
influences [are] at work, checking *and cancelling* the effect of the general law,’ and that the
LTFRP ‘has constantly to be overcome by way of crises’ (Marx [_Capital_, vol. 3, Penguin,] 339,
367, emphasis added).”
Hedlund Says:
January 17, 2012 at 6:55 am | Reply
At first, I also found the MELT put forward in Reclaiming to be a bit unsatisfying, in light of Marx’s
preference for the use of gold in his calculation of SNLT. However, subsequent study has caused me
to warm up to it.
I think the problem is just that Kliman gives an outline of the use of the MELT in its final and most
bare form, without illustrating its derivation. While I haven’t had occasion to investigate the
Alejandro RamosMartinez paper he references, I did find this short working paper by Fred Moseley
illuminating. Through a numbered sequence of equations, Moseley demonstrates that the non
commodity MELT is algebraically identical to the one used by Marx, in which labor time is
expressed in weights of gold.
Hope that’s useful to you!
Andrew Kliman Says:
January 20, 2012 at 11:00 pm | Reply
@ Hedlund. That’s one way of thinking about it. If you know the inconvertibledollar MELT and the
gold price of a dollar, you can compute the gold MELT easily:
($/laborhrs)(ozs of gold/$) = ozs of gold/laborhrs
But that’s not how it’s derived conceptually. The conceptual derivation flows from the fact that, in
Marx’s theory, total price = total value.
Now, value has 2 measures, labortime and money. But when we say that total price = total value,
that makes sense if and only if value is measured in terms of money. So, we have the following
relationships:
total price in terms of money = total value in terms of money
total value in terms of money = MELT x (total value in terms of labortime)
total price in terms of money = MELT x (total value in terms of labortime)
MELT = (total price in terms of money)/(total value in terms of labortime)
Notice that this issue arises NO MATTER WHAT serves as money–gold, inconvertible paper and e
money, cans of soup. So it’s conceptually prior to any conversion between one MELT and another.
Also, it’s important to recognize that the value of gold, in the sense of the amount of labor needed to
produce an oz of gold, is NOT the reciprocal of the gold MELT. In another words, in the top equation
above, ozs of gold/laborhrs is NOT the reciprocal of the value of money in this sense. So you cannot
convert the value of gold into the dollar MELT by inverting it and multiplying by the dollar price of
gold.
Putting it another way, for the purposes to which the MELT is put, it doesn’t help to know that gold is
a commodity or that it has value; and knowledge of its value doesn’t help either.
Alan Freeman and I have a recent paper that discusses this issue:
http://nongae.gsnu.ac.kr/~issmarx/eng/article/22/Freeman&Kliman22.pdf
Hedlund Says:
January 22, 2012 at 8:21 am | Reply
@Andrew Kliman:
Thanks for weighing in on my remark. I’ve never heard this argument before. I am initially inclined
to be skeptical, because of how I’m reading it:
“the value of gold, in the sense of the amount of labor needed to produce an oz of gold[1], is NOT the
reciprocal of the gold MELT[1a]. In another words, in the top equation above, ozs of gold/labor
hrs[2] is NOT the reciprocal of the value of money in this sense[2a]. So you cannot convert the value
of gold into the dollar MELT by inverting it and multiplying by the dollar price of gold.”
[1]: laborhrs/goldoz = value of gold
[2]: goldoz/laborhrs = MELT (as per the top equation)
[1a]: value of gold != 1/MELT
[2a]: MELT != 1/value of money
As such, it seems contradictory to me. I’m not sure if “money” and “gold” are being used
interchangeably, but the last sentence suggests not. Even still, [1a] still seems not to jive, and I would
have assumed the opposite of what you state in the last sentence.
I’ll definitely take a look at that paper, though! I’m open to the possibility that I’m not catching some
nuance of your argument (perhaps contained in your qualification of “in this sense”).
Andrew Kliman Says:
@ Hedlund,
Another way of putting it, which we discuss in the paper, is that the value of money (e.g., the value
of gold if gold serves as the money commodity) can and often did differ from the exchangevalue of
money (i.e., the “price” of gold).
The MELT is the reciprocal of the latter.
So I was using “in this sense” to mean the value of money in contrast to the exchangevalue of
money.
critiqueofcrisistheory Says:
Prof. Kliman, thank you for your comments. I plan to respond in a future post. But first I want to read
your latest book, which I just received in the mail.
Sam Williams
You have Says:
May 30, 2012 at 4:48 pm | Reply
Great Web page, Carry on the useful job. With thanks.
Karen Helveg Says:
October 9, 2012 at 4:24 pm | Reply
It is simple enough in one sense. The production price of gold in terms of dollars differs substantially
from the market price of gold. Which is closest to its value? In terms of time to produce the ounce it
is the same plus minus transport. So there is an uneasy relation between dollars and gold, is it dollars
that is undervalued, gold that differs in price from its value or what? And can it be known other than
through dollars as the time to produce the ounce is the same? I think that a problem in all of these
logical debates is that even if they should be taken to their finality, it should not be forgotten that
capitalism works through one becoming not one, that something only has its core in its difference
from itself. That is how we can see that a dollar may be less worth than it purports to be by looking at
the two different gold standards (sic).
rawatpranjal007 Says:
June 15, 2015 at 11:57 am | Reply
“Remember, if we can’t answer the “neoRicardian” criticisms, virtually all of Marx’s contributions
to economic science vanish without a trace, and the claims of Marxist socialism to be a science are
refuted.”
Tad extreme. Steedman himself pointed out that other contributions like fetishism, alienation,
technical progress, insights into money, etc. are perfectly intact.
Also after 20th century experiments in socialism can we at least give a brief space to people
developing Marxian ideas who don’t necessarily clamor from their European offices for the
Eurocentric concept of “socialism”?
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