[lbo-talk] the price of everything and the value of nothing

T Fast tfast at yorku.ca
Thu Apr 7 07:28:05 PDT 2005


And this is the whole point, the point that Justin seems incapable

of understanding. Measurement, the basis of all science, requires

an objective unit of measure. For the political economy of

Capitalism that unit of measure is the quantum of socially necessary

labor time, what Marx called "value." Without such measurability

"economics" has descended steadily to its present pitiful state.

Shane Mage

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Measures are conventions, especially with regards to social relations;

they too are the product of struggles and *choices*. Is an inch or a

meter *objectively* an inch or meter independently of us? I don't

think so.......

Auto

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And now we come full circle at last. This whole thread was sparked by Brad Delong's abstinence theory of the origin of profit. One wonders why Bradford did not choose to explain the origin of profit via reference to a well-specified (through a set of highly restrictive assumptions) aggregate production function Y = F(L,K) in which the wage rate and the profit rate are equal to and determined by their marginal product rather than his just-so farmers which are even more remote from a capitalist economy then a well specified aggregate production function. Indeed, it would seem for someone of his ilk that he would want to use something off-the-shelf from contemporary mainstream theory. Surely this would be a better strategy because he could kill to birds with one stone. For it would provide him with the grounds to refute any theory of exploitation regardless of whether it was Marx's theory or any view that say casts Walmart workers as exploited in the everyday sense (poorly treated with respect to present norms in the retail sector).

But we, and here I am referring to my learned Neo-Ricardian friends (Justin and Auto), know very well why Bradford did not take this route. He could not take it precisely because this is where the Neo-Ricardians cut their teeth and planted their flag. The capital controversy was about the notion that capital along with labour could be used to explain the distribution of income in a capitalist economy. We know what the result of the Neo-Ricardian intervention in the capital controversy was. In order for the neoclassical aggregate production function to yield the results they wanted (labour and capital each receiving their marginal product) they ended up having a simple labour theory of value at the core of their model, or more accurately, they ended up with the same set of restrictive assumptions they had contended made the Marxist LTOV unscientific. A beautiful irony if ever there was one in the history of economic thought given the whole marginal productivity theory of distribution was designed from the get-go to counter the distributive claims at the heart of the LTOV.

But let us return to our Neo-Ricardian friends, learned as they are, they are not being very fourth write about the lacuna which sits TDC in the Neo-Ricardian research project -- the origin of profit. Following Sraffra, the Neo-Ricardian project has been about the study of the quantitative relations between wages, the rate of profit and relative prices. In this sense Justin is quite correct, there is absolutely no need to transform values into prices; prices can be taken at face with the question as to their value dimensions thereby rendered superfluous. After all, why convert values into prices when the prices are what you are after. But this is not the thrust of the LTOV, as Medio pointed out way back in 1972 "the derivation of prices from values, the solution of the 'transformation problem' is only subsidiary and a formal proof of consistency of Marx's theory of value. Even when this is worked out it remains to be explained how it is that profit exists at all.In this respect, Marx's theory of surplus value is significant and still constitutes the only valid alternative to the neoclassical explanation of the origin and nature of capitalists' gains"(italics added). This characterizes the state of affairs to this today.

A simple market place of ideas theory tells us why despite a hundred years war on the LTOV it will not go away: there is a demand for an explanation as to the origin of profits and the determinants of distrobution. And neo-Ricardians have nothing to sell in this market. This is why Justin is willing to entertain Bradford's parable about the poor starving farmer whose profits arise from abstinence which is really a rehash of Nassau Senior's abstinence theory that was so wholly discredited a long time ago. No wonder it is then that they fall for Bradford's carrot - like sophomores to an intellectual smack-down. In their neo-Ricardian induced haze they realize they are actually back in a pre-Marxian stage of analysis albeit armed with better algebra.

You shamefully list Nitzan as innovator in this respect simply because he is selling a theory of the origin of profits. And while Nitzan's theory is an improvement on Bradford's just-so farmers it hardly ranks as a theory of the origin of profit. To see why consider Nitzan's theory of profit reduced to its notational form B = f(P), where B is a firms profit and P is commodified power (that is power that can be bought and sold in chunks). Or stated informally, the mass and rate of profit of enterprise is a function of the quantity of power that an enterprise has relative to other capitals. But in what does this power consist? Well this power allows firms to grow via M&A and via manipulations in relative prices (inflation). But wait! Talk about tautologies, I thought profit was a function of power but now it seems that power is a function of profit. There is something quaint in the way Nitzan marries his pre-modern political economy to a post-modern theory of power. But quaintness does not a theory of the origin of profit make.

Moreover, if you think through the implications of Nitzan's theory of profit you quickly realize its implications for the neo-Ricardian project. In his world prices are mere artefacts of power without any anchor in any knowable process: price formation is political formation which is price formation. Can you feel the ground slipping away from your feet boys this is a topsy-turvy world indeed. Stay away, because in this world even the rather timid achievement of the neo-Ricardians (a coherent account of the quantitative relationship between wages, rates of profit and relative prices) must be jettisoned. At best Nitzan's theory is trivially true i.e., prices are anywhere and everywhere a political phenomena, at worst it is patently false.

But hey have your cake and eat it to. No one ever claimed there was a rational core to the neo-Ricardian project, just a series of just so models with a hodgepodge of eclectic assumptions tailored to the minor object of inquiry depending upon the interests of the researcher. Don't like this model grab another one. Need a theory of the vertically integrated firm; grab Coase's ad hoc theory. Need a theory of profit; practice abstinence or latch on to Nitzan's. Does it matter if taken together none of it sums to an internally consistent whole? No! The only ones who have to meet these rigid standards of internal consistency are apparently the least scientific amongst us - the Marxists. And when we demonstrate time and again a coherent transformation of values into prices via a number of well specified protocols you dismiss it out-of-hand as unconvincing and tautological. Displaying the exact same arrogance of the neoclassicals that fuelled the fury of the neo-Ricardians in the first place. What a pitty you have become the attack dogs you once sought to heel.

Now let me ask why is it you boys are so concerned with the technicalities of the transformation of values into prices? Is it because if you were to admit that the transformation of values into prices has been well worked out you would also have to admit that another research project has a consistent theory of the quantitative relationship between wages, rates and profits, and relative prices? I appreciate why you jealously guard this terrain, as it is the only internally consistent contribution neo-Ricardians have made to the general body of scientific economics. But surely there is room for two consistent theories, which, as you have pointed out, are not at all in contradiction? Maybe your hostility stems from the shortage of radical graduate students so the competition is fierce for inductees and this is just the way your party wages war for bodies. The only other reason I can think of for your shrill attitude and dogmatic reiteration of well-worn but off-the-mark or trumped- up critiques of the LTOV is that it is a kind of ritualistic bonding practice with institutionally entrenched mainstream paradigm workers like Bradford. Whatever the case may be, to borrow a phrase from Lebowitz, "to engage in such deeply embedded dogmatism it is to weep".

This is my last post on this subject. I have already sat through Nitzan's graduate seminar where he hammered away every week on the LTOV to which I am eternally grateful to him for helping clarify the issues and the stakes involved.

In solidarity,

Travis



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