Paul Cockshott wrote:
> Here is a short article I wrote last week in the light of the comments on
> marginalism
> http://reality.gn.apc.org/econ/jelle.pdf
>
Hi Paul,
Your article "Competing Theories: Wrong or Not Even Wrong?" provides a
concise introduction to the work of a number of economists who hold that what
they regard as the direct labor theory of value is correct, and who are
opposed to the idea of prices of production, the transformation problem, etc.
But unfortunately, I have to say that I disagree with its two main aspects.
First of all, it raises the important issue that "the political
setbacks of
the 1980s dented this self-confidence [in Marxism]. An alternative economic
programme came to dominance -- that of neo-liberalism." I think that since
then neo-liberalism has indeed sunk deep into the bones of even many would-be
progressive economists, and limits various people's conception to advocating
things that the present bourgeois politicians might accept, rather than
looking into helping organize an independent movement of the working class
with an economic outlook that is diametrically opposed to the illusions of
capitalist economics.
But to my surprise, your article seems to identify this depressed neo-
liberal state of economics with some of the basic theses of Marx and Engels.
It advocates a form of the labor theory of value that
a) is incompatible with any tendency towards an equalization of the rate of
profit (among those sectors of the economy between which capital can flow
easily)
b) is incompatible with the idea of prices of production
c) denounces the idea that the value of a product is the socially-necessary
amount of abstract labor contained in it. It says that "In economics one can
formulate weaker versions of the labour theory of value in which monetary
value added is proportional not to observed labour, but to social necessary
labour. If one so defines socially necessary necessary labour, that its
necessity is only revealed by by [sic] the movement of market prices, then
one does indeed end up with a theory so weak as to be not even wrong."
Of course, anyone has the right to put forward their objections to the
views of Marx and Engels. But please, let's have the decency to admit that
these are not views that arose in 1980s as a result of left-wing
demoralization and influence from marginalism, but views that arose much
earlier as part of a revolutionary challenge to the bourgeoisie and its
views.
Your article then goes on to cite the theoretical and empirical work of
that trend of economists who deny the equalization of the rate of profit and
who deny the need to consider price/value deviations. But I was surprised by
the uncritical attitude you had both to their theorizing and to their
empirical evidence.
For example, one of your references is to the article of David Zachariah,
"Labour value and equalisation of profit rates", Indian Development Review 4
(2006), no. 1, 1-21. Zachariah wrote that "This study investigates the
empirical strength of the labour theory of value and its relation to profit
rate equalisation. It replicates tests from previous studies, using input-
output data from 18 countries spanning from year 1968 to 200."
But what was the result of this comprehensive study? Zachariah writes
in
section 5 "Conclusion" that "Production price is not found to be a superior
predictor of market price and indeed deviates little from labour values."
Zachariah thus denigrates the idea of prices of production on the grounds
that they are not superior as a predictor to the direct or vulgar form of the
labor theory of theory. This is a rather odd way of summing up data, because
he is actually also stating that the direct labor theory of value was not
superior to prices of production. But apparently tie goes to the theory that
Zachariah likes.
That what it means when Zachariah says that prices of production and
labor values deviate little from each other. If that's so, then doesn't it
mean that the empirical tests would have a hard time distinguishing between
them? Doesn't it mean that an empirical test should have concentrated on
those enterprises in which prices of production and labor values did differ,
so as to see whether in reality there were some prices of production
distinctly different from value?
If prices of production and labor values really don't differ too much,
this would speak in favor of Marx's approach, which essentially regards
prices of production as a perturbation on value. But Marx's approach didn't
require that this perturbation was always very small. And I would be somewhat
surprised if prices of production and labor values never deviated for any
enterprises.
But the explanation for this can be found earlier in Zachariah's article.
In Section 2.2, where he is setting up a probabilistic framework, he says
that various quantities "are likely to be close to the average wage rate and
profit-wage ratio in the economy respectively. Due to the highly integrated
nature of modern economics [the appropriate value]... is made up by the sum
of a large number of random variables; each of which is small relative to the
whole sum and assumed to be independent." Underneath this technical language,
what is going on is that he is assuming that the prices involved come from
products whose production involves such a wide array of other products that
the organic composition is pretty average. This or that input might be
exceptional -- but there are so many inputs that everything averages out. Of
course, under that assumption, the prices of production will be the same as
the values.
And this seems to be what was found in the various studies. All of these
studies that I have looked out so far had to disregard "outliers" in the
statistical correlations that they were making. Zachariah himself notes this
in, for example, Section 4.2 "Empirical Distributions" by the way he seeks to
explain away these outliers. He writes that "Sectors with very low price-
value ratios are typically health care and education services and similar non-
marketed outputs. The outliers in the high ratio region are tobacco and
mainly a category of products presumably exhibiting high rent effects such as
crude petroleum, natural gas and petroleum refinery products." He writes of a
good fit in "the core of capitalist sectors", but not the outliers.
You and Zachariah both lay stress on the work of Machover and Farjoun,
set
forward in their book "Laws of chaos, a probabilistic approach to political
economy". But Machover and Farjoun also try to explain away outliers. In
their chapter on empirical data, they write things like "Consider the
quotient A/B or net output per unit of wage paid. In chapter III we reported
the phenomenon that this quotient varies very little from one branch of
production to the other with (non-oil, non-rent) manufacturing industry." So
this already shows that they are going to restrict themselves to only part of
manufacturing industry.
They go on to illustrate this with Figure 9 on net output per pound
sterling of wages in British industries. On pp. 179-180 they say that
"Notice that the largest deviation is in the food and drinks industry --
this is perhaps related to the relatively high rent factor of oil and
agricultural derivatives. Clearly, the low value of A/B in the
shipbuilding and vehicle industries points to a deep crisis here, which
is relatively low productivity."
Actually, in Figure 9, the greatest deviation is in the chemical
industry, and the various outliers amount to one-third of the weight of
industry. (I calculate the weight via the figures Farjoun and Machover give
figures for the "relative weight" in the economy of the various industries.)
The same thing occurs in another research paper from the direct labor
theory of value trend, although this one isn't referred to in your article.
Nils Frohlich refers to outliers in his paper "Labour values, prices of
production and the missing equalization of profit rates: Evidence from
the German economy" (November 30, 2010). In his section on "Empirical
framework" he writes that "Some sectors were removed from the analysis
because they are outliers. This procedure is harmless [supposedly!!-JG]
since all of these sectors are either highly state-regulated (coal,
water supply), rent-biased (oil) or offer non-market goods."
And Paul, your work itself refers to such outliers. I downloaded an
article you referred me to, "A note on the organic composition of capital
and profit rates" (2003). It reiterates data also found in your and
Cottrell's paper "The Scientific Status of the Labour Theory of Value"
(1997), but adds some additional explanation, which I found useful. But both
papers refer to, in order to dismiss, outliers. Take the discussion of
Figure 1 in the second paper. It refers to exceptions which "fall into two
categories, each arguably exceptional. First, there are the regulated
utilities, electricity supply and gas supply....Second, there are industries
of high organic composition in which rent plays a major role ... "
The existence of outliers casts doubt on the statistical correlations and
on your evaluation of the empirical data. If one were seeking a clear
empirical test of two theories, one would want to test the difference
between the simplified theory of value and Marx's theory precisely on those
enterprises where the difference would be expected to be greatest. Sure
enough, there we find outliers.
But suppose that the statistical correlations were accurate for the
section of the economy studied, minus the outliers. It is said that the
outliers can be disregarded because they are industries which are
monopolized, or have major rent-seeking behavior, or are government-
regulated, or have other exceptional circumstances. It is ignored that this
characterization of the outliers shows that their behavior is a regular
behavior, subject to economic law. A theory of value should be able to deal
with them. A theory of value that leaves them out is in trouble. Instead one
would have to deal with the issue of surplus value was transferred between
the other industries and the outliers, and among the outliers. This is a sort
of generalized transformation problem.
You assume, as does Zachariah and others, that if one could disprove the
equalization of the rate of profit, then the transformation problem vanishes.
But to make this issue go away, you oversimplify the issue of the
equalization of the rate of profit: the literature you refer to seems to
repeatedly confuse two different ideas, the *tendency* towards an
equalization of the rate of profit, and an actually equal rate of profit.
Thus the economists who deny the equalization of the rate of profit seem to
generally admit some tendency towards the equalization of the rate of profit.
But if the rates of profit aren't completely equalized, they believe they
have defeated the Marxist theory of the tendency towards an equalization of
the rate of profit.
Now, as far as Marx's view, he stressed, with regard to the
equalization of the rate of profit, that "the general law acts as as the
prevailing tendency only in a very complicated and approximate manner, as a
never ascertainable average of ceaseless fluctuations" ("Capital", vol. III,
Ch. IX, p. 161, Progress Publishers) and "the general rate of profit is never
anything more than a tendency." ("Capital", vol. III. Ch XII, p. 366)
I have further criticisms of the empirical date compiled on the rate of
profit, including grave doubts about whether what was looked at was actually
the rate of profit. But that aside, you and Zachariah and others ignore that,
even if there weren't the slightest tendency towards an equalization of the
rate of profit, even if there weren't any reason to talk about prices of
production based on the tendency to this equalization, this still wouldn't
eliminate the issue of the transformation problem.
Price/value deviations, in the labor theory of value, raise the issue of
the redistribution of surplus value between different capitalists. Any
systematic (not random) price/value deviations lead to this. Even if the only
price/value deviations were because of monopolies, rent-seeking behavior, and
so forth, this would still require a discussion of the transfer of surplus
value between capitalists. Marx discussed the transformation problem with
regard to the equalization of the rate of profit. This sufficed, as it gave
an example of what was at stake in any redistribution of surplus value due to
price/value deviations. But it is any price/value deviations, not simply
prices of production, that call forward this issue. My own discussion of the
transformation problem last year (see
communistvoice.org/45cTransformation1.html -- so far only part 1 has appeared
in print) deals only with the equalization of the rate of profit, but is
easily adapted to any other price/value deviations.
-- Joseph Green
[email protected]
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