value and price

Do you mean how it becomes a particular price or just how value becomes a sellable commodity at all?

This is a non-issue.

The concept of "value" is simply a tool for analysis, an abstraction at a high level to understand a very complex system (any real economy). It does not exist (or, at least, cannot be measured or empirically proven which pretty much amounts to the same thing).

Price, however, does exist. The aim of "value" is to present an understanding of how prices move in the real world. Exchange value is simply the cost of production plus average profit. It is the equilibrium point where supply and demand meet (which rarely happens in reality). In the long term, market price gravitates around this (and technological changes and class struggle change it as time goes on). In the short term, market price changes and does not equal "natural price" (or exchange value).

In volume 1 of Capital, marx assumes that market price equals "exchange value" in order to show that labour is exploited. He assumes the same level of capital investment so that this is the case. While neo-classical economics attacked him for this, they forget that this was only an abstraction and, ironically, their own theory of marginal productivity requires the same assumption. Marx, however, explicitly states that price equalling exchange value is only an abstraction and does not apply in reality.

in volume 3, Marx relaxes the assumption of equal capital and discusses (again at high level) the "transformation problem." But as Paul Mattick notes in "Marxism: the last refute of the bourgeoisie" this is a non-issue as value is a tool for abstraction and analysis.

I was thinking of adding an appendix on this to "An Anarchist FAQ" but I have better things to do!

Here is a good quote by David Schweickart:

fuck man that's not really a question that can be answered in some abstract manner. I mean it's a heady mix of factors, from class militancy, inter capitalist competition, wars, cultural tastes and so on.

I mean if you just look at a work of art, is there any inherent connection between it's value and it's price? Furthermore I don't think Marx was trying to develop a theory for prices.

hmmm just realised are you talking about value in that it can be directly exchanged for quantities of other goods and as distinct from price as expressed in money? Because I would say that the universalisation of money has made such a distinction meaningless.

I

or as I should have posted, what Anarcho said.

and you are telling me this why?

Somewhere (in thought I think) is a long thread called something like Reading Groups, Wages Price and Profit in which this and a lot of related issues are argued at length.

I fail to see why we need to abstract exploitation to such an extent, or rather why we continously ponder why the abstract doesn't fit the concrete. I mean the basis of exploitation is class, the seperation of labour from the means of it's own reproduction, mediated vis a vis capital and laws of value. These laws might well be quasi independent in that they can't be reduced to conscious actions by particular historical agents but they are nevertheless ontologically grounded in the actions and social relations of billions of people.

Well value in the sense of X tonnes of A is equivalent to Y litres of B can be said to be based on socially necessary labour time, but this itself is based on the notion that all labour time is interchangeable, which means it's fundamentally just a primmitive form of price or money the universal commodity.

I'm still not seeing your point, are you talking about value as in "necessary labour time" or value as in an assumption of valorisation that grounds the production of commodities?

Yeah how does the assumption of value actually materialise itself in a sold commodity i.e. commodities are produced on the basis that they will be sold at a certain price, and value is that assumption that fufilled retroactively by the commodities actual valorisation.

Well of course that is the problem with all human knowledge that whilst it tries to grasp the concrete it can only do so through various abstractions or ontological assumptions. But the problem is which abstraction do we start from. Now you point out that one can't talk about class division without looking to an abstraction eg capitalism or the law of value, which in one sense is correct, otherwise class would have no basis, it would make no sense, we would be left pondering why capitalists behaved in certain ways, was it jus some personality quirk etc? However it is just as false to take capitalism or the law of value as your starting ontology as it begs the obvious question as to where these systems and structures developed? Now we all know the orthodox answer, forces of production or some other pretentious teleology.

Now I think Marx had pointed out the starting point in his early work, the real concrete relations and experiances of men (sic). I think it's the best starting point because although it lacks the transcendental grace of being able to stand outside society and work out the laws and structures that makes these men, eg it's much easier to work out the laws of value and then interpret historical developments in the corresponding manner than it is to start from history and try and find a law of value. In the same way that it's easier to get a grasp of a buildings shape from outside than from standing inside it. It is however a mcuh richer, deeper knowledge that comes from the difficult job of trying to map the building from inside, especially when your movement inside the house actually changes the shape and contours of it.

I think the point is that Marx started with the concrete in the form of his earlier works, moved to the abstract and then died before finish his movement.

So yeah basically the relatively concrete abstraction of necessary labour time becomes itself obscured by the abstraction of money and price. But surely a revolutionary analysis would seek to show that they are merely two forms of the same process, rather than assert one as more real than the other i.e. we do not critique finance capital from the position of industrial capital but rather we explode such superficial differences by pointing to the common abstraction of both and the real violence this has on the proletarian body.

I don't see the confusion though, i mean companies produce lots of commodities expecting to achieve a certain price and they don't get it and hence go bust. I mean why would we expect value i.e. an economic assumption, to match up with the actual price?

Unless of course we take value not as an assumption of valorisation at a certain price but rather as "necessary labour time" and somehow think that price should correspond to it.

Interesting topic,

This is hotly discussed in literature on Marxian economics but more heat than light is often shed. I also have had some discussion on US board "anti-politics" about this.

Prices certainly can be put in terms of labor value in even a fully general model but this is quite complicated - Bortkiewicz created a matrix-based system to "fully solve" the transformation problem. The problem is that this doesn't leave us with a particularly enlightening theory. Paul Mattick Jr. and others have attacked this model apparently for trying to give an exact idea of how the system worked (http://www.ucm.es/info/bas/ec/textos/mattick1.htm) but I feel they should instead have made a critical analysis that acknowledges the problems that Marx's original formulation had (the falling rate of profit involves a model of the economy whatever Mattick Jr. might say). I think the direction to go here is to look at the assumptions needed to make Marx's original theory work.

Skimming it, the SCHWEICKART article seems to give a reasonable idea of the issues involved. Prices as equal to value can be seen as just a convenience for *some* of Marx's analysis - commodity fetishism etc.. In other analyses, the assumption is more necessary. The falling rate of profit is in the later category. If prices don't correspond to values, the "rate of exploitation" in labor-terms doesn't necessarily mean anything when translated into money terms, thus the labor-denominated rate of exploitation might be able rise to compensate for any increase in the organic composition of capital in some models of an economy.
However, if we assume that some of the industries required for human survival - farming, clothing, housing increase only marginally or slowly in productivity, then the rate of exploitation can only increase to a finite degree whereas we can see the organic composition of capital increasing tremendously.

Red (from Against Sleep And Nightmare - Hullo anyone I might know "out there")

Value (defined as socially necessary labour time) is not transformed into price - except in the special case of equal compositions of capital. And that never happens in the real world: modern manufacturing uses vastly more capital goods than do service industries, for example. Which makes Schweickarts defence weak: simplifying assumptions are only useful if they are realistic, and compositions of capital have been massively unequal since classical times.

Well you can still say that labour (plus natural resources) creates that which has value, and that that part of the product appropriated by people other than labourers (and legitimate owners of the natural resources used in its production) is a surplus, appropriation of which is exploitation.

Pass over Marxian analysis. It really doesn't add anything for the socialist project.

I'm unclear as to why SatanIsMyCopilot has decided that "It seems more sensible to me (at the moment, at least) to just accept the fact that Marx never got to finish his presentation - and that would he have been able to, he would have explained the determinants which cause value not to be realised in an identical quantity of price," considering that SatanIsMyCopilot hasn't gotten to the end of the presentation that Marx did write, thus making it impossible for him to conclude that Marx didn't complete his project.

I completely disagree with the interpretation of Capital which claims that Marx "assumed" equal organic compositions of capital until his explicit discussion of the transformation of values into prices of production. Marx never mentions such an assumption, and if you understand his transformation procedure you see that such an assumption would be entirely arbitrary and unnecessary; as others have noted, his conclusions derived from such an assumption simply would not apply to a case in which organic compositions of capital are unequal.

The key thing to understand is that total value and total price are equal at the level of the total social capital, and that total surplus-value equals total profit (abstracting from interest and rent). Thus, any laws that he developed (such as the laws of the mass of surplus-value developed in Vol.I, or the laws on the relation of the organic composition of capital to the rate of profit developed in the first part of Vol. III) still apply, albeit now at the level of the social capital rather than at that of the individual capital. So retroactively you see that Marx's object of analysis throughout Capital Vol. I and II were the total social capital rather than individual capitals. It's not until Vol. III of Capital that Marx distinguishes between capitals and gives accounts of how this total mass of surplus-value is divided up between industrial capital, money capital, commercial capital and landed property. This is not to say that Volumes I and II do not describe individual capitals at all. It is to say, rather, that they describe only the characteristics which they all share in common with each other, ommitting characteristics which differentiate capital from itself through the process of competition.

As for the actual process by which values are transformed into prices, I'm sorry to say that I would have to rewrite Capital to describe this process, which would be entirely superfluous. You'll get to it in Vol. III.

A comment on Red's post:

Botkiewicz's solution to the so-called "transformation problem" is based on a supposed "error" he discovered in Marx's own transformation problem. You should note that Marx did not think there was such a "transformation problem", or rather he thought it was a problem for the Ricardian school, Marx being the first person to demonstrate that the law of value is compatible with the phenomena of capitalist society. Before Bortkiewicz could substitute his own procedure for Marx's, he first has to "prove" that Marx made a fundamental "error." Once it is shown that Marx made no error, Bortkiewicz's "correction" is shown to be not a "correction" but an entirely different theory (which is ultimately identical to that of the "surplus approach"). A disproof of Bortkiewicz's "proof" can be found here, in a paper entitled "One System or Two?"

I should also note, Red, that if you accept Bortkiewicz's "solution" to the "transformation problem," you also must accept the "proof" provided by numerous authors (Tugan-Baranovsky, Okishio, Roemer, and apparently Bortkiewicz himself although the paper is not available in English) that Marx's law of the tendential fall in the rate of profit is incorrect, since this necessarily follows from his "solution" to the "transformation problem" (this solution depending, as it were, on equal input prices solved in a system of simultaneous equations).

As for "afraser," his comments only show how ignorant s/he is of both "Marxian analysis" and "the socialist project." Any other theory ultimately reconciles the working class to capitalist reality. If labor does not produce value, but only the product that has value, then it is obvious that it will be objected that the past conditions of labor ("capital", for the economists) also produce the product which possesses value. Thus the owner of that past labor is entitled to the portion of the social product denoted by "profit", and profit is a return to the capitalist of his personal contribution, etc. In other words, a return to the illusion that labor = wages, capital = profit, and land = rent.

Mike

SatanIsMyCoPilot,

I didn't mean to be a dick, and there's nothing wrong with asking your question; this question drove me nuts the first time I tried to read Capital and I read a lot on the topic before I even began Vol. I. I just found it rather strange that you would pass judgement on what Marx did and did not accomplish before you had read everything that he did accomplish. That's all.

There has actually been some debate on the topic of whether or not Marx assumed the equality of value and price throughout Vol. I. I think the correct answer is that he assumes the equality of values and prices beginning in Chapter 5, footnote 24 (also reread the last paragraph of the chapter). There he comments that value and what Adam Smith calls "natural price" (which Marx will later call "price of production") are not the same thing, but that he will take them to be the same thing in order to analyze the origin of surplus-value.

This reading makes the most sense to me, not only because this is the first point at which Marx explicitly refers to the equality of values and prices, but also because there is no reason for Marx to have assumed an equality of value and price in chapters 1-4, since it in no way affects his argument there. It is true that he seems to identify value and price in the first chapter of Vol. I, but even there he generally uses the word "appears", since he was of course already conscious of the fact that value and price were almost never equal. Furthermore, if Marx explicitly comments that he's assuming value/price equality at certain points (he also does this in the Resultate and at the beginning of Vol. II), it seems fair to assume that he's not assuming value/price equality when he doesn't explicitly say so. Otherwise his statements that he's assuming value/price equality would be entirely superfluous.

But I want to stress that the assumption of value/price equality does not imply an assumption of equal organic compositions of capital. Certainly if one assumes equal organic compositions, then one also assumes value/price equality. But the converse does not hold.

The problem stems from viewing value as a set of equilibrium prices, or what prices would be under such and such sets of circumstances (whether organic compositions of capital are equal, or there is no capital movement, or "simple commodity production", or whatever). This is how economists (from Sweezy to Dobb to Meek and the whole tradition of "Marxist economists") have generally read Marx. But Marx never says anything of the sort. There is simply no textual basis for this. Marx's discussion of value always centers around the fact that value is a social relation of production in which social labor manifests itself as propery of the universal equivalent (money). So when Marx assumes value/price equality all he's assuming is that the abstract labor which is the substance of value manifests itself in an amount of money which represents an equal amount of abstract labor.

As for the possibililty that commodities remain unsold and value remains unrealized, this is true. But Marx generally assumes that all value is realized. Marx notes on pg. 971 of Vol. III (Penguin edition):

"In any case, even if a portion of surplus-value not expressed in the price of the commodity is omitted from the price formation process, the sum of average profit plus rent can in its normal form never be greater than the total surplus-value, though it can be less."

I hope these comments help you read Capital. If you want to understand the transformation of values into prices of production, just read Chapters 8-10 of Vol. III. It's not terribly long. Just make sure you reread it when you get back to Vol. III.

By the way, did you ever see Felton Shortall's debate with Michael Lebowitz in Historical Materialism? I thought Lebowitz destroyed one of the central theses of Shortall's book. Not that it's relevant for the present discussion, since Shortall's discussion of Capital (especially the first Volume) is rather good.

Take care,
Mike

In theory, yes, but this assumes an ideal economy with perfect competition, which you won't find in real life. In particular, Marx assumes here that labor power can be treated like any other comodity. That is, that competition among workers will push down the price of labor power to "the cost of producing it".

If we on the other hand assumes that the price on labor power will vary widely from occupation to occupation, and from country to country, then individual prices can't be derived solely from the amount of labour expanded making the products.

So the answer to how values are transformed into price, will depend on whether you are talking about the idealized economy that Marx and the classic economists started out from, or if if you are asking how actual prices on particular products are set.

Then you have to take into consideration the effects of the strength of unions and working class resistance, scarcity of resources, monopolies, government taxes and subsidies, imperialist power relations, advertising and branding, and a whole lot of other factors. The so-called "transformation problem" is probably the least of your problems.

One argument is that an occupation that commands a high wage (skilled craftsperson) might involved more labor to educate such workers. Indeed, in the US, student loans let folks mortgage their possibly of higher future earnings, pushing effective wages for the relatively skill down again closer to survival.

-- edit

But I agree that the "real economy" has many random deviations that fall outside a perfect Marxian schema.

Red

No. I guess I'll give up and explain the transformation of values into prices in my own words, although I warn you that this will raise more questions and in the end you'll be better off reading the first two parts of Capital, Vol. III.

Take a society which produces two commodities, a few different capitals producing each commodity. Also assume that the rate of surplus-value is 100%. The figures I'm working with here are the average for the sector in question

Commodity A's cost-price is $50 constant capital and $50 variable capital. The mass of surplus-value is $50. The value of the commodity is thus $150.

Commodity B's cost-price is $75 constant capital and $25 variable capital. The mass of surplus-value is $25. The value of the commodity is thus $125.

Therefore, assuming prices equal values, the rate of profit on commodity A is $50/($50+$50), or 50%.

The rate of profit on commodity B is $25/($75+$25), or %25.

Notice that the cost-price of both commodities are the same ($100), while the organic compositions of both capitals vary ($50/$50 for the first capital and $75/$25 for the second).

But how can this situation be? Capitals don't care that the rate of surplus-value is equal. They invest based on the rate of profit. So why would anyone produce commodity A? If there was some rule by which value had to fluctuate around price, then commodity B would never be produced.

What would happen is that some producers move out of the production of commodity B to A. Supply of commodity B falls while the supply of commodity A rises. The price of commodity B thus rises while the price of commodity A falls.

To what level does it fall? Until the rates of profit equalize, which will only occur when prices equalize. In this, that price is $137 case that rate of profit is 37%.

Obviously rates of profit never equalize for all capitals in society. But there is an unceasing tendency for capitals to move based on variations in the rate of profit in different industries. The prices Marx arrives at are what prices would be if this fluctuation halted. But this finally reconciles the law of value with reality, in which prices don't fluctuate around prices.

To make it very short, Shortall always is making two contradictory claims: that Marx is "incomplete" and that Marx could not have finished his product because of the low level of development of the working class. The debate goes over specific topics (such as Marx's view of the tendency of real wages) to show that Shortall contradicts himself. Unfortunately I don't have a pdf version of the debate. But Lebowitz's original review/criticism is available here:

http://www.anti-politics.net/forum/viewtopic.php?p=11570&sid=083854d3975a608a2d6dee9cb74818e1

I should also reply to Mike's earlier comment.

I would agree that Marx didn't assume an equal organic composition of capital in Capital. Rather, he assumed the simple criteria that the value of the inputs was equal to the price (something Kliman would agree - except I imagine he would say "was the price"). From there, you can go to the Kliman approach attempting salvage every word of Capital by assuming that prices are not in equilibrium. That is fine except it is easy to see that most prices over a relatively short period (or often medium) of time today are in equilibrium (If not, they are rising with a relatively constant inflation factor, which is another kind of equilibrium). One might guess that whether Marx gave textual evidence or not, he took that relative stability into account and I believe there are a number of places where Marx does give reference to the tendency of the market to equalize prices - as close to stability as a discussion without complex mathematics is likely to get (I will give a more complete critique of Kliman at a later date.)

The equations that Bortkiewicz derived are necessary to allow an exact numerical relation between value and price in equilibrium. I derived similar equation independently when I was in college. So I would say that these equations don't require the falling rate of profit to be discarded. They do imply that Marx's positions implied certain assumption... the assumption in particular that the value of labor is a reasonable approximation to the price of price. This reasonably easy to see as true - some labor still needs to go create a laborer while the productivity and interdependence of capital has gone through the roof. I think that this actually gives concrete meaning to Marx, meaning that is clearly relevant.

I mean, it is worth looking at a productive system that wouldn't follow this pattern. Suppose a factory was able to produce so much of a universal good that it could directly see to its workers' survival using an infinitesimal percentage of the output produced by their labor time. In this situation, the factory owners could stay fat and happy while paying his or her workers a very small wage. The problems of real, present day capitalism clearly come when interpedence of production rises more quickly than the ability of technical changes to reproduce labor (though both rise) - which is to say when the value of labor remains a relatively good approximation of the price of labor.

Unlike the Kliman explanation, the discussion I give above has a logical sense that be understood without reference to mystical constructs.

Red