‘Value, Competition and Exploitation: Marx’s Legacy Revisited’ by Jonathan F. Cogliano, Peter Flaschel, Reiner Franke, Nils Fröhlich and Roberto Veneziani reviewed by Bill Jefferies

Reviewed by Bill Jefferies

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Value, Competition and Exploitation provides a formally rigorous application of Marxian value measures to the national accounts developed by Richard Stone after the Second World War. It applies and develops the research programme of Peter Flaschel in particular. Curiously, the authors consider that the connection between Stone and the labour theory of value was ‘likely unintentional’ (xvi), when Stone himself acknowledged the influence of the Soviet Balance on the development of the system of national accounts (SNA) and Leontief’s input-output system. This hints at a recurring problem with this work which could be described as a lack of historical sense.

The book is highly mathematical and requires knowledge of linear algebra, which really defines the project.It is an excellent summary of the limits of contemporary Marxian economics. It accepts the criticisms of von Bortkiewicz of Marx’s transformation procedure, which are after all, ‘mathematically true’ (1), and uncritically elides or combines Piero Sraffa’s physical price matrix with the one of Marxist value. Sraffa was an Italian economist working at Cambridge, who in conjunction with Britain’s leading Stalinist economist Maurice Dobb, developed a version of the Soviet Material Product System (MPS),The Production of Commodities By Means of Commodities(1960),as a description of market economies. Critically, Sraffa’s theory did not require the labour theory of value, as relative prices were fixed, inputs were physically identical with outputs, and surplus came from nowhere. Flaschel et al naturally adopt this theory which is mathematically consistent, and so necessarily accept Steedman’s ‘seminal’ (4) criticism of values as redundant and Okishio’s criticism of the tendency of the rate of profit to fall (3). Mathematical logic locates their argument. State something in English, state the same thing in maths and prove it adds up. QED.

The first chapter examines Francois Quesnay and the Physiocrat’s ‘Tableau Economique’. This presaged Marx’s schemes of circulation in Capital Vol. II and from them is examined the input-output analysis of the Soviets and then Leontief. Flaschel et al describe the Physiocrats in terms of a version of Sraffa’s material product system. The Physiocrats, writing in pre-revolutionary France, noted that agriculture produced a physical surplus, or the difference between the physical quantity of input and output,which was then consumed by the sterile or unproductive classes of society, the clergy, aristocracy and manufacturing. This is a critical point. Manufacturing does not produce raw materials, but uses them up. It consumes them through changing their physical form. Considered in terms of physical inputs and outputs, the Physiocrats were correct, manufacturing was unproductive. Adam Smith’s (who visited France to meet the Physiocrats) great advance was to note that manufacturing did indeed consume raw materials, but this was productive consumption, it increased the social scale, or value of production, by adding labour. As labour was the source of value, so manufacturing was productive. Yet wholly incorrectly Flaschel et al assume that for the Physiocrats manufacturing was physically productive (i.e. it increases the scale of raw materials when it uses them up) in order to reconcile it with Sraffa’s basic commodities and surplus. This is historically inconsistent with the Physiocrats’ model, a regression compared to Smith, and shows the problems of eliding mathematical correctness with truth. The essential purpose of production is to physically transform inputs into infinitely varied and quantitatively unlimited outputs.The use of labour as a social numeraire allows physically incommensurate commodities to be measured against one another. As the physicality of commodities cannot be counted by a universally equivalent measure, the amount of labour embodied in them during production is– measured in the universal equivalent – money. Flaschel et al acknowledge this point:

In theory, we can conceive of an economy producing n goods and refer to the quantities of these goods. Yet there are thousands of goods on the market. In the real world even the most detailed statistics cannot record each and every good, and even at the most elementary level several goods are combined into aggregate goods. Thus in applied work the expression “quantity of good i” must not be taken literally. Rather it means something like: “One unit of good i is a bundle of (physically different) goods that are assigned to a category i. Valued at prices of a give base year, it is worth one million Euros” (42)

If in reality physical prices are incommensurate, then such prices cannot be taken literally; they cannot be measured physically and so Sraffa’s price system cannot be real.As it is not real, so it is irrational, illogical –irrespective of the sums. Nonetheless, mathematically correct, yet outlandish physical models, with one, two or a certain defined number of commodities, pervade the book. The authors claim that in the early rude society imagined by Smith, the economy consisted of the two commodities labour and corn. However, Smith had no such model. Ricardo had a corn (or rather wheat) model in 1815, but rejected it two years later in his seminal Principles, as this simplification contradicted the very purpose of production to transform inputs on an infinitely varied scale. It is perfectly true that of course if you assume away real production, there is no need for labour value.

Smith sought to explain surplus as the difference between labour commanded as output with labour added as input. But if surplus is a mark-up over costs it merely redistributes surplus but does not create it. Ricardo favoured consistency but similarly stumbled on this problem.If the price of a commodity is the value of inputs necessary to produce it (111), where is the surplus? How can the value of output be larger than the value of input if the value of output is the cost of production, and so the aggregate of values expended as inputs? Flaschel et al’s maths attempts to solve this conundrum. It simply assumes it away, so ‘labour commanded prices are strictly larger than labour values’ (91). Labour embodied is always smaller than labour commanded, and surplus is the difference between them. This was also Sraffa’s solution, albeit with physical goods and not labour. It is no solution at all. Marx explained that the value added on the input side was indeed identical with the value of the output side (individually if values equal prices or in aggregate if they do not), but a portion of that value added was not paid for; it was an expense for the workers but not for capitalists, it was surplus value. If surplus on the output side has no equivalent on the input side, then it comes out of nowhere, as it is created from nothing. So there is no need to explain it, and there is no need for surplus value or surplus labour. Marx’s labour theory of value is indeed ‘untentable in general’ (107). Once all the key premises of real production (and so classical economics) have been assumed away, consistency demands that classical economics must be too.

Curiously, the authors then attempt to revive labour values through an ‘axiomatic’ approach (189) by asking what are ‘labour values good for?’ (191) Labour content is defined as the ‘average labour time “embodied” in a good, in the sense of the full-cost accounting terms of labour time spent (on average) on the production of commodities’ (192) and prices of production are this amount multiplied by a rate of profit (193). This definition confuses capitalist accounting with value added. Unpaid labour by workers is real value added, but it is not an accounting cost, it is not paid for by the capitalist.It is nonetheless real productive activity necessary for the production of the product and embodied in it. This is why there can be profits even where there is the exchange of equivalents. The equivalent exchange is between the buyer and seller, not the employer and employee. It resolves Ricardo’s stumble so that the rate of profit need not be zero if commodities are sold at their values (114). Furthermore, Steedman is wrong, labour values can be negative (193). If output is unsold, value can be destroyed in the production process. Labour added can be negative if this is a model of real market production. But once reality and with it equivalence are abandoned, there is no need for the labour theory of value. What is reintroduced in one hand is excluded in the other.

This confusion is compounded by a definition of abstract labour from Kurz and Salvadori whereby ‘different kinds of labour are to be aggregated via the (gold) money wage rates (195)’. Smith is quoted as saying, ‘it is often difficult of ascertain the proportion between two different quantities of labour. The time spent in two different sorts of work will not always alone determine this proportion […] it is adjusted however, not by any accurate measure, but by the haggling and bargaining of the market’ (195). Smith does not mention wages at all.Similarly. Ricardo explains that the estimation in which different quantities of labour are held ‘is adjusted in the market […] and depend[s] on the comparative skill of the labourer, and intensity of labour performed’ (195), not the wages to which the labourer is paid.

The authors then note that there is no mathematical solution to the transformation of values into prices, while surplus value is equal to profits and value is equal to prices. This is well known too. Actually all this means is that the transition to capitalism, or from values to prices of production, was crisis wracked or disproportionate.The validity of the labour theory of value rests on the infinite variety and quantity of output relative to input. It is real not mathematical (except insofar as maths are real).

Unfortunately, this entire discussion and more, by far the largest part of the book, is a diversion from the authors’ really new and interesting contributions. The discussion around the falling labour content of output as productivity rises, leads onto a discussion around the value of the fixed capital stock (FCS) as rising productivity. The law of declining labour content depreciates the value of the FCS and so raises the rate of profit. Although it should be observed that just as the authors note the labour content of a commodity will fall through the year as productivity rises, so its physical form will change too. A manufactured commodity produced at the end of the year will be different from one produced at the beginning of it and so is incommensurate.

Establishing a value of the fixed capital stock is a real problem with estimates of profitability. As neo-classical measures value the FCS according to the quantity of profits its generates, so the rate of profit never changes. Most Marxian estimates of profit rates can be dismissed for this reason, they use the neo-classical valuations of the fixed capital stock which overestimate profit rates during crises, and underestimate them during booms. Alternatively, Faschel et al use a method based on the levels of depreciation and investment as a proxy for the capital intensity of a given sector. This is then applied to the German economy to estimate the capital intensity of given sectors and so the rate of profits within them. This shows very uneven profit rates between sectors. As the authors explain, this is a notable but puzzling result (258), but one which could be the starting point for an interesting empirical investigation if, for example, transfers into an out of the financial sector where included.

Value, Competition and Exploitation provides an excellent overview of the state of contemporary Marxian political economy. Although it is certainly mathematically heavy, the authors go out of their way to explain the models and the assumptions which lie behind them. As a summary of the shared currency of Marxian economics, it is very good. Unfortunately, that currency rests on an uncritical acceptance of a kind of Marxian-Sraffian synthesis, which does justice to neither, nor to the classical economists it attempts to summarise. There is little historical sense throughout the book, a rigorous yet salutary application of Marxian economics indeed.

26 November 2018

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