Reviewed by Bill Jefferies
Marx’s Theory of Price and its Modern Rivals contains three main themes: first it recounts what the author Howard Nicholas considers to be Marx’s theory of value and price; second it explains Nicholas’ criticism of the New Interpretation (NI) and Temporal Single System Interpretation (TSSI); third it criticises other theories, neo-classical, post-Keynesian and that of Piero Sraffa. Nicholas thinks that his critique of Sraffa is the most important and original part of the work. Nicholas argues that value is at the heart of Marx’s explanation of capitalism, that Marx’s theory is logical, consistent, relevant in the age of monopoly and intact after the attack of post-Keynesians and Sraffarians. What makes Nicholas different from virtually every other contemporary Marxist economist is that from the outset Nicholas stresses that Marx’s theory of price needs to explain the production and reproduction of the capitalist system itself as a real mode of production combining actual inputs to produce actual outputs.
For Nicholas price is needed to ensure that the capitalist system can allocate actual resources in order that it can reproduce itself. To that extent the theory of price is an analysis of equilibrium. The theory assumes that it is possible for the capitalist system to exist. Nicholas roots value and price in the world of actual material things. Value represents the relative social productive resources required to produce the commodity. These are actual material inputs, consisting of both direct and indirect labour time, living labour and the products of past labour. Value is the objective worth of a commodity. Exchange value is the amount of another commodity that it commands in the process of exchange. This is the price form. The money price form is the symbol of general exchangeable worth. Price represents the direct or indirect labour time that can be commanded by the commodity in the process of exchange. Price facilitates the production and reproduction of the system of production and so is intimately related to value. Selling goods enables produces to command the necessary labour time to produce and reproduce the system of production.
Prices and values are formed in the same process of production and exchange. That is not to say that actual prices equal equilibrium prices, indeed the separation of production from sale, means that this is highly unlikely, but there are limits to how far they can move apart if the system is to reproduce itself. Consequently, “when producers compute prices in a way which permits the reproduction of their commodities (using money as the basis for this computation), they effectively do so on the basis of values” (14), capitalists must acquire the material inputs necessary to produce commodities, whether they know their values or not. They must combine together the labour of actual workers to produce actual goods and so are responsive to the actual social imperatives of the system, to reduce costs and maximise revenues. Value is separate from the reproduction price, but in the absence of the surplus product equals it (15).
Price is always current and never historic or temporal. Production always takes place in the present. The product of past labour has labour embodied in it during the process of production, but this embodied labour is valued at its current replacement cost. Producers only produce in the present, so the contribution to value added of this embodied labour is what it would cost now, not its price, or its value at some point in the past. These points form the basis of Nicholas’ later critique of the contemporary transformation debate.
Money is a means of circulation, a hoard and a means of payment, it facilitates the transfer of ownership of commodities, to produce and reproduce the system of production. Actual prices will continually deviate from reproduction prices due to the operation of supply and demand. Nicholas makes a distinction between money as a measure of value, and money as a numeraire (18). He considers that as a measure money represents the value of commodities the one to the other, as “intrinsically comparable products of social labour” whereas as a numeraire “money reduces commodities which are not inherently comparable to equivalence” (19). This seems a curious juxtaposition. As these are in effect aspects of the same thing: social labour. The amount of this social labour is both measured and rendered equivalent through the act of exchange with money. Commodities can be exchanged, the one with the other, as they already contain a common property – social labour – within them, which is also the measure of their value.
In Capital I Marx treats value as equal to price as there is no question of a redistribution of value between capitals to equalise the rate of profit (32). In Capital III Marx shows how competition redistributes value between capitals so that price deviates from value. This shift creates prices of production, which are the prices which would need to prevail if the commodity is reproduced in a situation of balanced, expanded reproduction (34). Values are the primary determinants of prices of production. As importantly there can be no understanding of the latter without the former. The rate of profit is established with reference to the individual average producer.
Nicholas explains that critics have taken issue with Marx’s transformation procedure “mostly because of an alleged failure on his part to transform input values into prices of production”, as producers only ever buy transformed inputs in the real world. But if Marx had transformed the inputs from values into prices of production, then his example of the transformation procedure, would have been an example of price determined by price, and therefore, Nicholas continues “it would have been entirely illogical for Marx to have transformed the values of inputs into prices of production when what he was seeking to do was to ‘explain’ the prices of production” (40).
Nicholas has detailed discussions around money and the price of non-produced inputs like land, where he shows how Marx’s method can be extended into monopolies. He then provides a critique of Adam Smith and David Ricardo. According to Nicholas, Marx criticised Smith’s view that “exchange is a necessary pre-condition for the division of labour” (61), so that “Smith failed to see value as antecedent to and independent of, exchange value or price” (61). Nicholas is quite wrong here. In fact it is almost the opposite way round. Marx says “Adam Smith quite correctly takes as his starting-point the commodity and the exchange of commodities.” (Marx 1978, 72) Nicholas makes this distinction because he wants to separate himself from the value form school which credits the work of I.I. Rubin as its inspiration. Rubin insists that the act of exchange is necessary for the transformation of objects into commodities. It was Stalin’s overthrow of this orthodoxy in 1930 that prefigured the current confusion of value and price. How could there be a division of labour based on private property without the exchange of products? One is the condition of the other. A division of labour could only exist without exchange if a central state authority appropriated the product of the individual producers and distributed that product separate from them. This is of course what happened in the centrally planned economies of the USSR and China during their “communist” periods and it explains why there was no value in them. But this was hardly Adam Smith’s concern in his discussion of the relationship between exchange and the division of labour.
Nicholas demonstrates that Marx’s major criticism of Smith was his confusion of social labour with the product of past labour or between value and price, the amount of social labour necessary to produce a commodity and the amount of social labour it can command on exchange. Nicholas explains the major differences between Marx and Ricardo on value, price of production, the quantity theory of money and absolute and differential rent. Nicholas reiterates that he views prices of production as averages of actual prices, not centres of gravity around which prices circulate.
Nicholas explanation of Marx’s theory of value and price and his closely argued relation of that theory to the actual process of capitalist production and reproduction is very clear and persuasive. Nicholas criticises alternative Marxist interpretations on the basis of it. He splits them into two camps; the post-war Traditional Interpretation (TI) of Sweezy, Dobb and Meek and the more recent NI and TSSI. The TI accepted the criticism of Bohm-Bawerk and Von Borkiewicz that Marx had failed to transform the inputs values in his example of the transformation procedure. This did not particularly matter if there could only be a social numeraire, but Sraffa’s 1960 The Production of Commodities by Means of Commodities claimed to find an alternative physical numeraire to Marx’s social one. If true, it meant that every aspect of Marx’s transformation of values into prices was wrong.
The TI resolved this problem by deciding that the identity of value and price was less important than the identity of surplus value and profit and so concluded that Marx’s explanation of price was not so pivotal to his explanation of capitalism, of course this left the door open to Steedman’s 1977 Marx after Sraffa. Steedman developed Sraffa’s argument to comprehensively refute Marx’s system. The NI and later TSSI then accepted Steedman’s argument, but sought to construct a reading of Marx that solved the inconsistencies. It was the requirements of this literary solution that explains the other-worldly assumptions of these models.
Nicholas points out Marx’s transformation model was limited to an explanation of the relationship between values and prices. It did not attempt to compute value and price magnitudes (72). It was not necessary to transform input prices as originally suggested, for the simple reason that the table was not a model of the relationship of prices to prices. If Marx had wanted to show how prices of production circulated he would have needed a different model. Paradoxically, the TI, NI and TSSI base their defence of Marx on the assumptions of the very people they were attempting to defend Marx against, hence their inevitable failure. Nicholas systematically explains their inconsistencies and incoherencies; in short, their claims are not supported in Marx’s text and have no basis in actual commodity production.
Nicholas follows his review of the modern Marxists with a discussion of their key contemporary alternatives, the neo-classical school, post-Keynesians and Sraffa. The very diffuse nature of these schools, and the basically odd nature of the assumptions that underpin the rival models makes such a differentiation problematic. How to judge seriously the merits of models which deny the existence of money, or assume a universal auctioneer that sets prices without reference to the market? More important from the point of view of this book is Nicholas’ examination of Sraffa who created a physical alternative to Marx’s social value through establishing fixed relationships between various different physical inputs and outputs. Nicholas points to many other problems with Sraffa’s system due to his abandonment of social labour time as the basis of value, it is questionable if this really seals the deal with Sraffa, given that Sraffa’s system is precisely intended to avoid the need for a numeraire based on social labour time. To really close Sraffa’s system it is necessary to examine how the commensurability assumed by his physical numeraire is impossible without the outlandish assumption that inputs and outputs are qualitatively identical.
Nicholas’ Marx’s Theory of Price and its Modern Rivals is a concise summary of Marx’s distinction between value and price, their relationship and significance for the reproduction of the capitalist system. His dissection of rival interpretations is an original but welcome return to essentials. His discussion of the weaknesses of neo-classicals is a good examination of their contradictions. All in all Nicholas’ book is a very welcome restatement of Marx’s analysis, well written, clear and convincing.
31 October 2014
- 1978 Theories of Surplus Value Volume I, Lawrence and Wishart, London