‘Capitalism: Competition, Conflict, Crises’ reviewed by Bill Jefferies

Capitalism: Competition, Conflict, Crises

Oxford University Press, Oxford, 2016. 1019pp., £35.99 hb
ISBN 9780199390632

Reviewed by Bill Jefferies

About the reviewer

Bill Jefferies’ book Measuring National Income in the Centrally Planned Economies; Why the …


Capitalism is Anwar Shaikh’s magnus opus. It is to be compared with the very greatest works of political economy, not least Marx’s Capital, at least according to the comments on the flyleaf.

Shaikh’s argument, developed and applied as an analysis of the major advanced Western economies, is that a “classical” method of analysis can be distilled from the works of Smith, Ricardo, Marx and critically, Sraffa. This classical theory is able to better explain and interpret the world than any of the contemporary rival theories, stretching from neo-classical orthodoxy to other heterodox rivals, including radical Keynesianism. This is not, then, a work of Marxian political economy, narrowly defined. Shaikh effectively abandons the labour theory of value in favour of a slightly modified version of Sraffa’s physical price theory (22). The rationale behind this is not really explained or discussed, rather it is implied that Sraffa’s theory is not only compatible with, but best defines the “classical” tradition. This is moot, to put it mildly.

This theoretical limitation is combined with an empirical one. The transition of the centrally planned economies to the market, the defining event of globalisation, is barely referred to. China hardly features. By only examining half of world capitalism, the empirical architecture of Shaikh’s argument is compromised. His assertion that the world economy entered a phase of stagnation after 2007/8 is unproven. Moreover, some of his claims, one being, for example, that living standards have stagnated or declined in African and Asian countries, “tangled in the coils of capitalism” for “almost three centuries” (71), are plainly wrong. So in spite of the books length, there are questions about its method, range, and the accuracy of the analysis.

Shaikh’s intimate knowledge of the vagaries of virtually every economic theorist, is the defining feature of the work, most of which is taken up with explaining the ins and outs of various economists and exposing their mistakes when judged against Shaikh’s classical framework. This covers familiar ground to those who have read similar works by Steve Keen or John Weeks, but Shaikh is not limited by the desire of those authors to persuade the non-specialist public. As a result the text is laden with algebra, often to the detriment of exposition.

Shaikh posits the idea that at the level of the aggregate, different laws apply to that of the individual, as the “whole is more than the sum of its parts” (84). Laws are emergent, and when taken together they form the basis for a theory of “real competition”, which is “the theoretical foundation for the analysis in this book” (14). He explains that, “under real competition, individual firms face downward sloping demand curves, set prices, have costs that differ, [so] that the low-cost producers become the regulating capitals whose price of production becomes the industry regulating price, and that profit rates are equalised only across regulating capitals” (545).

Real competition forces everyone to compete against everyone else. Producers lower costs to cut prices. The future is “intrinsically indeterminate”, but it nevertheless creates specific patterns. Prices are equalized within industries, and so are profit rates, roughly. Normal profit is not assured, and should not be included in normal costs. A key source for Shaikh’s analysis of the firm is the Oxford Economic Research Group (OERG) which studied the behaviour of UK firms in the run up to, and in the immediate aftermath of the Second World War. Firms face downward sloping demand or marginal revenue curves. Firms are not passive receivers of prices but active participants in the market. Marginal demand and cost curves need not follow the assumptions of neo-classical economics. Shaikh applies this theory of real competition broadly; various models of production, currency, price and finance are considered in the light of it and much of the discussion is both deep and profound. Shaikh has absorbed key aspects of the classical tradition that frame a truly penetrating and very rich critique of a range of other traditions.

Except, the use of Sraffa’s physical model means that much is lost from the analysis production, trade and profit. Capital is defined as “a thing used in the process of making profit” (206). It could be a tool like a “knife” (207); depending on function (208). How is the function weighed? Although Shaikh refers to Marx’s circuit of production, his definition is not Marx’s. What is the unit of measurement of this capital? Shaikh says it can be money, but what does this money measure?

Shaikh blurs the picture further with a reinterpretation of Steuart’s discussion of positive and relative profit. Positive profit adds to the public good. Relative profit is an effect of vibration of the existing stock of wealth. Positive profit is real value added, relative profit cannot exist in aggregate, as what is a gain for one is a loss to the other, of the same amount but in the opposite direction, and yet Shaikh says it can. Shaikh uses the strange example of a burglar stealing a TV. What has this got to do with production? Presumably, if capital is no longer a social relationship, then labour need not be the source of all new value.

Shaikh compounds the confusion when he applies Sraffa’s physical model to examine prices. Shaikh sets up a two commodity economy, with labour paid in iron and corn (212-217). The workers transform 340 corn and 15 iron to 400 corn and 30 iron. How, when it is impossible to produce iron from corn or corn from iron? All production transforms useless inputs into physically different useful outputs, although Shaikh rejects this too (123). His model sacrifices the material world to maths. Other inputs are necessary for the production of iron or corn, such as iron ore, water, fertiliser, and coal etc. However, these are destroyed during the process of production. Actual production exists to change inputs, but not for Shaikh, who assumes “unchanged” inputs, in order to enable Sraffa’s physical measure, as a replacement for Marx’s value measure.

Newton (the noted alchemist) no doubt assumed it was possible to transmute base metal into gold, but he failed, in spite of a great deal of effort, to achieve his purpose in the real world. Shaikh does not face that problem, so he transmutes matter ideally, to produce something from nothing. This imaginary “surplus” – the assumed increase in output – is measured against the “unchanged” inputs, in order to produce a “rate of profit”. How is the assumption of surplus in Shaikh’s model a step forward from the assumption of surplus in a neo-classical model?

As this is a still nominally Marxist version of Sraffianism, the physical bundles of goods are attached to labour hours, and so a labour version of the physical economy is created and a translation between the physical and value based is made. In Shaikh’s model, positive profits require surplus labour, as there is an identity between the assumed physical increase in iron, coal, and labour hours. But as the physical model can be read in either direction, it could equally be said the surplus labour requires surplus coal or iron, or if labour is replaced with some other physical commodity, Sraffa used pigs at one point, then a surplus of pigs is necessary for a surplus iron and coal.

Shaikh’s application of this model also frames his treatment of trade and comparative advantage. Ricardo applied the labour theory of value to trade, using the example of cloth and wine between Portugal and Britain, to show that, as in the domestic economy, specialisation reduced costs to increase the physical quantity of output for the same quantity of labour inputs. This supposedly saves capital and increasing wealth. Shaikh translates this into a Sraffian two commodity model, in which commodity A produces commodity B and vice versa. This contrasts with Ricardo, who had an unspecified number of other physical inputs necessary to produce cloth and wine. It is therefore critical to note that Shaikh’s model is not Ricardo’s.

Shaikh claims to identify a flaw in Ricardo’s logic that “Portugal’s comparative cost advantage cannot change unless the international relative price changes, but international relative price cannot change unless Portugal loses its comparative cost advantage” (511). Shaikh’s model depends on “the real wage and relative international price” of the two commodities, but Ricardo’s model, in contrast, is also sensitive to changes in prices of every other input. As these commodities are outside of Shaikh’s two commodity model, do Shaikh’s conclusions follow?

Shaikh pays a heavy price for his abandonment of the labour theory of value; it undermines the entire logical coherence of his argument. The limitation of Shaikh’s model to the advanced Western economies and his use of out of date UK data, further means that his assertions about the equalisation of profit rates, and the factors driving cost reductions, feel out of date. Major Western corporations like Apple, Google, Microsoft, Sony etc. no longer produce significant quantities of output, but commission it from separate firms. They maintain their dominance through control of marketing, research and patent development. The resulting, commonly described, “smiling curve” of value distribution means that firms at the end of the curve, who supply the major technological components, like chip design, or sell branded goods, like iPhones, swallow the vast majority of profits. There is no tendency to equalise profit rates, and the ability of suppliers to reduce their margins does not increase their own profit, but the profit of commissioning firms at the end of the value curve. As the distribution of profits is hidden through transfer pricing, off shore accounts or other dodgy financial tricks, it is difficult to see how these trends can be established through official statistical indices. It is tempting to speculate that this, too, is a consequence of Shaikh’s latter day conversion to Sraffa. A key argument of this physical value theory is that Marx’s entire argument about the difference between values and price is redundant. Shaikh scarcely refers to his earlier proposed solutions to the transformation problem, however inadequate he may now find them.

Shaikh has a very interesting discussion about the effect of chained national income measures on the depreciation of the fixed capital stock. His relentlessly downward profit rates seem wrong. However, implying this requires further examination. Shaik’s discussion of the development of money, and his critique of the quantity theory of money, is very rich and stimulating. He carefully examines various theories of the business cycle, and many other issues of contemporary economics. Shaikh’s book is a most definitely a major work from the heterodox school of political economy. However, his abandonment of Marx’s value theory has very serious consequences for the logical thread of his argument. His limitation of the empirical work to the advanced Western economies is one sided, and occasionally mistaken. This is an interesting book then, but is it really the next Capital?

23 August 2016


  1. Hi Bill,

    Thanks for an interesting review. Your emphasis on real competition and the profit motive are central to Shaikh, at the same time my interpretation departs from yours in some important areas.

    In my estimation this is the most important book in political economy published in my lifetime. It is written for economists and will not have the wide audience success as did Piketty’s Capital.

    Shaikh’s return to Classical Political Economy is important.

    What Shaikh establishes in the first chapter is there is a cyclical pattern to the development of capitalism. Any theory that is capable of explaining capitalist tendencies and capitalist development must be able to explain these cyclical patterns.

    It is not clear to me that Shaikh has abandoned the labor theory value. Rather he has followed the Levy, Duncan, Lipietz approach, aka the New Solution, which is less a solution to the so-called transformation problem, but allows to make operational the labor theory of value in money terms (the advantage here is that we can observe money values). Thus, I completely disagree with your characterization of Shaikh as neo-Ricardian/Sraffian. (Nonetheless, anyone sympathetic to the Classical tradition will find strong affinities with Sraffa, and Marx).

    Capitalism is riddled with transformation problems, Shaikh demonstrates this throughout the book in his discussions of price movements.

    The cornerstone of the argument is real competition, he invokes the metaphor that “competition is war” and the profit motive propels the macrodynamic. His notion of real competition is subtly different from imperfect competition of Post-Keynesianism and neo-Marxism. It is my estimation that his lasting contribution will pivot on his astute insights on real competition and profits. At the same time, he underemphasizes the “coresepective” nature of big business, i.e. competition is often far less than “war.”

    The first great accomplishment of Shaikh’s theory is the macrodynamic he articulates in chapter 13. The first time I read through the book, it seemed to me this was the book’s culmination, yet the book has four additional dense chapters. In these last four chapters he demonstrates that any macroeconomic law-like tendencies are contingent on class struggle. This is crucial and should not be left out of a review. In addition, Shaikh underscores the importance of money, and impressively addresses the monetary aspects of capitalism that much of Marxian Political Economy is too weak on.

    As to Shaikh’s focus on the US or mature capitalist economies, this is advantageous. The basic regularities and patterns Shaikh identifies have enormous implications for other domestic economies.

    It seems to me that you are not entirely accurate in Shaikh’s definition of capital. Here is what Shaikh writes, all of which is in the context of Marx’s circuits of capital, i.e. M-C-M’ and C-M-C’:

    “The two circuits interact, since wages received by employees are part of the capital expenditures of firms, while the consumer goods and financial assets purchased by employees are part of the profit-motivated sales of firms.
    So it is not the qualities of the thing but rather the process within which it operates that turns it into capital. […] Capitalist relations add another dimension because within the grip of capital both the labor process and the commodity’s price become means of realizing a profit” (206 – 7).

    My reading of Marx has this statement very consistent with the notion of capital.

    The Classical/Shaikh version of surplus is radically different from neo-classical surplus (in brief social product versus willingness-to-pay). Although the word is the same, the conceptions share little else. Shaikh is correctly and explicitly critical of the neo-Ricardian notion of surplus, because it changes when the distribution between wages and profits change (this is a transformation problem).

    There plenty within Shaikh to disagree and debate. Nonetheless, in my estimate Shaikh’s book is political economy at it very best and will be _the_ reference point of Marxian political economy for the twenty-first century.

  2. Hi Hans, thanks for those interesting and thought provoking comments, you point out quite rightly that there are other possible points of emphasis for the review of this book, and there is much to respect in it and learn from it, having said that, there have been plenty of reviews celebrating the book, but I wanted a more critical aspect. In no particular order.

    On the definition of capital, Shakih elides the definition of the physical thing with the social thing, or in other words, he equates means of production, the physical things used to produce stuff, with capital. As you quote him “So it is not the qualities of the thing but rather the process within which it operates that turns it into capital.” He replaces the relationship of the producer with the thing that they use to produce, (the worker with the means of production) with the social relationship of the producer with the owner of means of production i.e. the capital relationship (the worker with the capitalist).

    This is related to his abandonment of the labour theory of value, which I think is unambiguous from the text and logically necessary from the argument. Why have the labour theory of value at all? The labour theory of value was rediscovered from Smith by Ricardo (on the prompting of Malthus) when Ricardo realised that outputs are *always* different from inputs, even in the famous corn model. As outputs are physically different from inputs so they are incommensurate with them and need to be measured by something else outputs have in common, the labour time necessary for their production. Note this is a physical argument around real production.

    Marx inherited this argument and repeats it at the beginning of Capital I. It is the essential premise for value theory and underpins the logic of the entire work. Shaikh rejects it.

    Shaikh, and in this he is sadly common to a whole generation of Marxian economists, assumes that outputs are identical with inputs, that inputs do not change in the process of production, and that the purpose of production is *not* to produce useful things. In other words he accepts and applies Sraffa’s method. This is evident as, every single example Shaikh uses, have a number of specified commodities as inputs and outputs, which do not change through the production process. This assumption is made in order that inputs are directly commensurate with outputs and so can be measured against each other. If this is true there is no need for labour time to measure value, as things are directly commensurate the one with the other. This assumption destroys the logical and practical necessity for the labour theory of value and is incompatible with it. In this sense the Sraffians – including Shaikh – are superior to the Marxians inasmuch as they recognise the inherent necessity of the abandonment of labour as a measure of value under the assumptions of Sraffa’s model.

    But this does not do away with Ricardo’s critique of physicalism. In no real production process are inputs identical with outputs, inputs are never unchanged, and the purpose of production (including capitalist production) is to produce useful things. As outputs are incommensurate with inputs so they must be measured against something else they have in common, the socially necessary labour time required for their production, however modified by price.

    I notice that while you object to my assertion that Shaikh has abandoned the labour theory of value, a definitional question in the end, you do not question the logic of my argument. I put a higher value on this, as I cannot accept that a model of economic output that conflicts with every actual system of production can be valid and therefore, useful. This of course, also modifies my attitude to the entire work.

    The transformation problem is a slightly different issue suffice it to say here, the reason that Marxists have been unable to solve it, was that they answered von Bortkiewicz’s impossible conundrum, not Marx’s.

    Finally on the question of the range of the book and the accuracy of its empirical examples, in my opinion, a central error of the contemporary stagnation/catastrophist consensus of radical political economy is that it is based on an analysis of the Western world. This might have been fine, to a degree, when the G7 dominated the world, before the transition of the centrally planned economies to capitalism. It is not fine now. The domination of value chains by Western multi-nationals means that surplus extraction via unequal exchange in trade is a key factor in the world economy today. In addition, the stagnation thesis, cannot explain the virtually total absence of traditional class struggle today, which I think is only understandable in the context of the rise of material living standards for most people over the last couple of decades (notwithstanding the rise of income inequality etc.)

  3. I thank Bill Jefferies and Hans Despains for their interesting comments on this book, which I have not yet read myself. I have learned a great deal from them both.

    I will however disagree with Bill’s statement that there is a;
    “virtually total absence of traditional class struggle today, ”

    This is factually just not true. For example, the Marikana Miners’ strike in South Africa. I would also say that class struggle has metamorphosed in form. It may be suggested that this is due to the defeat of the ‘dreaded’ Soviet Union and its associated Communist Parties!
    I am not passing judgement. I am trying to make an objective observation.

  4. Hi Bill,

    There is a plenty to unpack in your argument. I will make several broad comments.

    (1) I completely agree with Sydney, the class struggle is thick, only its form has changed. Just a little investigation into labor in China and India will establish it globally. The economic refugee problem (i.e. migrating workers) is occurring everywhere. Here in the US there is a nation wide effort for $15 minimum wage (essentially doubling the federal minimum wage). Brexit is another recent remarkable example. These are just a handful of examples, everywhere I look I see class struggle. The fact in the US that young college students take out school loans to pay for a social education, class struggle; the lack of childcare subsidies, class struggle; massive underemployment, class struggle; the proliferation of unpaid internships, class struggle; the precariousness of workers, class struggle, etc. etc. etc.

    (2) We have discussed unequal exchange in the context of Chris Smith’s book. Although I have sympathy for your strong point, I still maintain that exploitation of suppliers and superexploitation of global workers is more important. The global supply chains have allowed financial firms to usurp revenue streams from trade. So I don’t disagree that there is unequal exchange, but there is far more going on.

    (3) As to Shaikh as a Sraffaian, I wonder what Shaikh would respond? Of course he doesn’t reject Sraffa. Sraffa is important, and Sraffa is certainly a major figure in supporting Classical Political Economy. My purpose is not to critique Sraffa.

    (4) One thing that Sraffa does accomplish is to question the relevance of the LTV (which does not mean that Sraffa is inconsistent with some version of LTV). For the Classicals the LTV explained prices and profits. Marx rejects the first, and accepts the second only partially. Marx shows that LTV explains surplus value, profits are a function of class struggle and competition between firms.

    (5) The New Solution allows us to stay committed to the LTV, but to reinterpret it into monetary terms (De Brunhoff 1967 and Foley 1986 establish the consistency of this with Marx and the power it has for understanding contemporary capitalism).

    So from Sraffa we learn that we do not necessarily need the LTV to understand the production of social surplus (Baran and Sweezy make a similar move), from Marx we learn we don’t need the LTV for explaining prices and profits. So do we need the LTV? The short answer is yes.

    First, the LTV was always important for Marx’s theory of Surplus Value, so to understand Marx we need to have a conception of the LTV. However, there is a far more important reason. For the Classical economists, and especially for Marx, Value establishes a philosophical orientation and is the ontology of the relationship between individuals and social structure (Value is a type of social philosophy). In contrast to neo-classical economics notion of Rationality, which is necessarily a commitment to methodological individualism, Marx’s notion of Value explicitly rejects methodological individualism, to understand individual behavior, one must first understand the social structure they are embedded in. Marx’s “Capital” set out to do this, i.e. understand the social structure and macroeconomic dynamic.

    Value theory establishes that there will be riddles of transformation problems due to the fallacy of composition, under certain assumptions these transformation problems can be solved, under other assumptions not. Then we get bogged down on arguing about assumptions. This is not my project, I will leave it to others to do this dance. (To paraphrase Kalecki, capitalism makes theory appear contradictory, it is not theory but the system that is contradictory. Thus, we need Value).

    You seem to dislike formal modelling. Again assumptions of formal modelling are always unrealistic, Shaikh has plenty of formal modelling, I think it always has relevance, and never is he reducing his position to a formal model.

  5. Hi Hans and Sydney, thanks for those comments.

    On the class struggle, I think that South Africa is a good example, when I was growing up there was a mass semi-insurrectionary movement involving millions of workers against apartheid capitalism, today there is some class struggle but it is a shadow of that. It’s the same everywhere across the world the UK strike figures after 1992 are lower every year, than any year before it. You can also see it in the decline of the labor movement in the USA, etc. Even in China with an industrial working class of 150 million plus, there are a small number of short strikes every year.

    Where I differ from Hans is over the critique of Sraffa. That is my purpose. Interestingly you can trace this back to the value debates in the USSR in the 1920s. Basically there were two sides back then, the idealists around Rubin, who emphasised the necessity of value, and the planners around Bodganov, who wanted to replace value with physical measures. Sraffa of course was around the CP and wrote his first equations in 1928, coincidentally the first year of the five year plan. He then went to Cambridge where he worked very closely with Maurice Dobb, the foremost Stalinist in the UK, who held the Bogdanov view, which had triumphed over the idealists by 1930. Rubin was tortured and murdered for his pains, but that’s another story. The Stalinists had a conundrum, how to measure the output of the plan when there was physical output but no value? Their solution was familiar the simply attributed “value” i.e. aggregates of physical labour hours to planned production. This is basically what Shaikh does. Indeed, Sraffa’s model of 1960 is largely a version of the Soviet material product system applied to a market economy. But, unlike the Stalinists, Sraffa consciously rejected labour time as a measure of value, which he regarded as “mystical”. His system was championed by Dobb (and Ronald Meek) as it fulfilled the Stalinists search for value in the physical system.

    Unfortunately, (for those Marxians who want to use it) Sraffa’s model also destroys the necessity for the labour theory of value in the market economy (that is what it was designed to do). This is what Steedman and others pointed out in the 1970s. They were right to do so, if you accept the assumptions of Sraffa’s model, there is no need (i.e. logical necessity) for the labour theory of value. What bemuses me in the response of the Marxists at the time and since is that no one pointed out that Sraffa’s model does all that, but only at the price of violating all social and natural laws of production. I’m not against formal modelling – I am against formal models that rely on the transmutation of matter. The assumptions of a formal model need to be an abstraction from reality, i.e. they need to be consistent with natural and social laws to present them in a purified form. That doesn’t mean it’s legitimate to assume you can make iron from corn.

    As far as the new solution goes, it had its place as a holding position if you will, but in my opinion failed to get to the root of the matter, my recollection is however, that Shaikh explicitly rejects it in his book.

  6. Hi Bill,

    We have disagreements for sure. I can live with disagreements. To be clear what I am disagreeing with:

    (1) Your characterization of Sraffa is too narrow, Sraffa’s resurrection of Classical Political Economy is what I am defending. His 1960 book is a much larger story.

    (2) Characterizing Shaikh as Sraffian seems to be misleading. However, we would have to solve (1) above before we could begin to adjudicate Shaikh/Sraffa.

    Sraffa develops a long line of theorists in the “surplus” approach. Sraffa in 1960 develops this surplus approach primarily as an explicit critique of marginal theory. Aside from some Sraffian assumptions, the two main developments are: (a) a very different conception of capital from the neo-classical tradition (this has established Sraffa’s relevance as long as neo-classical theory exists); (b) the surplus approach underscores an asymmetry between the factors of production and distribution of income.

    For neo-classical theory of income to be true, labor has to be treated as analogous to capital and land. This is implicit in Jevons and (to some degree) Marshall, but becomes very explicit in Human Capital Theory (developed exactly as Sraffa is developing his critique).

    In the surplus approach labor is radically distinct from capital and land. Moreover, the value of capital radically depends on the distribution of income (profits and wages). Thus, before we can talk about capital we are logically forced to address the determination of distribution. In my interpretation this throws us into the issue of class struggle and political/economic power relations (i.e. politics and monopoly power). This is why Marx begins with Value.

    How Sraffa gets to all these points is a fine thing to critique, but I find his larger goal and larger points the essence and hub of the matter.

    (3) You would be very hard pressed to defend your assertion that Dobb was a Stalianist. He studied Russian and Soviet development, and certainly emphasized the rapid industrialization the Soviet’s achieved, a Stalinist he was not.

    Sraffa (1926) and Dobb (1925), when they were completely independent of each other intellectually, were the greatest critics of the new “marginalism” (Dobb called this the Jevonian Revolution), which would develop into modern neo-classical economics. Dobb would always contrast the new marginalism and utility theory of value with the labor theory value. Moreover, Dobb and Sraffa both advocated a return to Classical Political Economy, and their primary critique of Joan Robinson’s interpretation of Marx was that she could never understand the labor theory of value in a more qualitative interpretation.

    (4) Shaikh follows the New Solution, which he calls more accurately the New Interpretation. Shaikh embraces this approach see (pp 240 – 3). There seems to be some importance here to the issue of money in chapter 15, and for profits and growth in chapter 16. If chapter 13 is Shaikh’s return to classical political economy (the warrant to a relationship with Sraffa), chapter 14 in particular, but also 15, 16, establish his commitment to Marxian political economy.

  7. Bill,
    I hope that you will forgive me, but I cannot resist the temptation to write the following.
    You clearly do not like ‘Stalinists’. That is fine, very few people do.
    But you draw attention to the vitality of the class struggle in South Africa when you were growing up. I will again stick my neck out and assert with complete confidence that this was due in large part to the leadership of the South African Communist Party in both the workers’ struggles and in the anti-apartheid struggle. And that Party, I imagine you would agree, was as classical a ‘Stalinist’ Party as ever existed, with very few exceptions. I have in mind, for example, Govan Mbeki.
    Perhaps the awful ‘Stalinists’ did objectively sometimes play a useful and progressive function in the world. Awful thought.

  8. Hi Sydney and Hans

    First Sydney I don’t want to get into the reasons for the decline in the class struggle, suffice it to say at least your last post recognises it.

    To Hans, disagreements ware what make life interesting. My basic contention is that the classical surplus tradition is a catch all label that conflates two distinct and counter posed theories. On the one side the heirs of the Idealists around II Rubin, or the tradition of real classical political economy of Smith, Ricardo and Marx predicated on the labour theory of value, and on the other hand, the heirs of the Mechanists or planners, in other words the physicalists in various forms.

    As these traditions are incompatible so their assumptions are mutually inconsistent. I’m on the side of Rubin and co. Sraffa’s “revival” of classical economics is what I’m criticising. As you point out Sraffa convincingly refutes the explanation of the price of capital being due to scarcity, for as he points out, on the assumptions of the marginal model there is re-switching. The problem is his explanation for the origin of surplus is no explanation at all, as his model assumes something is created out of nothing, inputs are “unchanged” as Shaikh puts it. His assumptions violate every actual process of production anywhere. The value of capital does not depend on the distribution of profits, but the cost of production of the physical goods used as means of production, i.e. the socially necessary labour time required for their production, modified by the movement of surplus to equalise profit rates, just like every other commodity. Sraffa has no actual explanation for the production of surplus or their distribution, Indeed in his pure model there are no people.

    Dobb joined the Communist Party in 1920 and never left until his death in the mid 1970s. Naum Jasny, a key commentator on Soviet national income measures after the Second World War, poked fun at him as a particularly adroit follower of the Moscow line. Search for articles by Jasny on Dobb. In Dobb’s history of Soviet Economic Development originally published in 1948, there is only one reference to the purges, which complains they may have temporarily interrupted the rate of economic growth. He was as Stalinist as it’s possible to get. The relevance of that here is that Stalin in his 1951 Problems of Socialism, explained that the law of value existed in the Soviet Union, even though it did not exist as a regulator of production i.e. not as the law of value! Sraffa helped Dobb explain this contradiction in terms. Dobb and Sraffa collaborated on editing Ricardo’s papers, and Sraffa’s theory is very similar to the Soviet material product system.

    Before and independently of Dobb, Soviet planners, the heirs of the “mechanists”, developed the material product system to measure the “national income” of an economy without national income. They used aggregates of concrete labour hours applied to physical quantities, to estimate a “value” of output post factum. This is essentially the procedure of Shaikh, and has nothing to do with the “classical” approach if you want to put it like that. That approach, the approach of Smith, Ricardo and Marx, explains why labour time is necessary as an objective value of exchange value due to the incommensurate nature of physical output with physical input in a market economy. This is exactly what is assumed away in the models of the “surplus approach”.

    Shaikh of course, not only explicitly accepts Sraffa’s procedure, but uses it in all of his models too, mostly importantly, he assumes that outputs are identical with inputs – to ensure commensurability. But any model that assumes physically identical inputs and outputs violates the key assumptions of the “classical” models which were predicated on actual production, or that, to put it another way, the whole point of production is to change inputs from one physical form into a different physical form, so that physical inputs and outputs are incommensurate.

  9. Hi Bill,

    It seems to me you are asking Sraffa’s position to do something it is not intended to do. It does not seem to me that there is a Sraffian political economy, because his propose is far more particular. Sraffa has fallen out favor, in part due to those sympathetic to his accomplishment. This will impede people from fully understanding Shaikh’s accomplishments. In brief, this is to have a theory of relative prices, which necessities a theory of money and its movement, surplus, and class struggle. It is all there in Shaikh, and he is able to further demonstrate the macrodynamic these theories entail generate tendencies toward inequality, instability and socioeconomic crisis. A massive accomplishment.

    There exists no comparable contemporary theorist. In addition he provides excellent critiques of orthodox and heterodox positions in the midst of developing his position.

    As to Dobb. Look, he is writing Soviet economic development history. I do not take it as either pro- or anti-Soviet. Dobb had a very personal commitment to the British Communist Party, well not to The party itself, but to the tradition of communism. He believed starting a political movement a new was a mistake. I don’t know if he is correct, and I certainly never understood why he tolerated the abuse from the BCP, but it doesn’t make him Stalinist. He suffered abuse from the Soviet Marxists also. Dobb seems to allowed implicit censorship from the Soviets to influence some of his pamphlets, his books far less so. Again we have little to go on to understand his decisions, it may have been to have open access to study the Soviet political economy, could have been for other personal or political reasons. Nonetheless, it is a big leap to declare him a Stalinist. It would seem to me that a Stalinist should have some positive commentary on Stalin and his policy.

  10. Hi Hans, I think you’ve summarised our differences well, my issue with Shaikh is not that he has a new theory of Sraffa, it’s that he uses the old one. As for Dobb, I don’t doubt he suffered abuse, unfortunately it was a very abusive current, but that doesn’t mean that he didn’t in all essentials agree with and advocate its line. Jasny is particularly insightful and amusing on this, I also think it explains his enthusiasm for Sraffa’s theory, but I’m repeating myself now.

    In conclusion as I said in the review at the beginning there is much to value in Shaikh’s book which is in many respects an awesome achievement, but it falls short in my opinion, for the reasons we’ve discussed above.

  11. It is puzzling to me, that there are academics who hail Prof. Anwar Shaikh’s big book as an “awesome” achievement, whereas in actual fact they reject the core of his theoretical and empirical analysis of business competition in the real world (as an alternative to the idealizations of perfect and imperfect competition). Things get even weirder, when their rejection of Prof. Shaikh’s core theory is for reasons which are actually quite misplaced.

    Already in 1975, the New Zealand-born Marxian economist Ronald L. Meek pointed out, that Sraffian-style models of price determination can be constructed which are quite compatible with a labour theory of product-values. It is merely that such models in principle do not logically depend on, nor absolutely require such compatibility.

    For some, that would raise the question of what the utility of a labour theory is. What your own answer is, will depend on whether your concern is exclusively with price formation, or whether you regard the economy as an historically emergent social system. Prof. Shaikh is concerned with both, but works as a professional economist. He is not a Sraffian nor a neo-Ricardian. He does not subscribe to the Dumenil/Foley/Lipietz “New Solution”, or to the TSSI. He presented his own solution in the Robert Langston Memorial Volume. A distinction should be drawn between the pure concept of value and the empirical measurement of value.

    According to Ron Meek in 1975, the main focus of further debate among economists ought to be, about whether or not Marx’s perspective and methodology in political economy are still worth serious scientific attention, and why.

    Prof. Shaikh gives a very powerful, consistent and pretty exhaustive scientific answer to that question. He not only completes the theory of the capitalist mode of production that Marx set out to provide, but also goes far beyond it, using the tools of modern science. Prof. Shaikh’s economics can be extended to the sphere of consumption, state policy and public finance, corporate finance, real estate, insurance, fund management, the labour market, spatial economics etc.

    Prof. Shaikh provides grounds for a “scientific revolution” in economics, towards a new theoretical paradigm, which recognizes the role of labour, which recognizes the realities of profit-seeking, which recognizes the role of business competition in the very core of the capitalist system, and which recognizes the production and distribution of income among social classes.

    What more could a Marxist want?

    What Ron Meek alluded to, is that for science, there are anyhow no definitive logical proofs possible for a labour theory of product-values (or any other theory of economic value for that matter – it is a futile exercise), only empirical proofs.

    To do empirical tests, a testable theory and a rigorous conceptualization is required, which is logically consistent and coherent. Some theories are well-corroborated by the evidence, they turn out to have a lot of explanatory and predictive power. Other theories do not have those features. It is rational to adopt the best theories. So which theories are the best? That is what you want to discover. Not “proclaim”, but “discover”.

    In actual fact, Prof. Shaikh’s research program across five decades has produced more pathbreaking work on creating a mathematically coherent, scientifically rigorous, and empirically testable version of Marx’s theory of value and capitalism, than any other economist or group in the world has done so far.

    Prof. Shaikh’s approach in economic theory is solid enough, to ensure that the business press doesn’t even want to talk about it, or they don’t really know what to do with it, or they wait around for somebody to “refute” Prof. Shaikh’s case. That was already happening during the “humbug production function” controversy in 1974, when Shaikh was effectively muzzled from replying to Robert Solow.

    Leaving aside dislikes for weirdo leftism, there are at least three good reasons why Prof. Shaikh omits quasi-religious affirmations and odes about the “labour theory of value” in his book.

    (1) The issue of the validity of the labour theory of value proved tremendously divisive among the Left in general, and among progressive economists in particular, for more than century. Meaning, that focusing on this particular issue does not actually unite socialist or leftwing scientists. It was a “political albatross”.

    But it goes further than that. The Marxist religious fervor about the labour theory of value as the keystone of Marxist orthodoxy is misplaced anyway. You can prove all the important points that Marx made about capitalism, without even referring to the discussion about the concept of “value” and its forms (the latter which the Left has been so obsessed with now for decades).

    Wouldn’t you rather work together with people who share 93% of your own economics perspective? Or would you rather be a sectarian, who insists on 7% difference with other socialist economists (arising from the metaphysics of value) as the basis for rejecting their point of view altogether? You don’t actually have to choose either – you could just focus on something better!

    If the aim is a testable theory and a real measurement of value, of course you are going to end up with something different that the pure theory. You have to adjust your concepts and definitions to what you can actually measure.

    Prof. Shaikh has never denied, that there exist also other (philosophical, sociological, political and anthropological) dimensions of “value”. His own theory is actually quite compatible with many of those.

    He is merely saying, that if you want to build a scientific theory, in the sense that the discipline of economics requires, then the theory has to be (i) mathematically rigorous, (ii) empirically testable, and (iii) well-corroborated by the data that are available. It has to be objective, comprehensive and without moral biases. For that purpose, we have to venture into scientific pursuits which Marx could not reach in his own time, although he envisaged them.

    (2) When we develop more rigorous econometric tests of Marx’s theory of value, production prices and market prices with regard to sectoral outputs, we find, in general, that although the variables do diverge, the quantitative discrepancies turn out to be quantitatively rather minor!

    So, the enormous amount of attention that has been given by academics to the transformation problem is actually unwarranted, because in practice it cannot even make a lot of difference to the basic arguments.

    Even if the data quality of the statistical material is in some respects deficient, the trends and movements in the data across time already provide amazing support for Marx’s (and Ricardo’s, and Sraffa’s) theory. In other words, a modernized classical economics (combined with some of Keynes’s insights) has great heuristic value, because it provides credible explanations and accurate predictions based on empirical insight into how the business economy actually works!

    The transformation controversy has been tremendously divisive among the Left and among economists, with different factions proposing different solutions. But there is actually no good scientific basis for this divisiveness, because it makes very little difference to the overall empirical results. It is theoretical hairsplitting without rhyme or reason. It is not the main thing we should be concerned with, as researchers.

    (3) More than thirty-five years ago (when I wrote to him, as a graduate student), Prof. Shaikh had already accepted, that Marx’s formulations concerning profit-rate equalization did overlook some quantitative implications. No rational person could deny it. But was it a problem?

    The classical transformation problem could be solved in several different ways, but Prof. Shaikh solved it back then, basically through transfers among capitals and between the circuit of capital and the circuit of revenue.

    His point is really, that the misguided obsession with a “correct” and “orthodox” solution of the transformation problem actually led Marxist economists badly astray. They move away from the concerns of Marx & Engels, into super-radical leftist obscurantism. Not only did they substitute a theoretical metaphysics, for understanding the real world of capitalism at the hand of empirical research. They often also opted out of economic science altogether, substituting philosophy for economics.

    The Marxist academics actually preferred abstract philosophizing about “alienation”, “reification” and “exploitation”, to analyzing the real world in order to change it – a regression to the Left-Hegelian position, which Marx & Engels had targeted with a blistering critique in their youth.

    The disastrous effect of that academic regression was, that the Left has lacked solid scientific foundations for an alternative to the tweedle-dum and tweedled-dee policies of liberals and conservatives. How glorious was Corbyn’s rescue of the Labour Party! Yet how quickly were his politics demolished! How glorious was Bernie Sanders’s people’s revolution! And how quickly was he whisked out of the presidential race!

    Armed only with the tautologies of old doctrines, Left politics becomes reactive. It develops in response to events, and runs behind events (and the way they are framed in public discussion), instead of proactively shaping events and making history with a clear purpose. Leftists feel disgruntled that reality does not match their theory or their ideals. Well.

    If you dislike capitalist inequity and desire socialism, then you have to understand thoroughly what actually existing capitalism means, what actually existing socialism would mean, and how you would get from the one to the other, so that the problems created by capitalism are really solved, and you don’t create even more serious problems instead.

    Only on that basis, can you create a rational and coherent political strategy for the future. You cannot achieve a goal, if you don’t even know what it is, and if you don’t even know how to get there. In that case, you leave people only with just a “faith” or a pocketful of hope, not a rational orientation based on solid empirical evidence. At first, the faith may perhaps seem not so bad, it might even seem a beneficial inspiration… until the hell of religious wars breaks out.

    The overall implication of what Prof. Shaikh is saying, is really that, instead of uniting and strengthening the Left, the academic Marxists confused, weakened and split the movement with their arcane disputes, their theoretical dis-orientations, their mis-leadership and their useless quarrels, which scientifically were actually for the most part NOT the important ones, NOT the relevant ones, if not altogether MISPLACED. For forty years, they have gone nowhere, and keep endlessly repeating the same things. When people innovated things, they were ridiculed and condemned for lack of orthodoxy or lack of fervour.

    The Marxist academics confused and split their own movement, instead of splitting the opposition and tying them in knots! It was like Don Quixote, attacking windmills on horseback. The Marxists failed understand what competition within capitalism is all about. If you don’t even know, what the game is about, how can you win the game, or defeat the game itself?

    The academic Marxists translated their academic ideas straightforwardly to political positions, they liked to dabble a bit in politics, but actually, it probably did more harm than good. It generally did not provide people with a better orientation for fruitful political or scientific activism. It focused instead on useless disputes, which introduced all kinds of irrelevancies and distractions, it missed the important scientific issues by a mile. This was a serious obstacle for scientific progress.

    Prof. Shaikh evidently chose to opt out of reacting much in print to the existing Marxist academic discourse. Not because he wanted to disown his previous positions, but rather because the ruling discourse of the established academic Left more and more discredited and misrepresented what Marx & Engels actually stood for and aspired to. They moved away from Marx, instead of truly solving the scientific problems that Marx identified, yet left unresolved.

    Prof. Shaikh’s alternative was, to rebuild the theory in a modern setting, and create a new framework for economics, so that it really makes scientific sense, and can answer its rivals. If the Left cannot even understand what that project is, that actually underscores his point!

  12. It’s totally wrong to say that Sraffa explains price determination or provides an alternative to the LTV. Physical production is incommensurate. Production transforms inputs from one physical form into a different more useful physical form or product. How to count the difference? It’s impossible unless there is some other standard outside of physical production.
    Labour values provide that standard, abstract labour is precisely not concrete labour. The standard is the amount of value (abstract labour) added in production.
    How does Sraffa solve the problem of commensurability? He merely assumes away production – outputs are identical to inputs – or as Shaikh puts it “unchanged” during production.
    This is ridiculous right?
    Sraffa says that the price of a good is the amount of inputs destroyed in producing it. It profit is the difference between outputs and inputs, then there can be no surplus by definition.
    Marx solves this by demonstrating that although inputs equal outputs (the labour on the input side is identical with the labour on the output side – not the physical goods) as some of the labour is unpaid, then during production value is transferred from the producer to the owner of the means of production, this is surplus value.
    How does Sraffa solve it? He assumes surplus drops from the sky, and always in fixed proportions.
    This is even more ridiculous. But it does add up. The algebra is logical even if irrational and absurd. It shows you where mathematical economics gets you. Assuming there are angels you can count how many can fit on the head of a pin.

  13. I already said, that Prof. Shaikh is not a neo-Ricardian nor a post-Keynesian. He prefers to call himself a classical economist, he wants to rescue the important insights of that tradition.

    I can write a few things here. I do not argue, that Marx believed that the value of inputs is equivalent to the value of outputs, or that he believed the labour on the input side is identical with the labour on the output side. I regard such identities as econometric constructs or accounting constructs, based on aggregated expenditures, revenues and a system of transactors, which may be useful for certain analytical purposes.

    Surplus-value is not an “input”. The value of living labour on the output side, cannot be equated with the value of labour power on the input side. The concept of value transfer is not well-understood, it needs to be worked on more (just like the theory of depreciation).

    I do not really agree with your assessment of Sraffa’s theory. I do not have the time right now, for an in-depth discussion of the similarities and differences between Sraffa’s and Marx’s theory of production prices. There are also some things I still want to verify there. It seems to me, that Sraffa was quite influenced by the standard social accounting system for the gross product of a nation, that emerged in the 1950s, based on concepts such as “value-added” and “capital formation”.

    Both Sraffa and Marx argued that market prices are determined by production prices. A theory of production prices (not just Sraffa’s) can also be created without requiring any reference to labour-values. According to Prof. Shaikh, the theory of production prices is however only an initial theoretical approximation, you can create measures for production prices, but they do not explain the empirical regulation of product prices directly. The theory of real competition aims to explain the economic logic and laws governing real and observable business activity in a consistent way.

    I do intend sometime to write a clear text about the significance of the difference between Marxian and Sraffian production prices, if nobody else does. The subject is, in my experience, still unclear for many people. Sraffa himself never demonstrated a “transformation of production prices into market prices” (never mind a “transformation of product-values into production prices”). Nevertheless, he inspired Luigi Pasinetti’s labour accounting system for example. The unorthodox thinkers are the ones who develop the innovations that shape the thinking of the future. Let them be.

    As regards a “commensurability” problem, I think that is neither here nor there, because you could just well argue, that what “commensurates” different traded goods in exchange, is “that they can all be priced” or “all have prices”.

    This is indeed the orthodox viewpoint in economics – every priced good can be exchanged for any other priced good, so that equilibrium can always be reached by the market, except where non-market factors (such as Covid-19) get in the way.

    The real issue then becomes, what ultimately determines price levels and pricing policies, and whether you can avoid problems of tautology, by trying to explain prices… by other prices.

    A commensurability problem admittedly does exist in a phase of emerging commodity trade, lacking stable market prices (which valuing method is acceptable? How do we do “price discovery”?).

    In a highly developed trading system, however, there is no major commensurability problem, since almost everything has its ordinary price level. At most, we can debate or negotiate about the right price.

    There are no definitive *logical* proofs possible for any general theory of value, only empirical tests. Trying to achieve a “logical proof” of the concept of value is futile, as Marx himself knew quite well. At most you can achieve a theory of value that is internally pretty consistent and coherent, and which makes real sense of experience.

    It would moreover be quite wrong to presume, that the nature of value is fixed, universally uniform and eternal, and that it cannot change. Marx and Engels certainly did not believe that, and they didn’t believe, like the International Socialists apparently do, that the law of value governing commodity prices dropped out of the sky one day, when Adam Smith was writing the “The Wealth of Nations” or thereabouts.

    Logically, you do not absolutely *require* Marx’s theory of value, to demonstrate the substance of his theses about the modus operandi of capitalism. This “alarming” insight in actual fact happens to be very close to Marx’s own idea, since in Capital he assumes for the most part of his analysis, that value magnitudes and price magnitudes are the same!!!

    Prof. Shaikh shows, that Marx’s assumption was reasonable, since the measured value-price deviations are on the whole rather small. If it is a fairly modest problem, why make a huge problem of it? Some mathematical sense is helpful there, to put the scale of the problem in appropriate proportion.

    Prof Shaikh’s empirically-based theory of real competition is very much compatible with either a 93% labour theory of product-values or a 100% labour theory of product-values. We should not conflate the econometric arguments (based on observables we can measure and test) with purely theoretical arguments about the ontology of economic phenomena.

    Prof. Shaikh actually measured the value of average labour requirements to produce outputs, in several different ways, and how they tally with movements in output values. There is an amazingly close relationship.

    Prof. Shaikh’s book is primarily aimed at economists, not at Marxist “true believers” per se. An advantage of Prof. Shaikh’s theory is, that it accords quite well with how employers and workers ordinarily experience “value” and actual business practice.

    Prof. Shaikh demonstrates (using input-output data, labour data, capital data, price indexes and incomes data), that the empirical divergence between estimates of measured output-values, production prices and the market prices of outputs are, on the whole, rather small. Measured product-values are a good predictor of market prices. Subtle conceptual disputes cannot make any great difference to that result. Only measurement accuracy can.

    Even imperfect statistical data yield already very strong and predictable correlations though. We can also test for the quantitative effects of all sorts of different data adjustments or refinements. What are the quantitative effects of different definitions and assumptions for empirical results? That is what Prof. Shaikh sought to ascertain.

    Given that all this has been demonstrated, the academic dispute about which particular interpretation offers “the most super-radical flavour of the labour theory of value” really misses the main point. It’s more a hobby than a real science. The real breakthrough was the theory of real competition which enables the explanation of the observables about real business behaviour.

    I do not deny the importance of conceptual analysis. For the sake of measurement, too, you require precisely defined concepts. And if Marxist true believers do want to spend their time searching through the sacred Marxist texts, to distill “the most emotionally satisfying super-radical flavour of value-form theory that they can imagine”, to focus and express their purest hatred for capitalism, they are entitled to their hobby, of course.

    It is just that, if you really want to change society into something better, this sort of hobby is of little use. You need comprehensive, scientifically sound, empirical understanding of how the capitalist economy *really* works – a theory with very good explanatory and predictive power, which succeeds better than its rivals. That is what Prof. Shaikh intends to provide, and to encourage.

    A “metaphysical” interpretation might seem attractive, but if it “explains” merely by redefining ideas according to personal taste or political expediency, we’re scientifically not much further ahead. We know this also from the history of Soviet economics, which was shackled by a totalitarian ideology, even as it tried to achieve great things to lift people out of miserable poverty.

    Certainly, in the business world, metaphysical interpretations can be attractive, you can see that also in the business media, but the “bottom line” is, “whether an idea really makes money” (“put your money where your mouth is”). If a lot of resources and people’s lives are at stake, not just any idiosyncratic idea that seems to be “interesting” will do. You have to walk the talk. You have to really know what you are talking about, and how things actually work in reality. That is also what Prof. Shaikh is trying to get to, with his economics. It takes a lot of research effort. He stayed put in one job position for a very long time, to do that.

    Marx himself stated in his manuscript for Capital Vol. 3, that his analysis of the configurations of capital aimed to “approach step by step the form in which they appear on the surface of society… in competition, and in the everyday consciousness of the agents of production themselves”. Yet, as we know, Marx never completed and finished that manuscript, and left unresolved problems in his theory.

    Prof. Shaikh *does* offer scientifically testable solutions for those problems, and completes the theory, based on a lifetime of research into *how* you can actually do that.

    He would be happy to acknowledge, that there are all kinds of further details and aspects that can be elaborated and made more exact, but the main theoretical foundations are there, and they are empirically testable.

    The scientific tests were difficult or impossible to accomplish, when Marx lived. Prof. Shaikh and others did that work, and take it further, going beyond Marx into the 21st century.

    No doubt, criticisms can also be made of Prof. Shaikh’s book qua form and content. With respect to form, some parts are very clearly and pedagogically written, while other parts are highly technical, and assume a lot of prior knowledge about the relevant economics literature (to be honest, I find some of those parts difficult).

    Some people think, that the text therefore fails to communicate well, or that it is “elitist” etc. It is, as said, primarily aimed at economists, and at economics students who are looking for a more realistic theory of the capitalist economy.

    With respect to content, e.g. a more developed theory of the modern finance industry is lacking, which some economists find odd, because of the great power of the finance industry to shape the pattern of investments nowadays (even during the hiss of a deflating bubble). And the documentation of data sources could be made a lot clearer, for the sake of replication of econometric results (which is a requirement for good science).

    So, in a sense, Prof. Shaikh’s analysis is… also “unfinished”, because there are still more things to document, analyze, explain and predict empirically. He would not deny that at all, but there is only so much one economist can accomplish. Others will have to “catch the ball in flight”, and develop the ideas further.

    Prof. Shaikh’s claim is, that he does offer real solutions to a whole lot of scientific problems that his generation of scholars was grappling with. Other topics can be integrated in the theoretical framework and the methods which he provides, to understand how capitalism works.

    It may take a whole generation before the message sinks in. But at least the book is now available. Hopefully, it will be put to good use, it is a tool to develop a better science of society, by genuinely creative and innovative thinkers – “Marxist or not”.

    The philosophers – and Marx himself started out as a philosopher – “interpret” the world, in different ways. They shift their semantics, if their interpretations fall in bad taste. Marx himself fell in bad taste. The point, however, is to change the world for the better. He knew that, and he worked at that, with his Streitschriften, scientific work and the International.

    OK it is a truism, that “we need to interpret the world, in order to change it”. Marx’s real point though is that to change it, we need more than a superficial “interpretation” that is no better than any other. We need real verification. We need to develop firm ideas that can withstand the test of time. We have to get in the water, to learn how to swim. We cannot learn that, simply by philosophizing about it.

    We need, says Prof. Shaikh, a really good theory which is well-grounded in observable reality. It takes many researchers who work together to get there. By grappling with the relevant experiential evidence, scholars can arrive at a much better and deeper understanding, than philosophy alone can offer. We improve our theories best, by testing them carefully.

    The “stubborn facts of experience” that we face, confirm certain ideas, and rule out some ideas. The theory has to be built with stuff that exists external to the ruminations of the mind. That is the work and discipline of scientific research.

  14. What do the labels really matter? Not much I think.
    Production is an act that physically transforms inputs from one less useful form to another more useful form. This is universally true, it is the definition of production, all production does this. Production is therefore, a process that means that inputs are incommensurate with outputs, in every single case, so no physical measure can value output. That is the premise for the labour theory of value.
    Any model that assumes identical inputs and outputs of necessity assumes away the necessity for labour values. Unsurprisingly, all (every single one) of the models that claim to do that (who have “proved” Marx wrong) make just that assumption. This is a logical necessity. It is only possible to measure inputs and outputs if they are identical, but if they are identical, then there has been no production, as production is a process which physically changes inputs and outputs. The external social measure – abstract labour time – is only necessary if inputs and incommensurate with outputs or in other words if there is production. If there is no production, then there is no need for labour values, and, fair enough, make up whatever value system you wish.
    Circulation cannot create value, as what is a gain for one is a loss for the other in the opposite direction to the same amount. Production creates value, but if the value of output is its cost of production where is the surplus? If profit is the difference between price and cost? This is why Sraffa wrote “if one attempts to take an entirely objective point of view, the very conception of surplus melts away”. Sraffa merely assumes profit is added from somewhere, and always bizarrely in the same amounts, so that the physical proportions of production remain the same. Although value added on the input side is the same as value added on the output side, some of the value on the input side is unpaid, or surplus value. Surplus value is a product of inputs, it is a cost for the workers, but not the employers. It is produced on the input side, as capitalists pay for labour cost, but receive labour potential or labour power in return.
    Sraffa (and all the rest) do create production prices without labour values – but only by assuming away production. The physical inputs are identical with the physical outputs. A=A=O. In simple reproduction, nothing happens in Sraffa’s model, nothing is produced, the inputs and outputs are identical. In expanded production surplus drops from the sky it is created without equivalent A=A+a=0. It is similarly a model of nothing, as the surplus is created form nothing, and so it is nothing, and the surplus is physically identical with the original inputs so that too is nothing.
    Of course, you think the commensurability problem is nothing. It is necessary to assume away commensurability in order that you can have a physical price system instead of a value one. This is the equivalent of assuming away production – which is perverse for a model of production no?
    As for the other points. The close correlation between labour values and prices depends on how you work out the rate of profit, Professor Shaikh has no means for working out turnover, and uses neo-classical estimates of the capital stock, so how accurate those estimates are is debateable.
    Its not problem for me if people wish to call themselves Marxists or not, or want to defend Marx or not, that’s a matter for them. It is paradoxical though that both the defenders and the opponents of Marx, including Marxian economists, accept the soundness of Sraffa’s absurd schema. A schema that precludes the defence that they claim to want to make.

  15. Sorry, I just don’t follow what you mean here.

    What do you think is the real reason, why the total input value is equal to the total output value in an input-output account of a sector?

    If the physical items represented by an output value are completely different from the physical items represented by an input value (because production transforms inputs into entirely new products), why does this prevent us, from using the expenditure and revenue components of official input and output estimates to obtain alternative estimates of outputs and yields, and estimates of labour-values?

    How do you think Sraffa actually defines the “surplus” in his models, and what is the reason for this?

    What exactly does Sraffa have to do with reworking Leontief-type input-output accounts, capital data, inventory data and labour data to obtain alternative measures for outputs, investments, incomes, labour-values and profit rates?

    Why exactly do you think, that the correlation between estimated labour-values and prices is dependent on the rate of profit?

    Why exactly is the gross output of a sector not an adequate measure of its total turnover?

    How do you define the rotation of capital, and what difference could it make to the estimates?

    What is specifically “neoclassical” about Prof. Shaikh’s estimates of the capital stock?

  16. The price of a commodity must be its cost of production in the last analysis. As assuming competition, then any capitalist could capture all the profits if their price is slightly lower than their rivals. The only limit to this price is objective i.e. costs. The point is, for Marx, this cost, includes an amount of surplus value, a cost for the workers, but not for the capitalists, it is unpaid labour.
    From the point of view of physical production, if prices equal costs, then this excludes the possibility of surplus tout court. If, as Sraffa insisted, price is the cost of commodities physically destroyed in producing the output, then if profit is the difference between price and cost, there can be no profit. Hence, his comment “if one attempts to take an entirely objective point of view, the very conception of surplus melts away”.
    If the physical inputs and outputs are totally different, then they are no longer measurable physically. This is the precondition of any actual production process. Hence, all real production is measured by the use of an external numeraire i.e. money, but not an internal physical one. There is no money in Sraffa’s model as relative prices are assumed to be constant and inputs and outputs are identical. Of course, for Marx, money is a measure of socially necessary labour time. But then there is no labour value in Sraffa’s model either, which is deemed to be “mystical” and “magical”. Indeed, there need be no people, wages are a synonym for costs, they could be the wages of machines (oil), the wages of horses (fodder) or the wages of people (prawn cocktails).
    Sraffa doesn’t define surplus. It is merely assumed. Surplus is a fixed proportion or scalar of the original sum of inputs, it appears without equivalent from nothing. It maybe subjective, a la Marshall’s consumer surplus, but of course that is not surplus.
    Leontief’s input output system has use value categories, i.e. automobiles, trains, etc. but these are not made up of constant commodities, the automobile or train may change, and they are valued in money, the external social numeraire that is not found in Sraffa’s system.
    I use the turnover of capital based on accountancy tools using IRS data. It is not complicated at all actually. There’s nothing especially neoclassical about Proff Shaikh’s fixed capital estimates, its just the BEA’s estimates are neoclassical and those are the ones he uses. The BEA estimate depreciation based on the decline of revenues an asset yields, rather than the rate at which cost is recovered and as a result they grossly over estimate the value of the fixed capital stock.

  17. I see. Well. You make it very clear, that our respective understandings of the subjectmatter are totally “incommensurable”.

    When I ask you some questions about what exactly you mean, you start to talk about something different. In the process, I think you also misrepresent authors, arguments and concepts.

    If that’s the case, there is really nothing to discuss, I might as well be talking to a lamppost. For me, there is definitely a difference between poetry and econometrics.

    So I will end the conversation here, and wish you luck in your career as a British academic.

  18. Oh well.
    Really its very simple. We know that prices cannot be derived from physical quantities, because that is impossible.
    It is impossible because production changes physical quantities, so that inputs and outputs are immeasurable physically. Sraffa gets round this by abstracting from production. He assumes that inputs and outputs are identical. That’s ridiculous.

  19. Dear William Jefferies thanks a lot for such illunitaning and enlightening analysis you have provided on the Sraffian modelling and Co. Are not I correct to infer from your analysis that all such ‘input-output’ models lack a ‘theory of profit’ endogenously generated?

    It seems like a grand irony of history that professional economics tries to explain the profit-based capitalist economy without having an objective source of how such profit emerges.

    In response to the point made in the above exchange that trivialises the Labour theory of Value as a navel-gazing academic exercise, the LTV is a theory of “exploitation”. It matters a lot in terms of “changing the world and in which direction” whether Capital is the ‘accumulated exploitation of social labour’ or merely a “factor of production” ‘justly’ appropriating its share of the total produce.

  20. Thanks George it’s nice to be appreciated!! Yes of course you’re right all such physical input output models merely assume profit. What else can they do?

  21. Dear Jefferies, I read these reviews and your articles about Sraffa and they are very interesting. I wonder what you think about Ernesto Screpanti book „Labour and Value: Rethinking Marx’s Theory of Exploitation” (2019).

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