Last week, Nick Rogers replied in the Weekly Worker - Rooted In Capitalism – to my article Stuck In The Neo-Classical World. That in turn was a response to his earlier article, which reviewed Andrew Kliman's book, “The Failure of Capitalist Production”, and used some of its postulates to support Nick's view of the US and global economy. The Weekly Worker have kindly agreed to me writing another article responding to the points Nick raises. I have written that response, but the WW are taking their two week Summer break, and I am writing this blog post to expand on or deal with, those items there is not space in that article to cover, of which there are many. For several months now, I have been working on a comprehensive critique of Kliman's book, and the Temporal Single System Interpretation (TSSI) in general. That is having to take second place to my project of working through Marx's Capital. Consequently, neither here nor in my previous response to Nick is it intended to duplicate that. In fact, several months ago on Michael Roberts' blog I debated the deficiencies of the TSSI, directly with Kliman - Andrew Kliman and the Failure of Capitalist Production - so once again there is no point simply repeating those arguments. I would, however, recommend comrades to read that debate, because it is instructive on several levels. Rather, the intention in my earlier response to Nick, and here, is to deal with the arguments that Nick presents, and in the process to deal with those arguments on their own merits.
Most importantly, I want to begin by addressing the question of time. Hence the title of this post. In Note 4 of his response, Nick writes,
“I must admit that I fail to grasp Arthur’s point in his philosophical digression on the impossibility of fixing a single point in time. Surely Arthur does not believe that time is an irrelevance in Marxist political economy? What is volume 2 of Capital if not an extended treatise on the multitude of ways in which capital in its various manifestations interact over time?”
The whole point is that what I wrote was not a “philosophical digression”, but is central to the discussion over the TSSI, precisely for the reason Nick states! What I wrote in my original article was, in response to the claim by two TSSI theorists, Carchedi & De Haan. They wrote,
“In fact, given (t1-t2), the producer of A can sell it at t2at its transformed price and buy it at t1at its untransformed price only if t1and t2coincide: ie, only if time is abolished.”
(G Carchedi, W De Haan, ‘From production prices to reproduction prices’ Capital and Class autumn 1995.”
I argued that this perspective is syllogistic not dialectical.
“In this syllogistic view t1 and t2 are two distinct points in time - singularities - and t1 cannot be t2. However, t1 does not exist as a point in time, but itself has duration. No matter how infinitely small t1is made, it has a beginning and end. It is itself divisible into a t1 and t2.Consequently for any t1, it is logical from a dialectical perspective to have an input produced at the beginning of that period, also appearing as an output later during that period. t1is merely an artificial construct to overcome our inability to comprehend the infinite. So t1 can logically, from a dialectical perspective, as easily represent a period of six months as a millisecond. If t1 begins on January 1, and t2does not begin until July 1, who would deny, looking at the reality of capitalist production, that an output produced on January 1 is clearly capable of appearing as an input on January 2?”
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| Aristotle developed the syllogism A = A, and If A then not, not A. (-A) |
It is this point (no pun intended) that Nick cannot understand, but which is crucial. For a Marxist there is no such thing as a point in time, precisely because time is a continuum. Any point, be it of time or space, that exists in reality, i.e. in the material world, has dimension, that is it has size, a beginning and end, a start and finish. But, a point, in the sense that Carchedi and De Haan use it here, to argue that an output cannot also be an input, at the same point in time, has to be a point with zero dimension – otherwise an output produced at the beginning of that point, COULD be an input by the end of that point in time! However, the only point in time, that has zero dimension, is one that does not exist in the material world, it is one which is an abstraction from the real world i.e. one which exists purely in the realm of ideas. It is anti-dialectical and anti-materialist.
Trotsky deals with this in his demolition of the ideas of the Third Camp, as presented by Burnham and Schactman. Burnham explicitly rejected dialectics and Historical Materialism, and Shachtman as his attorney accepted that rejection, and put it into words. Trotsky focussed his attention on Shachtman, as the front man, in order to force Burnham out in the open, which he did with the publication of Burnham's - Science and Style.
Trotsky, wrote in A Petit-Bourgeois Opposition in The Socialist Workers Party,
“I will here attempt to sketch the substance of the problem in a very concise form. The Aristotelian logic of the simple syllogism starts from the proposition that “A” is equal to “A.” This postulate is accepted as an axiom for a multitude of practical human actions and elementary generalizations. But in reality “A” is not equal to “A.” This is easy to prove if we observe these two letters under a lens – they are quite different from each other. But, one can object, the question is not of the size or the form of the letters, since they are only symbols for equal quantities, for instance, a pound of sugar. The objection is beside the point; in reality a pound of sugar is never equal to a pound of sugar – a more delicate scale always discloses a difference. Again one can object: but a pound of sugar is equal to itself. Neither is this true – all bodies change uninterruptedly in size, weight, color, etc. They are never equal to themselves. A sophist will respond that a pound of sugar is equal to itself “at any given moment.” Aside from the extremely dubious practical value of this “axiom,” it does not withstand theoretical criticism either. How should we really conceive the word “moment”? If it is an infinitesimal interval of time, then a pound of sugar is subjected during the course of that “moment” to inevitable changes. Or is the “moment” a purely mathematical abstraction, that is, a zero of time? But everything exists in time; and existence itself is an uninterrupted process of transformation; time is consequently a fundamental element of existence. Thus the axiom “A” is equal to “A” signifies that a thing is equal to itself if it does not change, that is, if it does not exist...
Dialectical thinking is related to vulgar thinking in the same way that a motion picture is related to a still photograph. The motion picture does not outlaw the still photograph but combines a series of them according to the laws of motion...
We call our dialectic, materialist, since its roots are neither in heaven nor in the depths of our “free will,” but in objective reality, in nature.”
What Trotsky demonstrates is that not only were what he called “The Third Camp of the Petit-Bourgeoisie”, anti-Trotsky Trotskyists, but they were also anti-Marx Marxists! As Trotsky argues, it is possible with a false method still to arrive at correct conclusions, just as its is possible with the correct method to arrive at false conclusions. But, that is no reason to believe that method is not important! In fact, the debate over method and philosophy is far more important here than the conclusions, because it goes to the heart of the survival of Marxism. The position, the concept of time, adopted by the TSSI, is precisely that of Burnham and Shachtman criticised by Trotsky here. It is syllogistic and non-materialist. It treats time as though it were “a purely mathematical abstraction, that is, a zero of time”, as a “still photograph”, rather than a “motion picture”.
This may not be a coincidence. Several advocates of the Temporal Single System Interpretation (TSSI) have some kind of connection with the Third Camp. The acknowledgements on pp xii-iii, of Kliman's book referencing for example, “The Commune”, “International Socialism”, “Marxist-Humanist Initiative”, and “Workers Liberty”, are indicative of those links. Given that the philosophical basis of the Third Camp was provided by Burnham, it is not surprising then that its modern adherents methodology demonstrates the same kind of subjectivism and idealism. I'll refer to these links again later.
Why is this concept of time important? Because, a central plank of the TSSI is that outputs are not simultaneously – i.e. at the same point in time – inputs, and their prices are not simultaneously determined. That means that output prices are determined at one point in time, and input prices at a different point in time. For, the TSSI, what is important is money prices paid by individual capitalists, so even if, as Marx argues, the Values of outputs change between the point they were produced, and the point they enter as inputs into other commodities, the money advanced by the Capitalist has not changed. If the prices have risen, the capitalist will benefit, because the price of the final product will rise, if prices have fallen, the capitalist will similarly lose out. Moreover, when the capitalist considers the rate of profit, he will calculate it on the actual money he has laid out, not the actual Value of the Capital involved in the production process.
From the late 1970's until the mid 1990's I was a member of the Conference of Socialist Economists, and followed the development, and debate, on the TSSI, from its inception, with interest, mainly because it began as a discussion around the question of the so called “Transformation Problem”. That is the way Marx sets out, in Capital Vol. III, the process by which Exchange Values are transformed into Prices of Production at the level of Capital in General. Most of the discussion on the Transformation Problem, following on from Von Bortkiewitzc, adopted a mathematical model. That is the discussions sought to demonstrate that the supposed deficiencies in Marx's approach – he did not transform input prices simultaneously with output prices, and this according to the TSSI is supposed to be the logical deficiency, which their approach resolves – were solvable mathematically. (I should add here that the main debate in relation to the TSSI moved on to concern the so called Okishio Theorem, and a supposed contradiction it entails in relation to the Law of the Tendency for the Rate of Profit To Fall. LTRPF. I don't beleive this contradiction exists, nor do I beleive the LTRPF plays the central role in Marx's crisis theory that many have attributed to it. ) Various mathematical solutions such as that by Francis Seton were put forward to make this point, as well as Neo-Ricardian solutions such as that put forward by Pierro Sraffa. In the 1980's and 90's further such solutions were advanced, which divided essentially into the Sraffian model, most notably advanced by Ian Steedman, and the Marxian model advanced by a range of economists.
The latter solutions divided into those which took an iterative approach, that is they saw the resolution of the equations as being a matter of several intermediate stages or approximations, until a stable situation was arrived at, or those which adopted a simultaneous equation solution, whereby all prices were established in one process. I have always believed that the mathematical emphasis in these solutions is alien to Marx's method. Throughout, Capital, Marx provides a step by step analysis and explication grounded in historical reality. That is consistent with his Historical Materialist method, and with the dialectic.
There are also essentially two variants of the iterative approach. One is that of Anwar Shaikh, who put forward a mathematical solution, that arrives at a transformation of Exchange Values into Prices of Production within a single production cycle. So, there are only Prices of Production ruling in this model because Exchange Values are subsumed. The other is that which was put forward by Andrew Kliman and Ted McGlone, in their paper “The Transformation non-problem and the non-transformation problem”, in Capital & Class 35, Summer 1988. In it, they argue that Marx had not made an error in failing to transform input prices alongside output prices. The reason being essentially that set out above. That is, Output prices are transformed in one production cycle, and do not appear as inputs until the next production cycle. In the article, they write of the view that Marx was aware of the error of not transforming input prices but didn't have the time or tools to correct it,
“... it implies incompetence or even disingenuousness on Marx's part, since he relied on the specific conclusions of his transformation procedure to develop further his views of price of production and profit as forms of appearance of value and surplus value.” (Note2)
This seems an odd argument, because Marx knew from the beginning that commodities do not sell at their Exchange Values, but it did not stop him arguing up until he provides the solution for the Transformation Problem, towards the end of Vol III, as though they did. Capital was an unfinished piece of work, and so it is quite easy to accept that Marx's completed work, would have resolved this contradiction and brought it into alignment with the actual reality, just as he had done in his explication throughout Capital. Moreover, Marx and Engels clearly DID know that this contradiction existed, and hinted at its later resolution. So, for example Marx writes,
“The foregoing statements have at any rate modified the original assumption concerning the determination of the cost-price of commodities. We had originally assumed that the cost-price of a commodity equalled the value of the commodities consumed in its production. But for the buyer the price of production of a specific commodity is its cost-price, and may thus pass as cost-price into the prices of other commodities. Since the price of production may differ from the value of a commodity, it follows that the cost-price of a commodity containing this price of production of another commodity may also stand above or below that portion of its total value derived from the value of the means of production consumed by it. It is necessary to remember this modified significance of the cost-price, and to bear in mind that there is always the possibility of an error if the cost-price of a commodity in any particular sphere is identified with the value of the means of production consumed by it. Our present analysis does not necessitate a closer examination of this point.” (emphasis added
In other words they are stating openly the recognition that once you get to a situation where commodities are selling at prices of production rather than Exchange Values – and like everything else Marx has demonstrated in Capital, this is an historical development – then clearly where one commodity enters as an input into some other commodity, the relevant cost of that input is its transformed Exchange Value, not the exchange Value itself. The question is, what is the process by which this transformation of Exchange Values into Prices of Production occurs? I agree with Kliman and McGlone that this process has to be viewed historically, but that is about all, and again it comes back to the concept of time.
Kliman and McGlone put forward a 2 Dept. model (p 73) in the C&C article whereby output prices are transformed from Exchange Values in accordance with the model Marx sets out in Capital Vol. III. That is they derive a general rate of profit, and alter output prices so as to ensure that each Capital receives this same general rate of profit. They then use these output prices to form the basis of input prices in the next production cycle. The consequence then is that some Capitals will once again make above or below the average rate of profit. Output prices are modified again, so as to ensure each capital receives the average rate. After five iterations, a stable solution is arrived at with all Capitals making the average rate of profit, and no need for further modification of output prices.
But, there is an obvious flaw with this methodology. The reality of capitalist production is that Capital does not wait until the end of the production Cycle, typically a year, to calculate the average rate of profit, and does not then adjust prices so that each industry makes average profits. Capitalist production is like a “motion picture” not a “still photograph”. In other words, it is a continuous process, and the adjustment of prices, and reallocation of Capital, whereby that is achieved is happening minute by minute i.e. within the same moment of time viewed in terms of Capitalist production. But, there is a further problem with Kliman and McGlone's model. In it, they transform output prices, and then utilise these prices to Value Capital in the next cycle. But a little thought demonstrates that this is not possible.
Suppose we start at a position where commodities sell at their Exchange Values. At this point demand and supply for all commodities is in equilibrium. Now, Exchange Values are transformed. The price of commodity A, which forms a large element of Constant Capital, let's say Cotton, rises by 50% as a consequence. But, the consequence of this increase in price must be that demand and supply are no longer in balance for cotton. With the price now 50% higher demand will sink considerably, whilst the now higher prices will attract large amounts of additional Capital, increasing Supply!
As Marx comments,
“It would seem, then, that there is on the side of demand a certain magnitude of definite social wants which require for their satisfaction a definite quantity of a commodity on the market. But quantitatively, the definite social wants are very elastic and changing. Their fixedness is only apparent. If the means of subsistence were cheaper, or money-wages higher, the labourers would buy more of them, and a greater social need would arise for them, leaving aside the paupers, etc., whose demand is even below the narrowest limits of their physical wants. On the other hand, if cotton were cheaper, for example, the capitalists' demand for it would increase, more additional capital would be thrown into the cotton industry, etc.” (Capital Vol III p188)
Forward To Part 2
Forward To Part 2
Hey Boffy,
ReplyDeleteI enjoy reading your blog, but I also enjoy reading Jehu's blog, "The Real Movement'". I think he provides good commentary on fiat and how it affects Marxist empirical analysis, but am often unconvinced of his interpretation of the transformation problem. He claims that Marx was trying to show a contradiction between simple and capitalist commodity exchange and was providing a mathematical proof. What do you think? https://therealmovement.wordpress.com/2015/06/14/reply-to-lk-notes-on-the-historical-and-monetary-implications-of-the-transformation-problem/
Cheers,
Harrison
Hi Harrison,
ReplyDeleteThere is not a contradiction between pre-capitalist commodity production and exchange (which existed for around 7,000 years prior to capitalist production, commencing in the 15th century. The two are separate and different modes of production, capitalist production and exchange developing out of the commodity production and exchange that preceded it. Under pre-capitalist commodity production and exchange, commodities exchange at their exchange values, i.e. on the basis of the socially necessary labour-time required for their production, which resolves itself into the value of the means of production, plus the new value created by labour, or to use capitalist terminology c + v + s.
The commodity producer sells the commodity at its full value, including the surplus value, i.e. the labour they have undertaken over and above the necessary labour required for their own reproduction. This is the difference with wage labour under capitalist production where the worker is never the owner of their product, and never, therefore, appropriates the surplus value they have produced. In the case, of agricultural producers, when feudal rent has developed to the stage of rent in kind, and particularly money-rent, the producer is seen quite clearly to be the owner of the surplus product/surplus value, prior to having to hand it over (or part of it) to the feudal lord. That is why as Marx says Money Rent is the ultimate form of feudal rent, and represents the point at which it dissolves, and becomes replaced by capitalist rent.
The problem for Smith, Ricardo and their followers was that it becomes quite clear that under capitalist production and exchange commodities do not exchange at their values. The market price/average price of commodities is no longer equal to c + v + s, but may be either c + v + s(+x) or else c + v + s (-x).
As Marx describes in Capital III, and Engels elaborates in his Supplement, this situation arises as soon as capitalist production begins in the 15th century, even though that production is at first only a tiny fraction of total production, and exchange. The reason is that capitalists will only advance capital if it produces profit, and they seek the highest rate of profit, which is where the organic composition of capital is low, and where the rate of turnover of capital is high.
Capital will continue being advanced in such areas for so long as the rate of profit in that sphere is higher than some other. Its for that reason that the rate of profit (should actually be the average annual rate of profit, because the rate of profit/profit margin necessarily differs widely as a result of variations in the rate of turnover of capital) is averaged out in a continual process. But, as capital continues to be advanced to those areas where the rate of profit is high – or higher than average – the supply of commodities in those spheres continually rises, which means that because supply then rises relative to demand, the market prices of these commodities falls, and necessarily falls, therefore, below c + v + s, to an average price or price of production, which is equal to c + v + s(-x). The reason this is possible is precisely because in these spheres, the size of s itself is greater than in other spheres, due to the low organic composition of capital, or the high rate of turnover of capital. The consequence being that s/c+v was originally higher than average. As the amount of s realised in these spheres is thereby reduced, as market prices in that sphere fall, so s/c+v falls until it reaches the average.
(Cont'd)
But, suppose this is the 15th century, and capital enters cotton spinning, because it has a low organic composition and high rate of turnover of capital. The supply of spun yarn then continually rises, but weaving is still undertaken by individual peasant producers. The demand for yarn does not rise in proportion, and so the market price of spun yarn falls. But, the consequence is then that the peasant weavers obtain the yarn they require not at its value, which may be say equal to 2 hours labour, but its current much lower market price, which may be equal to say only 1 hours labour.
ReplyDeleteSuppose an hour's labour equals £1. The weaver previously paid £2 for materials (c), and undertook 8 hours labour, producing £8 of new value, divided into £6 necessary labour, and £2 surplus value. They sell the woven cloth for c £2 + v £6 + s £2 = £10.
Now, the weaver buys the cloth they need at its capitalist market price of just £1, so although they are not a capitalist producer, they sell their cloth not at its value, but at a modified exchange of £1 + £6 + £2 = £9. And that applies also to the artisan tailor who now buys this cloth from the weaver not at its exchange value, of £10, but at this modified value of £9, and so on. Indeed, if cotton production is undertaken by non-capitalist producers, the additional demand for cotton, from capitalist cotton spinners, will push up the demand for cotton relative to supply, causing cotton prices to rise above their value.
The lower cost of production for weavers, tailors etc. thereby create conditions whereby the rate of profit in these spheres rises – as it does in cotton production, where the additional demand from capitalist cotton spinners causes the market price to rise above the exchange value of cotton. In consequence an increasing incentive is created for capital to be advanced in these other areas of production, as increasing masses of capital are created in society. The surplus value created in cotton spinning, is then redistributed to these other spheres, so that its realised profit amounts to s (-x), whilst the realised surplus value in these other spheres rises correspondingly to s (+x).
(cont'd)
This process as Marx and Engels describe continues over a long period from the 15th century, as capital enters a sphere of production, increases supply, and thereby the market price, which then affects the input prices of all the peasant producers who use that commodity etc. That is why Engels says that commodities (all commodities not just capitalistically produced commodities) cease exchanging at their exchange values in the 15th century. The market prices of commodities ar then continually modified over that long period, as capital enters one sphere after another. Capitalistically produced commodities eventually settle at market prices around the price of production, whilst non-capitalistically produced commodities sell at the modified exchange value determined by the change in the input prices they now face.
ReplyDeleteAs Engels points out in his Preface to Capital III, and in his Supplement, the transformation of exchange values into prices of production cannot be grasped as simply a mathematical problem, because the entire process of transformation is both an unfolding of a long historical process, and its reflection in logic. Its also why the Temporal Single System System Interpretation is so wide of the mark and at odds with Marx and Engels explication.
“Schmidt strayed into this bypath when quite close to the solution, because he believed that he needed nothing short of a mathematical formula to demonstrate the conformance of the average price of every individual commodity with the law of value.” (p 13)
“Sombart, as well as Schmidt, — I mention the illustrious Loria merely as an amusing vulgar-economist foil — does not make sufficient allowance for the fact that we are dealing here not only with a purely logical process, but with a historical process, and its explanatory reflection in thought, the logical pursuance of its inner connections.” (The Law Of Value and Rate of Profit, p 895)
I'd recommend reading my summary of Engels Introduction to Capital III, and his Supplement, but also following my exposition of Theories of Surplus Value, where these ideas are developed in more detail.
Thank you Boffy, a few more questions.
ReplyDelete- I actually already have read your coverage of Engels's supplement to volume three. Could you be a bit more clear about why you reject the TSSI? What is your solution to the so called "transformation problem".
- I've read volume one of Capital and am currently reading volume two. I understand Marx sets price = value in volume one, and that this is the commodities "equilibrium" price (and I mean the classical conception of equilibrium, not the Qd = Qs that's used in Neoclassical and Keynesian economics). Since he uses a cost-price theory of value in volume three, how do the laws he strenuously lays out in volume 1 supposed to apply? Are they tendencies? And if so how relevant are they since the Economey is often not in equilibrium.
- One thing that puzzles me is fiat currency. Fiat currency holds no value, and prices don't behave the same way (look at a chart of GDP in gold vs GDP in dollars. Crisis appear when measured in gold but are hardly noticeable when measured in dollars, if at all). What are your theories on this? The State has taken a big role in how production is "planned" (setting interest rates and controlling the money supply). I understand Marx and Engels predicted something like this (in the "Fragment on Machines" in the Grundrisse and in the preface to "Socialism, Utopian and Scientific). How can Marxist empirical research progress if we can't measure value in fiat. Aren't correlations drawn up by Marxians like Anwar Shakih spurious?
Thanks,
Harrison.
Harrison,
ReplyDeleteThere are too many questions raised here that require lengthy responses for me to answer them adequately in a comment or series of comments. So, I can only provide headline responses to the questions you ask.
On the TSSI, I reject it, because Marx determines the basis for the value of commodities as being the current reproduction cost, not the historic cost, and its on that basis that repeatedly in the three volumes of capital, and in Theories of Surplus Value that he calculates the rate of profit. The TTSI, is essentially based upon a syllogistic logic, that rejects the idea of simultaneity in terms of inputs and outputs, whereas Marx makes such simultaneity fundamental to his analysis of social reproduction, and the nature of capital as being simultaneously in the form of productive-capital, commodity-capital, money-capital.
The TSSI says, Marx did not believe that input prices had to be transformed alongside output prices, but in Capital III, Marx specifically does note that input prices are transformed as well as output prices,a nd that a failure to recognise that would "lead to error". He merely says that he has no need at that point to undertake such further calculation, to demonstrate his concept of prices of production. Remember these were only notes and manuscripts that he had left, not a finished polished volume. However, to prove the point, he goes on to show that precisely as a result of input prices being transformed, the value of labour-power may be higher or lower under prices of production as opposed to exchange values, and that this will then affect the amount and rate of surplus value, and correspondingly the rate of profit.
I've described some of that in my blog post current reproduction cost v historic cost. I've also elsewhere discussed the fact that to understand the transformation problem you also need to understand the process of transformation as a process, in which the movement of capital, also occurs, and in which it is necessary to, therefore, deal with issues related to demand elasticity, because this affects how much capital must move to bring about changes in supply, which then bring about changes in market prices, and profits.
Cont'd
Marx does not use a "cost-price theory of value" in Volume III, or anywhere else. Marx specifically argues against such theories as slipped into by Adam Smith, and adopted by his followers. Marx calculates the value of total social production on the basis of the current reproduction cost, i.e. the total social labour-time required for production. On that basis the total surplus value is objectively determined, and the average annual rate of profit is determined. The total prices are then still equal to the total value.
ReplyDeleteIt is only in relation to individual capitals that prices vary from values. But, the prices for each individual capital are not a "cost of production" theory of value either. They are cost-price, plus average profit, where the average profit is itself objectively determined on the basis of the total social capital.
Fiat currency does not have value, but it is a token of value, as Marx sets out in “A Contribution to A Critique of Political Economy”. If the number of tokens rises or falls, this changes the amount of value which each token thereby represents, because the total amount of value itself has not changed.
I don't understand what you mean by “Crisis appear when measured in gold but are hardly noticeable when measured in dollars, if at all).” A crisis occurs as a result of overproduction. It does not matter whether prices are measured in gold or paper. Either capital has been overproduced, and a breakdown in the circuit of capital occurs or it hasn't. If not there is no crisis.
Its also wrong as I have set out elsewhere to say that the State sets interest rates or controls the money supply. Interest rates as Marx describes are determined by the market, by the interaction of the demand and supply of money-capital. The demand for money-capital is a function of the growth of the rate and mass of profit, and so is the supply of money-capital. All the state can do in that regard is to increase the amount of money tokens, and to use some of those tokens to buy up certain financial assets so as to manipulate their prices, and yields. It can impose restrictions on credit, which cause a credit crunch leading to a financial crisis, but as Marx points out, in conditions where the rate of profit is high, capital can always find ways even around that, via the use of commercial credit, by passing the state.
I think that most of the empirical research is spurious, because the categories are ill-defined. That doesn't mean that like Marx we cannot understand the historical and logical processes involved.
Hi Boffy,
ReplyDeleteThank you. I think I understand your objections to the TSSI and cost-price theory better now. However, I don't understand your point about fiat currency. What I meant was, when you look at GDP in gold you can see contractions or expansions in the rate of capital accumulation, but not when you look at GDP as measured in paper dollars. http://www.macro-investing-strategy.com/wp-content/uploads/2012/09/GDP-in-gold1.jpg
Of course paper dollars have depreciated considerably, because paper dollars are money tokens, and their value falls as more of them are printed relative to the money they represent. The problem is that gold is also priced in paper dollars, so what we have is a widely varying market price for gold that may or may not reflect its actual value, because not only is that market price affected by the devaluation of money tokens, but it varies widely as a consequence of large fluctuations in the demand for gold. For example, in 2011 the price of gold was $1980, whereas it has fallen more recently to around $1200-$1300. In 1980, the price of gold was $800, but by 1999 had fallen to only $250.
ReplyDeleteYet, between 1980 and 1999 there was large scale money printing that devalued paper dollars, which should have raised the price of gold not caused it to fall,a nd the same is true between 2011 and today. We would have to believe that the fall in the gold price was due in both cases then to a massive fall in the actual value of gold, i.e. the labour-time required for its production, but that is not likely to be the case.
Measuring GDP against Gold as opposed to paper dollars then does not seem a very sensible thing to do. But, as I have set out elsewhere I have much greater objections to the GDP data anyway, which is presented as the value of annual output (c + v + s), whereas it is only the value of society's consumption fund (v + s).
I would also point out that an increase or a decrease in the rate of accumulation of capital is not the same thing as a crisis. On the contrary, a crisis is far more likely to exist where the rate of accumulation of capital is rapid, but where in fact that rapid accumulation of capital represents an over-accumulation, so that production expands faster than the capacity of the market to absorb the production, so that the capital cannot reproduce itself, causing a breakdown of the circuit of capital, and failure of social reproduction.
Thank you Boffy! One last question:
ReplyDelete- How do you propose we measure the rate of the accumulation of Capital? Do you have any empirical studies you can link me too that use methods you approve, or you think are on the right track?
- Do you think the transition to paper money has changed the way value is apportioned between producers by profits?
- And lastly, what do you think the transition to fiat money has marked?
I should also mention, I find a lot of the "value form" school to be useless. Most of their analysis seems to be dealing with how Marx was "actually wrong but also right" and justifying a lack of empirical analysis rather than progressing Marxian political economy. Not sure if you feel the same way.
Harrison.
Harrison,
ReplyDeleteOnce again questions that require far more detailed answers than are possible in a comments box, or that I have time to give currently. So, again, headline responses.
Marx in looking at capital accumulation and social reproduction examines it as the Physiocrats did in physical terms not money or value terms. Not strictly true, because obviously he also examines it in value terms, but what I mean is that for Marx the fundamental issue is about the physical reproduction, the replacement of the consumed means of production and consumption on a like for like basis out of current production. In this analysis, money only functions as a unit of account for those physical quantities.
For example, if productivity rises massively, so that the value of all the machines used in production drops massively whilst the number of machines employed rises, and at the same time the value of materials falls massively, whilst more materials are processed, so that also the value of labour-power falls massively, whilst more labour-power is employed, in what sense would it make sense to say that capital accumulation has declined, or that output has declined, just because the value of the capital and of output has fallen as a result of this massive rise in social productivity? It wouldn't, and moreover, that same fact would mean that a smaller proportion of total social labour-time would have to be devoted to replacing the consumed means of production and consumption, so that the size and proportion of the social surplus would rise.
As Marx says, many times in looking at the organic composition of Capital, it is the use value of the means of production with which the workers have to deal not their value. It is the quantity of use values in the form of machines and materials that are determinant of the quantity of labour-power that must be employed, not the value of those means of production. My measure, would be that used by Marx, where he says that the measure of the expansion of capital is the increase in the working-class. It is after all the employment of workers which is the basis for the production of surplus value, and further capital accumulation.
I would say look at those empirical studies that examine the rise in the size of the global working-class, which has more than doubled in the last 30 years, and which has risen by 30% since 2000.
Cont'd
I don't think using paper money tokens rather than gold or silver money tokens has any effect of the type you refer to. It simply affects nominal price levels. What is then affected is not the distribution of profits, at least not directly, but potentially the creation of capital gains and losses. In other words, capital asset prices, such as shares, bonds and property may be inflated. But, there were plenty of such financial bubbles when gold and silver functioned as currency. In fact, all crises prior to 1825, as Marx describes were such financial crises, rather than economic crises of overproduction.
ReplyDeleteThe introduction of fiat currency represents a recognition that paper money tokens can function in the same way as gold or silver tokens, but is much cheaper to produce, and thereby releases capital for productive purposes. It means that the state can exert greater regulation to prevent deflation, and thereby create greater stability for long-term investment and capital accumulation.
I think its necessary to ensure that the empirical analysis is guided by the understanding of the historical and logical processes, and not vice versa. Marxists are not empiricists. We have to be able to make sense of the world,and the mass of data, especially as Marx and Engels warn that that data is compiled by the bourgeoisie for their ends not ours. Otherwise, you simply end up like most bourgeois social scientists forgetting to disentangle cause and effect, or presenting mechanical causal relationships where they do not exist.
Marx has provided the basic framework of what capital is, how social reproduction takes place, what the rate of profit and so on are, and we have to take that understanding to analyse capital in our own times. The problem, I think, with some of the empiricists is that they start from a position which is essentially contrary to that of Marx - for example the catastrophists who believe that revolutions arise out of crises, and some form of impoverishment of workers, rather like the Lassalleans believed, and who therefore, have to believe that a crisis is always at hand, driven by a falling rate of profit etc. - and so they look for empirical evidence that supports that contention, and their revisionist theories of historic pricing, transformation of values into prices, the falling rate of profit, and the relation to crises etc.
Thank you for your detailed response. Last question: Since Marx is talking about the physical reproduction of the working class, wouldn't this make it true that computer programmers, and "intellectual" labourers (like a doctor, or personal trainer) are unproductive labour?
ReplyDeleteNo, because the determination of productive labour for Marx is labour which produces surplus value, and exchanges with capital.
ReplyDeleteIts not the function that determines whether it is productive or not. A doctor whose services are bought by a rich patient, exchanges their labour service against the revenue of the rich payment (whether that revenue is derived from a profit, rent, interest, or even a high wage) and so produces no surplus value. It is not productive. The same doctor, employed by a capitalist (including state capitalist) employer exchanges their labour-power with capital. They produce a surplus value, i.e. the value they create by the expenditure of their labour is greater than the value required to reproduce their labour-power, and paid to them as wages. Their labour is then productive.
Have you read Ernest Mandel's section on unproductive/productive labour in his introduction into Volume 2?
ReplyDeleteI have read Mandel's Introduction, and I think his view on productive and unproductive labour is wrong. Marx's position is set out quite clearly in Theories of Surplus Value Chapter 4, and Marx argues in detail against the kinds of confused arguments that Smith, as well as the opponents of Smith set out in relation to material and immaterial production, which Mandel adopts here.
ReplyDeleteI strongly support Mandel's earlier comments about the nature value being about socially necessary labour and not about embodied labour, which I have also set out in a blog post on "Embodied labour".
I think, and I said so at the time, that the presentation in Capital II is confused, compared to the clear and detailed analysis of TOSV Chapter 4. But, even in Capital I, Marx writes,
“If we may take an example from outside the sphere of production of material objects, a schoolmaster is a productive labourer when, in addition to belabouring the heads of his scholars, he works like a horse to enrich the school proprietor. That the latter has laid out his capital in a teaching factory, instead of in a sausage factory, does not alter the relation.”
(Capital I, Chapter 16)
The point that Marx makes in Capital III, Chapter 17 that Mandel refers to is actually this. The wage labourer employed by a merchant capital does not produce any "new" surplus value. They undertake labour that the merchant would have to undertake, who in turn undertakes unproductive labour that the commodity producer would otherwise have to undertake. But, the point that Marx is making is that in terms of Capital in General, it is not simply the "produced" surplus value that is important, but the "realised" surplus value, which in turn determines the mass of profit, and general rate of profit.
The productive capitalist hands over the function of circulating money and commodities to the merchant precisely because the cost of the merchant undertaking this function - the amount of social labour-time required - is less than for the producer to undertake it. The result is that although no more surplus value is produced, a larger mass of surplus value is realised, the mass of realised profits rises, and the general rate of profit thereby also rises. The merchant employs wage labourers - commercial agents, bank clerks, shop workers - because the volume of commodities to be circulated expands massively.
The value of the labour-power employed is determined as for any other worker. They produce no additional surplus value, but by massively reducing the costs of circulation they significantly increase the mass of "realised" surplus value/profit, and it is out of this difference between the wages paid to those workers, and the additional profit that is realised that the merchant capital is able to extract surplus value from their labour.
So then, would you also disagree with Mandel that State industries are productive of any surplus value at all?
ReplyDeleteState capital is no different to the capital of a large oligopoly, a public limited company, or the capital of a small business. It is capital, and in so far as it acts as capital it produces surplus value. Exactly how much surplus value any particular capital, including a state capital obtains depends upon the average annual rate of profit, and a number of other factors that Marx discusses in the concluding chapters of Capital III, concerning the impact of monopolies, and other frictions.
ReplyDeleteA state capitalist steel industry, for example, will produce surplus value the same as any other steel industry, but being a state monopoly, the state might decide, for example, to keep the prices of steel output low, so that the produced surplus value is not realised by the state steel producer. But, the users of steel, say in the country's car industry, will then buy steel below its price of production, and a portion of the surplus value produced in steel production will then be realised instead in car production.
Good explanation.
ReplyDeleteAs I've been thinking more, I can't really accept the idea that the magnitude of value of fiat money is determined by the amount of value production within a country. How can you reconcile that with the fact that countries that are mostly import industries can have substantially stronger dollars than export countries? Doesn't it make more sense to tie it to oil?
Fiat money leaves me utterly perplexed, what is the literature or essays you've read on it?
Also, what do you think of the skilled/unskilled labour debate? In Capital Volume 1 he explains it as being of a higher quantity of labour because more must be expanded for its production (or, due to training). But later in a footnote in Chapter 7 he says:
ReplyDelete"The distinction between skilled and unskilled labour rests in part on pure illusion, or, to say the least, on distinctions that have long since ceased to be real, and that survive only by virtue of a traditional convention; in part on the helpless condition of some groups of the working-class, a condition that prevents them from exacting equally with the rest the value of their labour-power. Accidental circumstances here play so great a part, that these two forms of labour sometimes change places. Where, for instance, the physique of the working-class has deteriorated, and is, relatively speaking, exhausted, which is the case in all countries with a well developed capitalist production, the lower forms of labour, which demand great expenditure of muscle, are in general considered as skilled, compared with much more delicate forms of labour; the latter sink down to the level of unskilled labour. Take as an example the labour of a bricklayer, which in England occupies a much higher level than that of a damask-weaver. Again, although the labour of a fustian cutter demands great bodily exertion, and is at the same time unhealthy, yet it counts only as unskilled labour. And then, we must not forget, that the so-called skilled labour does not occupy a large space in the field of national labour. Laing estimates that in England (and Wales) the livelihood of 11,300,000 people depends on unskilled labour. If from the total population of 18,000,000 living at the time when he wrote, we deduct 1,000,000 for the “genteel population,” and 1,500,000 for paupers, vagrants, criminals, prostitutes, &c., and 4,650,000 who compose the middle-class, there remain the above mentioned 11,000,000. But in his middle-class he includes people that live on the interest of small investments, officials, men of letters, artists, schoolmasters and the like, and in order to swell the number he also includes in these 4,650,000 the better paid portion of the factory operatives! The bricklayers, too, figure amongst them. (S. Laing: “National Distress,” &c., London, 1844). “The great class who have nothing to give for food but ordinary labour, are the great bulk of the people.” (James Mill, in art.: “Colony,” Supplement to the Encyclop. Brit., 1831.)"
What is Marx trying to say here? That some jobs that are deemed skille are not actually skilled? I
The best exposition of Marx's position in that regard is in "A Contribution To The Critique of Political Economy."
ReplyDeleteThe thing to understand is what is Money. Then its necessary to look at the role of money as currency, and the important point that Marx makes as against Ricardo, which is that prior to this money acting as means of circulation of commodities, it first acts as unit of account, in other words the basis of the price of the commodity is already determined before the exchange occurs.
Suppose an ounce of gold requires 1 hour of social labour-time to produce. Assume that the velocity of circulation is 1, and that there is no credit etc. The amount of currency that must be put into circulation, Marx says then is equal to the total value of commodities to be circulated. (To account for the velocity of circulation, its then only necessary to divide the amount of currency by the velocity of circulation).
Assume that the total value of commodities to be circulated is equal to 1,000 hours of social labour-time (if its 1,000 items with an average value of 1 hour, we can derive Marx's formula of average price times quantity of commodities, equals the value of currency times velocity of circulation). With a velocity of circulation of 1, then if gold is minted into 1 ounce coins, 1,000 such coins would need to be thrown into circulation as currency.
However, suppose 2,000 such coins are in circulation. The value of gold remains equal to 1 hour per ounce. But, as these 2,000 1 ounce coins chase just 1,000 hours value of commodities to be circulated, the value of the coins (even thought they continue to contain 1 ounce of gold) becomes reduced. 2,000 hours of demand (coins) chases 1,000 hours of supply (commodities), and so the exchange value of each coin is halved.
If each coin has the name of say £1, the average price of each commodity rises from £1 to £2, even though the value of each commodity,a nd of gold has not changed. This is the situation Marx says, that Ricardo did not recognise, because he failed to understand the difference between gold acting as currency, and gold as commodity. Each 1 ounce gold coin now has a lower exchange value than 1 ounces of gold.
The consequence is that even a full weight gold coin acts merely as a token. But, these gold coins can then be taken out of circulation, Their owners will have an incentive to turn them into gold bullion, to foard them as gold, or to send them overseas, where they can be sold at their full value. Marx gives the example of this in relation to copper coins whose value dropped below the value of their copper content, and which formed large hoards, which were then melted down.
A few years ago, I wrote about the same phenomena again. After the start of the new long wave boom in 1999, copper prices along with other primary product prices soared. Some 2p coins in the UK, then had a higher value of copper content than the face value of the 2p coin token. If you collected about a ton of these coins and melted them down, you could make around £1,000 more from the sale of the copper than the value of the coins.
But, in the Contribution, Marx sets out the difference in relation to paper tokens. The paper has no commodity value, and so the tokens cannot be hoarded, melted down, etc. They must continue to circulate, in excess of the currency required by the needs of commodity circulation, and so the value of each paper token is again reduced, but without any possibility of the circulation being naturally adjusted.
As Marx puts it, gold circulates because it has value, whereas paper has value because it circulates.
Yes, that is what Marx is saying, and conversely that some jobs that are deemed unskilled are skilled. Really what Marx is saying is that the distinction is a bit meaningless. What is more significant is that different types of concrete labour-power will have different values, because each requires a different set of commodities for its reproduction. A bricklayer's labourer may require a lot of food etc. to reproduce their muscles and bodily strength, whereas a computer programmer may require more education, books, and appropriate environment in which to be able to reproduce their mental capacities.
ReplyDeleteBut, and this is also the point that Marx is making above, the ability of workers in each category may be able to obtain more or less than this value of their concrete labour depending upon the demand and supply for their labour-power, and social conditions. For example, suppose that a lot of workers prefer the idea of working in a clean office, with a stimulative environment as a programmer, whilst fewer are keen on a heavy job, working out in bad weather, in a risky environment as a brickies labourer. More may train for the former, and so the supply of computer programmer's rises. The excess supply of programmer's then depresses the market price for this type of concrete labour-power, below its individual value. Labourers might then be in short supply, so that their wages rise above the value of their concrete labour-power. That might be seen as the case a decade ago, when the wages of plumbers in Britain soared, and teachers began to leave their jobs to become plumbers, and it led to the import of the so called "Polish plumbers".
Marx also makes this point in Capital III, Chapter 17, about the fact that the wages of commercial workers were pushed down below the value of their labour-power, because the large expansion of public education - particularly "free" public education - enable large numbers of workers to take on all of those "middle class" jobs of the past, such as teachers, doctors, administrators, scientists, technicians, managers and so on - to become "functioning capitalists" - massively expands the supply of such workers, so that the market price (wage) of this type of concrete labour-power falls, even as the value produced by this labour rises.
This is the important distinction that Marx makes, which Adam Smith and others failed to understand between the value of labour-power, and the value created by labour. The value created by labour has nothing to do with the value of labour-power. Just because the latter may be higher or lower, it has no bearing on the value produced by that particular labour. This indeed is the significant difference between variable capital and constant capital.
The value (current reproduction cost) of constant capital is transferred to the value of the commodity, but the value of variable capital is not. If it were, and this is the confusion Smith gets into when he slips into such a cost of production theory of value, surplus value would be impossible. The new value added to the value of constant capital, and thereby reproduced in the value of the commodity, is entirely new value, equal to the amount of labour performed. Whether this new value results in a surplus value depends upon the quantity of this new labour performed, and the value of the labour-power that performs it. In other words, as Marx says it depends upon the level of social productivity, which determines what portion of the working-day has to be set aside as necessary labour.
But, the particular value of the product of this new labour (setting aside the value of the constant capital in that product, which is merely reproduced) depends upon whether the labour is simple or complex labour, and as Marx says, this can only be determined a posteriori in the market, by what consumers are prepared to pay for that particular type of labour.
Okay, but what value are those tokens representing? I'm aware that the more paper in circulation, the less value they represent.
ReplyDeleteMarx explains it in "A Contribution" and Chapter 3 of Capital I. The tokens represent the value of money that is required to circulate the value of commodities in circulation. Marx also explains it by discussing what volume of different money commodities would need to be put into circulation.
ReplyDeleteSuppose commodities to a total of £1 million have to be circulated. Suppose, an hour equals £1. If an ounce of gold represents £10, whereas an ounce of silver represents £1, then if the velocity of circulation is 1, 100,000 ounces of gold would have to be used as money, whereas 1 million ounces of silver would have to be used as money.
The tokens whether they are comprised of the actual money commodity (silver or gold), or whether they are worthless tokens mad of base metal or paper, represent this quantity of the money commodity. If the velocity of circulation rises, less of the money commodity would have been required, and so correspondingly fewer tokens are required.
But, as Marx sets out in Chapter 3, the total amount of money, and so money tokens that needs to be in circulation is eto this in practice, because other factors are at play. Firstly, commercial credit means that businesses are able to net off the transactions between them, so that money is not required for circulation. Money is then only required to cover the balance of these transactions, i.e. money is then required not as means of circulation but as means of payment.
As I've set out in various posts, in modern economies, that are highly banked money is not even required for this purpose, because the adjustments to the accounts of businesses and banks is effected by simply electronic transfers. For the same reason, the use of debit and credit cards reduces the amount of money or money tokens required for circulation.
Marx also sets out the requirement for money, or money tokens as hoards and reserves. Businesses need to hold reserves of money because their payments do not coincide with the receipts; they realise the value of wear and tear of fixed capital, but do not need to use that value to replace fixed capital immediately; they obtain surplus value, which is not immediately accumulated and so on.
All of these factors thereby determine how much money is required, and the value of that money then sets the limit for the value of tokens that should be in circulation.
No Boffy I understand that part. I remember in volume 2 assuming values = price, the amount of money that needs to be circulating is equal to the quantity of commodities by their price.
ReplyDeleteWhat I do not understand, is how a dollars value is decided. Why is it for example, the Canadian dollar is worth less than the Pound of USD? It's obvious that the dollar has some sort of value it represents as a token outside of just being a token itself. Otherwise, we wouldn't see divergences in the values of a countries currency due to endogenous factors. What's your theory?
Harrison
There are two different things here. Firstly, the value of a £ internally within an economy.
ReplyDeleteThe value of a £ was originally set as being equal to the value of 1 lb. of sterling silver. The names of currency units in different countries, as Marx describes in "A Contribution" are usually derived from some weight of the particular money commodity in each country. The name Dollar comes from the German currency unit Thaler.
But, over time what these currency units actually represent changes. Suppose a £ was originally equal to 1 ounce of gold. Then as previously described, if the velocity of circulation is 1, and we ignore credit etc., if there is 1 million of commodities to circulate, 1 million ounces of gold would have to circulate, and as currency this would be equal to 1 million one ounce gold coins.
But, as Marx says, over time the basis of this currency changes. This is partly due to the fact that over time gold coins get worn away and yet continue to circulate, partly its because the monetary authorities, mint coins underweight, so as to put more of them into circulation, and thereby pay off their debts with devalued currency, but the end result is that over time, the currency unit comes to represent smaller quantities of the money commodity than was initially the case.
So, a £1 coin, comes to be minted as representing not one ounce of gold, but say 1/10 ounce of gold. Yet, it still bears the name £. If we assume no changes in productivity, and so values, the £1 million of commodities, would still have a value equal to 1 million ounces of gold. But, 1 ounce of gold, is no longer equal to £1, a £1 coin now only equal 1/10 ounce of gold. To buy 1 ounce of gold, now requires 10 £1 gold coins, and correspondingly the prices of all other commodities, measured in pounds is ten times higher. Correspondingly, the number of gold coins that has to circulate rises to ten times what it was. Values have not changed, but prices measured in £'s have risen to ten times what they were.
Cont'd
If we take the value of the £ as against the dollar, its necessary then to understand what this £ and Dollar represent. They represent a claim to an amount of labour-time/value. In a money economy the value of commodity - which is equal to the labour-time required for its reproduction - is measured not in hours, but in units of the money commodity, whose value then acts as the proxy for abstract labour.
ReplyDeleteIf an ounce of gold represents 1 hour of abstract labour, and a £1 coin represents 1 ounce of gold, then if the value of commodities to be circulated is equal to 1 million hours of abstract labour, that is why 1 million coins/ounces of gold is required to circulate them, it is their equivalent value. But, its also why more of these coins could not circulate. 1 million 1 ounce gold coins represents a claim on 1 million hours of social labour-time, which is currently represented by the commodities to be circulated. If 2 million coins were in circulation, that would mean a claim on 2 million hours of social labour-time, which clearly could not be fulfilled, because that 2 million hours of social-labour time does not exist in an equivalent form in the shape of commodities. It would necessarily mean that each coin would be devalued to half its nominal value in practice.
The same applies where those coins come to actually represent less gold, and thereby less social labour-time. A £1 coin that only represents 1/10 ounce of gold, only represents a claim on 1/10 hour of social labour-time. If the total value of commodities to be circulated is equal to 1 million hours, then 10 million £1 coins are required to circulate it, and that means that the prices of these commodities rises to £10 million, even though their value has not changed.
But, as Marx sets out in Capital I, the level of labour productivity in different countries varies. What counts as an hour of abstract labour in country A is different to in country B, due to this difference in productivity. If £1 equals 1 hour of abstract labour in country A, therefore, it may represent 1.5 hours of abstract labour in country B, and so for the same reasons as set out above, the value of £1 in country B would have to be different than in country A. The actual value of a country A £, compared to a country B £ will then vary in accordance with how the level of productivity in each country varies.
This is why countries that have low productivity growth see their currency devalue. It is also why in countries where the currency is devalued, workers have to work longer and harder, because an hour of their labour, then buys less of the labour of foreign workers.
No I understand that (though this did clarify things a bit). I just don't get what fiat represents. My question is, how is the value of fiat currency determined?
ReplyDeleteAnd just to clarify, I mean how is $1 = 1 minute of labour determined in fiat currency, With gold it's because it takes labour to extract it, but how does that work with fiat regardless of how much needs to be circulated?
ReplyDeleteAs Marx says, the fiat currency is still determined by the economic laws that determine the amount of money that needs to be put into circulation. The fiat is merely tokens representing that money - whether those tokens are comprised of the money commodity itself, for example gold coins, or of base metal or paper - and if more of those tokens are put in circulation so that the total face value of the money they represent is exceeded, the actual value of each token falls accordingly.
ReplyDeleteIf the value of commodities to be circulated is equal to 1 million hours of labour, and one ounce of gold is equal to 1 hour of labour then 1 million ounces of gold would have to be put into circulation as the equivalent. If the name given to this weight of gold as currency is say £, then the total of prices is equal to £1 million. If the monetary authorities then minto coins with only 1/10 ounce of gold in them, so that the value of gold in circulation is only equal to £100,000, the 1 million coins will continue to circulate the £1 million of commodities, provided that people continue to accept these coins as having a value of £1 million - despite only having an intrinsic value of a tenth of that amount.
They do so, because the coins are fiat currency backed by the state. They know that if they accept them as representing a value/being a token of £1 of value, then others will do so. As Marx puts it they have become simply a symbol of themselves. Once its recognised that coins as currency with only a fraction of the value of the money commodity they represent can work just as well in that function as full weight tokens, that opens the door to making those tokens out of cheaper metals, or out of paper.
The point being that it is not a question of the intrinsic value of the coin/token that is determinate, but the amount of value it represents, and whether those that circulate these tokens have faith that it actually can be trusted as a representative of that value.
So, if 1 million coins weighing 1/10 ounce of gold are circulated in place of 1 million full weight 1 ounce coins these will continue to represent a value equal to 1 million ounces of gold. It could then be 1 million pieces of paper, that represent £1 million ounces of gold that circulate. In each case, what is circulating is a representation of 1 million ounces of gold, which in turn is a representative of 1 million hours of social labour-time, which is the equivalent of the value of commodities to be circulated.
But, if the monetary authorities, having reduced the weight of gold in a coin to 1/10 ounce, and yet this coin still bears the name £, then put 2 million of these coins into circulation, the nominal value of these coins would be equal to 20 million ounces of gold, which would be equal to 20 million hours of social labour-time. Its clear that it is impossible for each of these coins to be able to exert a claim on an hour of labour-time, because that would be double the amount of labour-time existing in the form of commodities to bee exchanged for those coins. It would mean that the actual value of each coin would fall to half its nominal value.
Each coin would now represent only 1/2 ounce of gold, or 1/2 hour of social labour-time. But, this is true whether the token of value here is a gold coin containing 1/10 ounce of gold, or a piece of paper with no intrinsic value at all. As Marx puts it the value of these tokens is thereby determined by the quantity of them in circulation.
That is why in periods of hyper-inflation, such as in Weimar Germany, more and more notes, nominally with higher and higher denominations are put into circulation, but each note, whatever its nominal value, exerts a claim on less and less social labour-time.
So I want to clarify, this is my understanding.
ReplyDelete- The amount of money that needs to be circulated is determined by the value of commodities to be circulated.
- The differences in values of money depends on the productivity of the respective country.
- The value of a dollar is determined by a social process with the acceptance of the dollar representing X amount of value is due to it being backed by the state.
Could you give me an example of how point three would function? Like the example of the social process that determines how the value 1 dollar represents (as a token of value) comes to fruition? It's painfully obvious why fiat money is needed from to facilitate Capitalist circulation, but I still don't understand what social labour the fiat money is claiming to represent.
I think the reason I am confused is because you are explaining the way fiat money works in terms of coins laying claim to the social labour of gold, I want to move away from that.
ReplyDeleteThe reason I framed the answer in terms of coins was to illustrate that gold coins as much as paper money represents fiat currency, because as Marx says, the gold coin, even when minted at the full initial weight, becomes only a symbol. In other words, it gets worn down, clipped etc. to a fraction its nominal weight and value, and yet continues to circulate as a symbol or token of its nominal value. It does so because it continues to have the backing of the state.
ReplyDeleteThe point I was making, and the answer to your question is that all commodities act as money, as Marx describes in Theories of Value. In other words, I can always buy some commodity with another commodity. That is the case with barter, but it is also the basis of commercial credit. With commercial credit, firm A sells £100 of commodities to firm B. Instead of requiring immediate payment for them, it gives firm B time to pay. In the meantime, firm B sells £100 of commodities to A, again using commercial credit, and the result is that the claim of A for payment against B, is cancelled by B's equal claim against A. No money is required. A has bought the commodities they obtain from B not with money but with the £100 of commodities they had already sold to B. The same applies where the number of firms involved is larger, and multiple exchanges occur, so that all the claims are cancelled against each other, and money is only required to make up any outstanding balances.
In other words, in any exchange, the seller of a commodity obtains a claim of an equal amount of value/social labour-time. In barter, they immediately realise this claim by obtaining commodities of this equal value from the other party to the exchange. The exchange is directly C - C. But, in a money economy. money intermediates this exchange, C - M - C. The money, M is equal value to C, and simply represents a claim to an equal amount of value, that is now no longer restricted to a claim for that value from the buyer of the commodity.
The point is that the value of any commodity is equal to an amount of social-labour-time, the amount of abstract labour that is socially necessary for the production of the commodity. A money token, be it a gold coin, or a scrap of paper, that is designated as a representative of a is merely a representative of that amount of value, which is only the same as saying that it is a representative of an amount of social labour-time.
A gold coin may be a representative of 1 ounce of gold, and an ounce of gold may represent 1 hour of labour-time, i.e. that is the labour-time required for its production. If 1 million commodities with an average value of 1 hour are to be circulated, then 1 million coins are needed for circulation. It does not matter if these coins actually only contain 1/2 ounce of gold, provided only 1 million of them are in circulation. They act as tokens of 1 ounce of gold, and 1 hour of labour-time. For that reason a token made of paper will act in just the same way.
If too many 1 ounce gold coins are put into circulation, their value as currency will fall below their intrinsic value, and they will be hoarded or melted down. But, if too many coins that are minted with only a fraction of the gold value they represent, the value of the token will again fall, but it cannot be melted down to obtain the intrinsic value. The same is true where the coins are made from base metals, or where they comprise paper tokens.
The total value of tokens will be equal to the total value of money required for circulation, which is equal to the total value of commodities to be circulated, i.e. £1 million, but the value of each token will be proportionately less. If 2 million coins, or paper notes are put in circulation with a nominal value each of £1, each token will actually only have a value equal to £0.50.
>A gold coin may be a representative of 1 ounce of gold, and an ounce of gold may represent 1 hour of labour-time, i.e. that is the labour-time required for its production. If 1 million commodities with an average value of 1 hour are to be circulated, then 1 million coins are needed for circulation. It does not matter if these coins actually only contain 1/2 ounce of gold, provided only 1 million of them are in circulation. They act as tokens of 1 ounce of gold, and 1 hour of labour-time. For that reason a token made of paper will act in just the same way.
ReplyDelete>The point is that the value of any commodity is equal to an amount of social-labour-time, the amount of abstract labour that is socially necessary for the production of the commodity.
But it takes no labour at all to produce fiat money? What is the relationship between the "value" of fiat to be circulated and the amount of that fiat required for circulation of commodities?
And please do not frame this in terms of gold coins again. It's just confusing for me. I understand that, I haven't read much Marx but I have read the first two volumes of Capital. I get Marx's theory of how commodity money works, but I'm not understanding *what social process* brings about the value fiat money represents in circulation. Like, how on a given day $1 of FIAT money comes to represent 10 minutes, and the next day five. I mean fiat, not gold money so explaining fiat in terms of commodity money clarifies nothing for me because I know that even if the nominal value of tokens of value that represent gold changes while the value maintains the same, I know this is due to the changes in the labour required for golds production. It's hard for me to understand what you're saying because there is a qualitative difference between gold and fiat money, and if you don't explain what social process brings about the value fiat money represents in circulation we are just going in circles.
ReplyDeleteIn other words: gold coins as a symbol for gold, fiat money as a symbol for *what*.
ReplyDeleteFiat money is nothing other than money tokens backed by the state, whether those tokens are coins or notes. It is the fact that they are backed by the state which enables them to circulate, and as Marx says its because they circulate that they have value. Their value is a function of how many of them are put into circulation relative to the money they represent.
ReplyDeletePerhaps the best way for you to understand it, is to look at what Marx says in The Critique of the Gotha Programme, discussing the situation in the first stage of communism. He sets out there that everyone would work a certain number of hours, and would thereby produce a given quantity of value, which would be embodied in all of the products contained in society's store of goods. A certain portion of these products he describes having to be first withdrawn for various purposes, i.e. to replace the means of production, to provide a surplus product to enhance productive capacity, and to cover means of consumption for all those whose labour is necessary, but adds nothing to the store of products, as well as those products required to provide for those who cannot work.
After all these deduction have been made, a store of products remains for distribution, and these products represent a certain value, equal to a certain quantity of labour-time. Each worker then receives a certificate proportionate to the labour-time they have themselves contributed. This certificate is a claim to a proportionate amount of social labour-time, and can then be exchanged by them for products from society's store to an equal amount of value. These certificates can be thought of then as being like fiat money. The difference with these certificates being that they cannot be used by anyone else - not negotiable - and also cannot be accumulated to be used as money-capital.
But, the same thing applies here. Suppose the total value of products in society's store is equal to 10 million hours of labour. If 1 million of these labour certificates are issued to workers entitling them to withdraw products to a total value of 10 hours, they will equate to the value of products to be distributed. Each certificate will act like fiat money, and will have a value equal to 10 hours, not because it has any value in itself, but because it is backed by the state, which guarantees its claim to that amount of labour-time.
If, however, these 1 million certificates are issued to workers, but each says that it entitles the worker to withdraw products equal in value to 20 hours of labour, a problem would necessarily arise, because there is not 20 million hours of value in products in society's store to be circulated. Whatever the state guarantee or legal entitlement represented by each certificate, its clear that each certificate could only have a value equal to 10 hours of labour.
The same is true with fiat money. Its face value is only realisable if the tokens are issued in the appropriate quantity, whatever the legal status might state. In most times, this means that the face value is not realisable, because the money supply is adjusted to ensure gradual inflation of prices, but this poses no problem because, all prices tend to be adjusted by the same proportion.
I still don't really get it. How does one dollar of fiat *become to represent an entitlement to 1 minute of labour* - or any other other quantity. I understand the relationship between the dollars and the social labour is circulation.
ReplyDeleteHarrison,
ReplyDeleteI'm sorry I haven't been able to explain this to you in a way that you can understand, but I think there is little more I can say to clarify the matter for you. I would suggest reading "A Contribution" several times to understand it fully, along with Chapter 3 of Capital I. You might also want to read the chapters on money in Madel's "Marxist Economic Theory", and perhaps also Hilferding's "Finance Capital".
It's fine. I'm going to watch Anwar Shaikh's lecture on calculating value today and hopefully it'll clear things up.
ReplyDelete