Monday, 20 October 2014

Capital II, Chapter 20 - Part 13

Marx then returns to the contradiction in Adam Smith's argument, in which the value of commodities resolves itself into wages and surplus value.

“This absurdity is indeed found in Adam Smith, since with him wages are determined by the value of the necessities of life, and these commodity-values in their turn by the value of the wages (variable capital) and surplus-value contained in them.” (p 412-3)

Smith forgets, says Marx, that in simple commodity exchange its only the total production cost that counts, and how that breaks down into necessary or surplus labour-time, or paid and unpaid labour, is irrelevant to the exchange value of the commodity. It is also irrelevant to its value whether that commodity is consumed after it has been sold or is used as productive-capital by the purchaser.

“This is in no wise altered by the fact that in the analysis of the circulation of the total annual social product, the definite use for which it is intended, the factor of consumption of the various component parts of that product, must be taken into consideration.” (p 413)

In order for the exchanges to take place in the model above, it is not necessary that the capitalists actually do allocate their spending on consumption goods in the way described. They may, in aggregate, demand more or less luxury goods, or necessities. The Department 1 capitalists may demand more luxury goods than Department 2 capitalists, and Department 2 capitalists in a and b may demand different proportions. Whatever these proportions, the levels of supply will simply be adjusted to correspond. It is the total level of surplus value that is determinate.

“On the basis of simple reproduction it is merely assumed that a sum of values equal to the entire surplus-value is realised in the consumption-fund. The limits are thus given.” (p 413)

This illustrates the interaction of the objective and subjective elements in Marx's theory. The actual value relations are objectively determinable, but no objective basis for determining how capital will be allocated, resulting from that, exists, because that depends, not upon objective value relations alone, but on consumer preferences. There is no objective basis for determining what proportion of surplus value capitalists will spend on luxuries as opposed to necessities. Orthodox, bourgeois economics has spent literally billions on research, to try to uncover the psychological basis of “marginal utility”, largely without success. 

In a sense, it does not matter, and as far as these consumer preferences are concerned, Marxists can simply agree with the Austrian School that “people act”. In other words, consumers make decisions over what to buy, and why they make this choice rather than some other is irrelevant. Unlike the Austrians, however, Marxists do not see these individual consumer decisions as determinant of prices.

Prices are a function of value, which is objectively determined. Consumer preferences only then determine the levels of demand at those prices. Capital is then allocated accordingly so that demand at that price is satisfied. In short, transformed values (prices of production) determine prices, prices in combination with consumer preferences, determine demand, demand determines the allocation of available social labour-time (supply). No general equilibrium is possible because technological change continually alters values (supply), and continually changing consumer preferences alters levels of demand.

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