Bailey writes,
““… if commodities are to each other as the quantities, they must also be to each other as the values of the producing labour; for the contrary would necessarily imply, that the two commodities A and B might be equal in value, although the value of the labour employed in one was greater or less than the value of the labour employed in the other; or that A and B might be unequal in value, if the labour employed in each was equal in value. But this difference in the value of two commodities, which were produced by labour of equal value, would be inconsistent with the acknowledged equality of profits, which Mr. Ricardo maintains in common with other writers” (op. cit., pp. 79-80).” (p 159)
But, as Marx points out, what Bailey identifies here is not a flaw in the law of value, but in Ricardo's misapplication of that law. In other words, Ricardo equates profits with surplus value, when, in fact, these are two different things. Surplus value relates to, and is a function of variable-capital, whereas profit relates to, and is a function of the total capital. That capitals of equal size will tend to appropriate an equal amount of profit does not at all mean that they will produce and appropriate an equal amount of surplus value, because this latter depends upon the proportion of variable-capital to constant capital, i.e. the organic composition. Total profit is determined by the total produced surplus value, but profit is a function of distribution, whereas surplus value is a function of production.
If commodities are sold at their exchange-values, they will produce different amounts of surplus value, and consequently different rates of profit. But, commodities are not sold at their exchange-value (at least where competition is allowed to equalise profit rates), but at their prices of production. This does not at all invalidate the law of value, as Bailey or Bohm-Bawerk suggest, because these prices of production are themselves a function of the law of value. Unless the law of value operates to establish values, from which are derived exchange-values, it is impossible to derive surplus value, and consequently any objective or rational basis for profit, or the rate of profit, and so no basis upon which to derive those prices of production. Moreover, taking the whole of production, the law of value still operates to explain and provide an objective basis for its total value. All that the prices of production represent, therefore, is the phenomenal form in which the law of value manifests itself, as a consequence of capitalist competition, which thereby acts to distribute the total produced surplus value, so as to effect an average rate of profit. Exchange-value is the phenomenal form that the Law of Value assumes under generalised commodity production, whereas prices of production are the phenomenal form that the Law of Value assumes under capitalism.
Although Bailey stumbles into this correct criticism of Ricardo's application of the law of value, he clearly did not himself understand the underlying problems. He writes,
“Ricardo on the other hand maintains “that labour may rise and fall in value without affecting the value of the commodity. This is obviously a very different proposition from the other, and depends in fact on the falsity of the other, or on the contrary proposition” (loc. cit., p. 81).” (p 159)
But, as seen earlier, Bailey himself undermined his own argument, in that regard. The measurement of value on the basis of the quantity of labour is clearly not the same as the measurement of value on the basis of the value of labour, and yet Bailey proceeds as though these are the same thing. When it comes to measuring the value of corn, he measures it on the basis of the quantity of labour, and notes that the same quantity of labour might produce 100, 200, or 300 units of output. If he used his theory consistently, he would then conversely define the value of this quantity of labour as being 100, 200, or 300 units of this commodity. But, he doesn't. When it comes to determining the value of labour, he instead defines it only in terms of the value of the paid labour, i.e. the value of wages.
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