Internal inconcistency of LTV

Hans Ehrbar ehrbar at econ.utah.edu
Fri Oct 28 07:39:04 MDT 1994


Welcome, Justin, to the club of the many victims of the myth that the
labor theory of value is inconsistent.  This is an important issue,
because the best minds have been deterred by this stupid fairy tale.
Of course, the evidence seems overwhelming: the transformation problem
purports to show that profits cannot be explained in terms of surplus
labor, and even Morishima's feeble way out (what goes under the name
fundamental Marxian theorem) has been refuted in the case of joint
prolduction by Steedman; the Okishio theorem says that the capitalists
will never introduce technologies with lower the rate of profit (as if
they had a choice), etc.

I am convinced that all this is nonsense.  The transformation problem
can be resolved in a very simple manner.  Marx was talking about the
gross product when he should have used the net product.  This is the
so-called "new solution" by Dumenil and Foley.  The name "new
solution" is really a misnomer, because it had been discovered by many
people independently prior to D/F---which is no wonder, because it is
a very simple assumption and a trivial proof, but nobody ever wanted
to listen, apparently everyone was already too much in love with the
notion that Marx is inconsistent.  Mark Glick and I wrote something
about the New Solution in the Australian Economic Papers, December
1987, pp. 294-317.  We called it: The Transformation Problem: An
Obituary.  We were wrong with the title (very few seem to have worked
through our paper) but otherwise I still think this is a good
presentation of the New Solution.  And I wrote a shorter piece in
Review of Radical Political Economy Vol 21(3):7-12(1989), called
Mathematics and the Labor Theory of Value, in which I show that also
Steedman's paradox disappears if one uses the right definitions
(namely Flaschel's definitions) of individual and social value.

By the way, I also disagree with the Moseley - Carchedi - Freeman -
Kliman et. al. approach which basically thinks the transformation
problem is a place where the positivism of the neo-Ricardian approach
is becoming apparent on the surface.  This is the fallacy of misplaced
concreteness.  Of course, neo-Ricardian empiricism is wrong and the
concept of equilibrium must be criticized, and it is good that Marxism
directs its attention to that.  But this wrong-ness cannot lead to
mathematical inconsistencies.  There are lots of positivistic theories
out there which are mathematically perfectly consistent.


To my knowledge nobody has ever written a comprehensive refutation of
the notion that the Okishio theorem precludes the rate of profit to
fall, although there are many ways to approach this and the arguments
are present, scattered in the literature.  I think it boils down to
the fact that the capitalists do not control capitalism either.  The
rising organic composition of capital is a fact about modern
technology; there are quite a few studies out there which show that it
holds empirically.


I wish I could be more specific now instead of giving only the results
in a very condensed form and some literature references; in principle
I think in a forum like this the arguments should always be "on the
table."  Right now it looks like I am just making some dogmatic
pronouncements, but I am willing to elaborate if you ask specific
questions.

Hans G. Ehrbar                                    ehrbar at econ.utah.edu
Economics Department, 308 BuC                     (801) 581 7797
University of Utah                                (801) 581 7481
Salt Lake City    UT 84112-1107                   (801) 585 5649 (FAX)


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