Keen/Ernst Discussion

John R. Ernst ernst at
Fri Nov 3 19:34:50 MST 1995

Dear Steve, 
Ok!  Let's start with the quote from the GRUNDRISSE  
and see how we can move our discussion forward.  
"It also has to be postulated (which was not done above) that 
the use value of the machine significantly greater than its value; 
i.e. that its devaluation in the service of production is not 
proportional to its increasing effect on production." (p. 383) 
The quote can be broken into two sections -- before the 
"i.e." and after. 
"It also has to be postulated (which was not done above) that 
the use value of the machine significantly greater than its value;" 
What does this mean?  At first, we could simply say that a  
verb is missing.  I would guess that Marx meant to say 
that increases in the use value of the machine are greater 
than increases in the value of the machine as accumulation 
takes place.  That is, granted, at best a guess.  But let's 
look at after the "i.e."   
"i.e. that its devaluation in the service of production is not 
proportional to its increasing effect on production." (p. 383) 
For me, this means that the increased depreciation charges  
as accumulation takes place are exceeded by the increases 
in output. Note that I think you are comparing "its  
devaluation in the service of production" to the  
increases in surplus value or, in your words, surplus. 
Concerning this quote, I think you have a good argument  
given the numerical example that follows the quote. 
I still claim that the most interesting part of this 
section of the GRUNDRISSE is that Marx himself is 
saying that increases in what he calls the technical 
composition of capital are not as great as those in 
productivity or output per worker.   This is truly a 
"Keen" find as it contradicts nearly ever known exposition 
of Marx's falling rate of profit.  (I am amazed that on 
this list you existence was even continued.  At least, you 
were given grief for this scholarship.) 
As I think I've said, given this passage* from Marx what 
arises is the apparent contradiction between use value  
and exchange value in the process of accumulation.  That 
is, from the standpoint of use value, increases in output 
exceed increases in input.  From the standpoint of exchange 
value, increases in input exceed increases in output.  This 
is precisely why Marx needs a concept value that can show 
this apparent contradiction.  I would maintain that the only 
manner that this can be resolved is via crisis itself.   
But I will grant you that we, Marxists, have not done this.  
Marx himself gave clues as to how the task was to be 
accomplished but never got around to actually carrying 
it out.   
What is interesting is that neo-Ricardians like Steedman  
set up a straw man in doing away with Marx.  They define 
value in the usual fashion  such that, in their version 
of Marx, increases in output exceed increases in input  
whether each or measured in terms of values or use values. 
They then dismiss values as redundant.  I would agree 
that THEIR values are, indeed, redundant, but, as you 
know, to derive their values production is not seen as 
an activity taking place in real time.     
Again, as I have said in previous posts, your interests 
as a post-Keynesian and mine as one struggling to under- 
stand Marx are similar when it comes to looking at an 
economy in which outputs increase faster than inputs,  
given a set of constant prices.  For you, this might lead 
to investigations of problems concerning effective demand; 
for me, it leads to solving the demand problem and to 
exploring the problems the solution itself brings into 
Where we now seem to agree is that the LTV defined in the 
usual way is useless.  This may get us zapped from this  
list but we both know the usual way goes nowhere other 
than to some rather rigorous demonstrations that Marx was 
wrong.  You argue that as this century closes we 
need to begin to construct a valuation theory that includes 
the possibility of machines creating value.  I disagree. 
To be sure, you are free to explore that possibility but, 
as I have argued, the dismissal of Marx's LTV despite the 
rigor of its mathematics is simplistic.  I think these 
simple refutations need to done away with via an argument 
and a concept of value that includes production 
in real time.     
Now let's get to your understanding of what I am trying to 
do.  You state: 
"If, as you hypothesise, technical change results in a higher 
rate of surplus value, while the new technology continues, as 
did the old, to simply contribute to production what it loses 
in depreciation, then there is an upper limit to the amount of 
surplus that can be generated--the total labor time which can 
be performed by the population. Once this limit is approached, 
the extra surplus squeezed out by new technology will necessarily 
be swamped by the increased organic composition of capital, leading 
to a decline in the rate of profit. And, as you say, if the 
rate of growth of surplus at any stage is less than the rate of 
growth of output, then the rate of profit will fall before this 
asymptote is approached. 
But if, as Marx hypothesises in that example, a machine can add 
more to production (its use-value) than it loses in depreciation 
(its exchange-value), then surplus is not conserved but increased-- 
there is no upper limit to surplus creation (or rather, the 
surplus that can be generated is a function of technology and 
population, rather tha population alone). 
This means that the appropriate tools of analysis are no longer 
conservative ones, but dissipative. This raises an issue which 
I think has troubled you, and makes you believe that some 
conservative law is needed to be able to link one time period 
to the next. 
This is not so. A conservative rule--such as that which applies 
in mechanics--provides a very powerful "accounting check" on 
such systems; but a dissipative system can still be modelled 
Here I claim to be misunderstood and also claim to partially 
understand the misunderstanding. 
In my 1982 model,the rate of profit falls in a fashion similar 
to case B in my last post.  If you will, the surplus product is 
growing by leaps and bounds; yet ,as you note, the total  
amount of surplus value that can be produced is bounded by  
the growth in population as well as by increases in the  
rate of surplus value.  Thus, my models, in the spirit of Marx, 
encompass what you call tools that are "conservative" when  
viewing the accumulation in terms of value and "dissipative" 
when tracking the accumulation in material terms.  The 
unbridled growth that is possible is held in check by the  
capitalistic social form of value. 
To be sure, I am not satisfied with what I've done so far. 
I represent the value side of accumulation in a Grossmann- 
like fashion.  I'd like to work fixed capital into the model 
and try to show how its turnover is related to the crisis  
itself.  I do think I have given the Grossmann model a new 
life by allowing those who use it to see the material side of 
production as they speak of value. For now, I intend to stick 
with what we now call one-commodity models; but I do think 
I'll be explicit about prices.  
You mention that you intend to move from a one commodity  
model to the multi-sector case.  There's nothing wrong with 
that but let me encourage you to toss a bit of fixed capital 
in the model and keep it producing from period to period.   
That might make pricing things a bit more interesting!  
(I've looked at a bit that Schefold did on fixed capital and 
saw that as a true neo-Ricardian he can't deal with fixed 
capital any better than he can constant capital.) 
I am also unclear on where you stand on the notion that 
in material terms, outputs increase faster than inputs. 
This makes for messing pricing, as you know, but it  
is, I think, a possible link between Marx and those 
struggling to be post-Keynesians. 
Enough for now.  As you can see, it's hard to be more  
orthodox about Marx than I am. Thus, it is amusing to 
see you attacked by would-be Marxists.  Do not let it 
get to you, Steve, as our discussion could well extend 
into the next century; their knowledge keeps them in the 

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