Murray E.G. Smith

James Miller jamiller at
Mon Sep 25 12:26:22 MDT 1995

This is a continuation of a commentary on Murray E.G.
Smith's book, _Invisible Leviathan_, which is a good
review of major controversies in Marxist economic
theory in the 20th century.

   In my first message, I focused on the transformation
of values into prices of production, a process Marx
described in Chap. 9 of _Capital_, Vol. III. The main
point to be kept in mind here is that this transition
was an actual historical process in which the prices
of commodities shifted from an approximation to their
labor values toward an approximation to their prices
of production as capitalism developed, and as the
formation of an average rate of profit held greater
and greater sway over market prices.

   In 1942 Paul Sweezy published his major work, _The
Theory of Capitalist Development_. In this book he
introduced a novel approach to the transformation
problem which was to set the mold for future discussions
of the topic. It is my contention that this mold needs
to be discarded as irrelevant to an understanding of
Marx's work.

   What Sweezy did was to revive a forgotten 1907 article
on the transformation problem by the Ricardian economist
Ladislaus von Bortkiewicz. Unfortunately, the procedure
introduced by Bortkiewicz had nothing to do with the
historical transformation of values into prices of pro-
duction. He did not accept Marx's ideas on value, and
consequently was unable to discuss the transformation
of values into prices of production. In his article,
Bortkiewicz made no attempt to define "value." Sweezy,
however, felt that Bortkiewicz was making a contribution
to the solution of a problem.

   But the only "problem" was that neither Sweezy nor
Bortkiewicz understood what Marx was trying to accomplish
in Vol. III, Chap 9. What Marx was trying to explain was
the historical shift that took place from one axis of
price formation to another. It was necessary for him to
describe this shift so that he could show that the law
of value was still valid, even though the central price
around which market prices oscillated was no longer value
in labor time, but price of production.

   What Bortkiewicz and Sweezy did was to propose simple
reproduction equilibrium formulas, taking as their
inspiration Marx's formulas of _Capital_, Vol. II, Chap.
19. These equilibrium formulas show the balance that
spontaneously develops between the different departments
of industrial production through the process of the
circulation of commodities between and within them. The
reproduction formulas introduced by Marx in Vol. II use
hypothetical figures in an idealized model of the cycle
of production and circulation that takes place in one
year's time.

   The transformation table Marx uses in Chap. 9 of Vol.
III is intended to summarize a secular, one-time-only
transition from the quantitative expression of value in
pre-capitalist conditions to the quantitative expression
of value in capitalist society. Thus the two approaches
are completely incongruent. Bortkiewicz's method, the
product of his own Ricardian theory, has nothing to do
with Marx's transformation problem.

   Murray E.G. Smith partially recognizes the problem
posed in Sweezy's resurrection of Bortkiewicz. He states:
"...Marx's own mathematical illustrations of the
transformation process never assume the conditions of
simple reproduction or interdepartmental equilibrium.
Marx is solely concerned with establishing the effects
of variant capital compositions as these influence
individual production prices, not as they influence
whole departments of production." (Smith, p. 80)

   This is insufficient. Smith should have gone further
and explained exactly what "Marx's own mathematical
illustrations" intended to demonstrate. Having explained
this, one can then judge the inappropriateness of the
procedure recommended by Sweezy and Bortkiewicz.

   Smith sums up his initial presentation of the issue
saying, " would seem more fruitful to question some
of the basic presuppostions of that model [Bortkiewicz-
type]: the need for 'simultaneous valuation' of cost
price and surplus value, and the appropriateness of
seeking to establish a theoretical space in which the
conditions of simple reproduction (relating to the
turnover of the total social capital) encounter the
problem of value-price transformation (which concerns
the results of the interactions of many individual
capitals)." (Smith, p. 81)

   Here Smith puts his finger on the problem of the
incompatibility or incongruity of the different models.
(Although it should be pointed out that the table in
Chap. 9 is not a "model" in the sense that his Vol. II
reproduction schemas were.) But Smith fails to identify
the source of the error. He thinks the inappropriateness
of the Bortkiewicz model may be due to its reliance on
interdepartmental equilibrium, as opposed to the
transformation "model" used by Marx which utilized
a set of hypothetical spheres, or branches, of
production. (Smith refers to "many individual capitals,"
and it's possible to conceive of the problem that way
as well).

   But the real problem, which Smith overlooks, is the
incompatiblity between a scheme which summarizes the
equilibrium of production and circulation on an annual
basis, on the one hand, and a table which demonstrates
the contrast between a system which has been historically
superseded, and a system which is now in operation, on
the other.

   Engels comments on the transformation problem in the
following way: "In a word: the Marxian law of value holds
generally, as far as economic laws are valid at all, for
the whole period of simple commodity production, that is,
up to the time when the latter suffers a modification
through the appearance of the capitalist form of
production. Up to that time prices gravitate towards
the values fixed according to the Marxian law and
oscillate around those values, so that the more fully
simple commodity production develops, the more the average
prices over long periods uninterrrupted by violent
external disturbances coincide with values within a
negligible margin." ("Law of Value and Rate of Profit,"
appendix to _Capital_, Vol. III)

   If there are any comments related to this or my
previous posting, I will respond to them in a separate

Jim Miller

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