Vulgar Economy-TSS (Part 4)

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Thu Mar 1 19:59:04 MST 2001

Vulgar Economy-TSS (Part 4)

3.      Marx's Economics and the Equilibrium Method
Temporal Single System Marxism argues that Marx's value theory must be
understood as sequential (or temporal) and non-dualistic (or
single-system).  Sequentialism entails that variables must be determined
in succession over time, not simultaneously.  Marx's theory is said to
be non-dualistic in the sense that "values and prices reciprocally
determine one another"; hence they cannot be explained separately via
distinct analytical systems (Freeman and Carchedi 1996b: x).  The
foundational premises for these claims are:

(i) that Marx measures constant and variable capital not as labor-values
values but in terms of money-prices; that is, c and v in the usual
notation represent not quantities of labor-time, but sums of money
advanced for the purchase of means of production and wage goods; and,
(ii) that Marx treated these sums of money as parametric in the
transformation algorithm of Volume III of Capital.

        Within this framework, it is alleged, both of Marx's invariance
postulates can be imposed simultaneously; the transformation algorithm
is sound; and the Okishio Theorem, which calls into question Marx's law
of the tendency of the profit rate to fall, does not hold.
These claims are in part grounded in a muddling of the distinction
between theory and method.  The long-period method described in Section
2 above was utilized by the classical economists and, pace the Temporal
Single System view, by Marx, as well as by the first generations of the
marginalists up to at least the 1930s.  This method has been deployed
within two mutually incompatible approaches to the theory of value and
distribution - the surplus theories of the classical economists and
Marx; and the altogether different supply-and-demand framework of
marginalist theory.
        Temporal Single System Marxists misleadingly equate the approach of
Ricardo, Sraffa and Bortkiewicz with orthodox neoclassical theory on the
basis of their common use of simultaneous equation models and the
equilibrium method.  Freeman and Carchedi (1996b: xiii), for example,
write that

        The formalisation of Marx's theory of value which descends from
Bortkiewicz is a dead end which has served primarily to assimilate Marx
to General Competitive Equilibrium.  Bortkiewicz himself did not
disguise his aim.  A lifelong admirer of Walras …, he openly
acknowledged this debt and his avowed aim was to formulate Marx's
transformation procedure in Walrasian terms.  He criticised Marx … for
determining prices and values through a succession of phases of the
circuit of reproduction, and substituted Walras' approach which
simultaneously determines prices and/or values once for all.

Naples argues along similar lines: "The equilibrium methodology does not
provide a neutral analytical tool, but directs economic investigations
towards neoclassical results" (1996: 100).

        Leaving aside for now the question of the extent to which Marx's
methodological outlook overlaps with that of Ricardo or Sraffa, the
suggestion that orthodoxy can be defined by its method is highly
problematic.  Theories that explain wages and profits in terms of the
opposition of class interests in a historically contingent institutional
context are radically different analytical engines from a theory in
which income distribution is determined by substitution mechanisms
grounded in price-elastic factor demand functions.  Furthermore,
Sraffa's work, far from being a variation on Walrasian orthodoxy,
undermines the substitution mechanisms upon which the latter rests

        The non-equilibrium Marxist literature crudely and misleadingly links
the equilibrium method to the use of simultaneous equation models.
"Bortkiewicz's equilibrium methodology," Naples claims, "followed
neoclassical General Equilibrium theory by employing the logical
construct of simultaneous time - a moment in which all economic
behaviour transpires at once" (1996: 90).  Naples is off-target here.  A
simultaneous equation approach does not imply that "everything occurs at
once"; it reflects the judgement that certain variables cannot be
explained independently of one another.  As we have seen, Bortkiewicz
and Sraffa deployed their equation systems to deal with the problem
posed by the interdependence of prices and distribution - a phenomenon
that was well understood by Ricardo and Marx.  There is nothing
Walrasian or neoclassical about this particular use of simultaneous
equations.  Walras and Pareto insisted on a simultaneous determination
approach for the altogether different reason that, within marginalist
theory, the relative factor scarcities that regulate distribution not
only depend upon but also influence the pattern of demand.  Nor is there
anything either in Sraffa's equations or in the Walrasian system that
denies the temporal character of economic processes.  On the contrary, a
sizable body of Sraffian and marginalist literature on stability exists
precisely because everything doesn't happen at once, and theorists
therefore need to ascertain the conditions under which the solutions to
their equations will function as centers of gravitation for the actual
variables of the economy.

        Similar misrepresentations are perpetrated by Freeman and Carchedi, who
assert that "The most essential phenomena of a market economy cannot be
understood in an equilibrium framework, and are therefore impenetrable
to neoclassical economics and to equilibrium Marxism" (1996b: xviii).

        [i]n a world out of balance the principle of equilibrium is neither a
valid foundation nor a real result.  Practising economists are driven to
study change, time and disequilibrium.  Cyclic crises, unemployment,
debt, underdevelopment, and financial chaos are the real phenomena which
command attention, but they receive no attention. Orthodoxy either
defines them out of existence or labels them exceptions.  Official
economics [applies] to an unstable world concepts derived from the
assumption of stability.

        This presents a striking contrast with the theory which saw capitalism
… as inherently contradictory and self-disequilibrating, that of Karl
Marx; a theory rooted in the understanding that economic movement … is
driven by continual change and evolution, racked by violent storms and
catastrophes, that inequality and uneven development are its very life
force, and above all that these phenomena are not external to the market
but generated by it, the external expression of its internal law of
motion (1996b: viii).

The assertion that neoclassical economics pays no attention to trade
cycles, unemployment or monetary and financial dysfunctions is obviously
untrue and requires no comment.  The orthodox treatment of these issues
may very well be unsatisfactory.  But the theory's defects won't be
exposed by an unreflective dismissal of a straw-man parody of it.
What matters for the present discussion is that the parody is intended
to encompass what Freeman and Carchedi regard as the distortions of
"equilibrium Marxism" - in their view a variant of orthodoxy.  One
difficulty with this criterion of a theory's Marxian pedigree is that
there is nothing uniquely Marxian about the conceptualization of
capitalism as "inherently self-disequilibrating, driven by continual
change and evolution, [and] racked by violent storms and catastrophes."
Joseph Schumpeter (1942) described capitalism in almost identical terms;
and Keynes, who had a notorious aversion to Marx, would not have
quarreled much with this description.

        More to the point, the characterization of capitalism offered by
Freeman and Carchedi is incomplete.  What it leaves out is the
coordinating mechanism discovered by the classical political economists
and adopted by Marx.  Capitalism is indeed crisis-prone; workers often
experience the market as an invisible fist rather than as a benign
instrument of material progress.  But the system is not wildly chaotic;
if it were, it could not have lasted these four hundred years.  Market
forces do coordinate the decisions of economic agents.  The process is
not seamless; it can be messy and unpleasant.  Yet somehow commodities
get produced, not in random quantities but in amounts that are close to
what can be sold.  Resources are directed to the sectors that require
them, more or less in accordance with the amounts wanted.   Incomes are
generated and paid, and are in good measure channeled back into
expenditure.  In short, the system reproduces itself.  How it manages to
do this is something that needs to be explained, as Marx well
understood.  He also appears to have recognized, along with his
classical predecessors, that the principal coordinating mechanism is
"the competition of capitals, which first brings out the price of
production equalising the rates of profits in different spheres" (Marx
1894: 180).

Xxxx Xxxxx Xxxxxx
Ph.D Student
Department of Political Science
SUNY at Albany
Nelson A. Rockefeller College
135 Western Ave.; Milne 102
Albany, NY 12222

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