Explaining the law of value - reply to Ahmet Tonak

Jurriaan Bendien bendien at tomaatnet.nl
Thu Sep 25 08:23:39 MDT 2003


Prof. Tonak asked:

"Is this a new way of saying that there is no transformation from values
what Anwar calls direct prices-- to prices of production?  Value as an
"aggregate price"?  What is aggregated?  Value as "derived price"? Derived
from what --from itself?"

What I am trying to do is look at some new and different ways of getting
people to understand why value theory is important, and then open up the
whole topic of property relations. The average person thinks of "values" in
terms of personal values which imply ethical norms, cultural customs,
priorities etc. and as regards economics they can conceive only of prices.
Or they think of it in terms of "property values" and so on, referring to
real estate.  This is quite different from the 19th century when people
still perceived an organic link between costs and prices and labour-time,
the time it took to make something. But today, when e.g. the organic
composition of capital is much higher (wages representing maybe only 20
percent of the total capital outlay) and much more developed (the
"roundabout way of production" that Bohm-Bawerk talks about), the market
incorporates everything (virtually all consumer necessities are priced), and
commercial reification much more developed (the inability to conceive of any
resource other than in price terms), that link is no longer so clear.

The tiresome fact in Marxist circles is that people will talk about "value"
as being labour, or they will talk about value as a "social relation", with
pseudo-profundity and theoretical ostentation and huffing and puffing, and
they will engage in all sorts of linguistic sophistry in pontificating about
"values", such as talking about "dialectics", but in the end the
relationship between value and price is still not clarified, and the
ontological status of value is still not clarified. Personally, I think
Marx's discussion is magnificent, I treasure the experience of first reading
his book in 1980-81, but whether I think so or not, is totally irrelevant,
what is relevant is whether you can break through the blinkered ideas of
modern economics about the formation and regulation of prices, and explain
the theory of value to people who can see only prices, and think of exchange
only in terms of "how do I get my sex and my motor-car" or in terms of
accounting. And in this sense, I always like to think of new ways, to make
the same sorts of points, believing that a 93 percent LTV is much better
than no LTV at all. At the same time, I recognise that Marx's presentation
is radically unfinished, for example, that he makes no systematic critique
of Ricardo's theory of the world market, public finance, household economy,
consumerism etc. etc. So, the religious Marxists will actually conceptualise
public finance in bourgeois categories, and they will talk about the world
market in terms of comparative advantage, confuse sex with economics, and
linguistic sophistry with hard empirical evidence.

>From my point of view, "value" in the economic sense expresses an
objectified societal relation between quantities of social labour expended
by people in the production of goods and services, as distinct from legal
relations, property ownership, and price relations. But now I have the
problem of explaining what this means. If I pontificate that "value is
labour" or some such thing, I am assuming what I have to prove. Marx's
assertion at the beginning of Capital, that labour is the quality which
makes commodities commensurate in exchange, is just not very convincing,
because any sophomore economist could say that what makes them commensurable
is just that they are "priced goods", the fact, that they have a price, a
price tag, no further questions asked. As Kozo Uno points out, there are big
problems with the order in which Marx presents his arguments, and
occasionally Marx tries to prove something in the wrong place of the
argument. Then the so-called "orthodox Marxists" come down like a ton of
bricks on Kozo Uno because he dares to question Marx's presentation of the
argument. In reality, there is no problem, we all make mistakes in our
communications sometimes, especially if you have a very large amount to
write up as Marx did and have to arrange your material somehow, but it
becomes a problem when people religiously follow Marx's text, as if it was
holy and sacred, rather than thinking about it for themselves, and
presenting the argument in a way that makes sense in their own situation, as
Marx recommends in the preface to his book.

The religious, doctrinal  interpretation is disastrous for Marxist
scholarship, because the origins of capitalism are no longer clear, nor is
it clear how we get beyond capitalism, and it becomes impossible to
understand non-capitalist societies and how they function. In that case, all
you can say is that capitalism is a terrible system which screws people's
lives, and complain and whinge about it, and the bourgeois just laugh at
this wet drivel, spy on what your are doing and steal your criticism, so
that they can improve their own management, and make capitalism work better
while prattling about about intellectual property rights.  Therefore, I do
not want to keep on asserting the importance of value theory over and over,
rather, I want to start with prices, and concentrate on the concept of
price, considering different sorts of prices, and how people actually use
those prices in the real world. And when I do that, it's clear that there
are all sorts of prices, from price tags to theoretical prices and
accounting prices, and that they involve different sorts of relationships
between goods, markets and people, which are already evident at the
observable surface of society, and I do not have to go through a lot of
theoretical ostentation to convince people of this. By pursuing a
Socratic-type dialogue, I can first of all break people out of the idea
that, in making economic decisions, they are just referring to simple prices
of specific goods and services (see my posts on PEN-L) and that they are
referring to economic relationships which have nothing to do with real
prices. And then, from there, I can develop the argument by looking at real
economic data, and show how, by just concentrating on supply and demand
curves and other forms of primitivism, we fall from one contradiction in to
another, and gradually I obtain the notion of surplus-product from added
value, and demonstrate the source of profits, and so on.

I am aware that this procedure in some ways is diametrically opposed to
Marx's, who seeks to rise from the "deep structure" of bourgeois society in
the workplace, to the "surface" of what happens out their in the competitive
marketplace when Mr Moneybags cannot sell the last ten tons of his coal,
because I am in a sense starting off with Mr Moneybags and his pricing
predicament. But even Marx tries to be pedagogic, by examining the commodity
as the "cell-form" of bourgeois society in a popular way, trying to convince
people that exchange-value is a purely social quality, and that use-value is
not simply a subjective perception, but a physical characteristic of goods
which relates to real social needs. I take the view that you should adapt
the method og exposition to where people are in the real world, and this is
2003 and not 1867.

The orthodox, religious Marxists will froth at the mouth about all this, and
scream "heresy", because I dare to say something that Marx did not say, and
then they will try to censor me like the dream police - or if not, my
statements will make them feel totally insecure, because they do not know
whether this is compatible with orthodoxy or not. Which is merely to say
that they have blind faith in Marx, but do not understand a fart of what
Marx is really saying. And thus they show just how pathetic they are - my
reply to them is "stuff your orthodoxy, your fake babble about Marx". Have a
look at Mandel's Marxist Economic Theory, have a look at Kidron's critique
of it, then have a look at the total influence Mandel had, and that Kidron
had, and where those people they influenced are now, objectively, i.e.
without concessions to middleclass racism and sexual dribble. It is clear
that Mandel had vastly more influence than Kidron, by making arguments in a
pedagogic way, using a large amount of empirical and historical illustration
of the argument. As I have said, contrary to the biological-racist depiction
of my activity, I am not a Mandelite, but his approach as sketched out in
the first chapter of his book "Marxist Economic Theory" is undoubtedly one
hundred percent correct. If I were to teach Marx's economics, that chapter
would be required reading for my students.

I do not even have to refer to Marx much anyway myself, the whole argument
does not crucially depend on the letter of what Marx said, and can
incorporate vast rafts of research done since 1867, because of course
economic science didn't stop when the ink dried on Marx's manuscript of
Capital Volume 1, as Melvin P., whoever he is, argues. As I have said before
on some list, any chapter of Marx's book could be expanded into a book, and
I could add that Das Kapital could be rewritten in any order depending on
which group of workers we were dealing with. The fact is, that as David
Harvey pointed out, usually anybody who has been convinced by Marx's Kapital
has tried to rewrite it in some form, including himself (his book The Limits
of Capital). In your own book about the "Wealth of Nations" you do in fact
use a similar approach to mine, and Marx is hardly mentioned in your book (I
have a photocopy of it, because at the time that I read it, I could not
afford to buy it). Nevertheless, you manage to demonstrate empirically most
of the basic categories used by Karl Marx himself, with the odd divergence
here and there, and some points aren't made sufficient clear.

Concerning the concept of production price: in his (somewhat flawed and
ill-informed) discussion of the economic theory of gold production published
in the Robert Langston memorial volume (for which I and a colleague provided
a footnote about the New Zealand gold rush), Ernest Mandel notes that Henry
Ford knew very well what a "production price" was, and in pricing his first
cars, what Ford would do, is take a cost price for a car and then apply a
"mark-up" based on his assessment of what the market would accept. By
contrast, there are oodles of Marxists prattling on OPE-L about the reality
or ontological status of production prices, whether they are theoretical or
real, whether they are "centres of gravity" or "Centred centres of gravity"
or whether they are something else. Now, I do not deny the importance of
understanding what Marx means, but if you cannot even agree about what it
means, you cannot explain it to anybody else either. But quite apart from
this, the discussion of rich Marxist academics is rather pathetic,
scholastic and rarified, because it does not relate to real business
experience, and the real experience of workingclass students seeking to
break through the nonsense that is served up in the name of economics by the
rich. It is just an intellectually satisfying way of saying exactly nothing
about the real world. Which is why I am looking at other ways of tackling
the issue.

I've worked as statistician and in various other places where people had
degrees in economics, and the striking thing is that their much-respected
and valued "economics degrees" are a fat lot of use in solving any real
economic problem, and they could not actually apply their economics to any
real problem, except jerking off with so-and-so, using a bit of linguistic
sophistry. It turns out that so-called "economic science" is just an
ideological justification for a cushy, wellpaid job, and that people who
have no economics degree are often better at solving economic problems, than
people who have their heads pumped full of garbage about marginal utility,
comparative advantage, inputs and outputs, supply and demand curves, the
money supply, and God knows what else. But actually we should not be
surprised about this, because if, in "the market" , the price-mechanism
spontaneously gravitates towards the establishment of equilibrium, then
there is nothing economists actually have to do, except making rational
choices on the basis of balance sheets stating profits and losses, revenue
and expenditures, costs and sales, and income and outlays. And those
"rational choices" actually involve an increasing amount of corruption,
theft and fraud, because the accountant's presentation of what is going on
increasingly diverges from the real economic relations and the real terms of
exchange. Fraud is rational, corruption is rational, crime is rational, and
economic science offers zero explanation of why this is happening. But nor
do the religious Marxists, they just engage in moral fervour and ostentation
about the criminality of the bourgeoisie, rather than sharply exposing the
contradictions this involves for economic theory !!!!

I have posted a small argument on PEN-L which, starting off from price
aggregation, moves towards the concept of value. In the process, I am
treating value initially as a price aggregate which is not reducible to any
particular price. This is an incredibly powerful argument against people
who, in their blinkered vision, can only see price-tags, and deny any
objective concept of value, and if I can convince somebody of my argument,
then I create a space for a further development of the argument. What we are
dealing here with is the concept of price itself.  Of course I do not want
to argue that "value" is simply a price aggregate, but if I can get people
to understand what a price aggregate is without them reading Oscar
Morgenstern, then I am already a big step ahead, because I have shown that
in the real world, people are using all sorts of prices, which do not
actually refer to any particular price of any particular good or service,
and I can set up a whole discussion about the social practice of pricing and
its effects on economic activity.

I have mentioned already on the list, on a previous occasion, how, in New
Zealand, the Government decided to sell off half a million hectares of
state-owned forests originally planted by workers who were thrown out of
jobs in the Great Depression in the 1930s, and managed hitherto mainly by
the NZ Forest Service, a government department for which I worked as a
youngster. Now this was most peculiar, because the Government wanted to sell
off a fixed asset of which they did not even know the price. Nobody had
actually produced a capital account which showed the value of these forests
in terms of historic costs or market valuation or fixed capital, and in
fact, most government departments in those days did not have capital
accounts, because they were not statutorily required to do serious asset
accounting (now they do, which in some ways is a good, responsible thing).
So what happened ? The Government, being incompetent servants of the IMF,
not knowing how to price these assets, enlisted the aid of consultants for a
fantastically large sum of taxpayers money to VALUE THOSE FORESTS, in order
to find a price and sell these taxpayer's assets. This is like saying "I am
going to borrow money from you to steal from you, and put you into debt.".
As with the rest of the plunder of taxpayers assets in New Zealand, it
provided marvellous opportunities for academic economists to examine the
so-called "price mechanism" and property relations critically. But in
reality, almost the whole of the Left, and almost one hundred percent of the
economics fraternity missed the opportunity entirely, because they conceived
of economics as a technical science rather than a social practice with real
consequences for people's lives and incomes ! The government was just being
"not nice" according to them, and they sat there like sheep bleating about
the "betrayals" of the cabinet and its ""ill-advised" policies. With friends
like that, who needs enemies ? If this sort of attitude is all that leftists
are capable of, we might as well kiss socialism goodbye.

Concerning the Verwandlung of values into prices of production - I think
Marx's dialectical procedure is valid from the point of view of actual
business practice, looked at from the standpoint of the producers. But in
reality it creates more problems than its solves, because if you draw up a
mathematical equation which has different qualities on either side of the
equation, then you are equating apples and pears. Equating apples and pears
is okay, when I have an apple and I see a nice young lady with a lovely
bottom, with whom I want to have physical intimacies, but for the purpose of
serious economic argument it is not much use. What Marx is really trying to
say is that establishing "production prices" is a real practical problem for
business people, and not just a scholastic shibboleth that Marxist academics
preoccupy themselves with in trying to prove their theoretical and
mathematical erudition. In other words, "pricing" is not some kind of
"mechanism", in the sense of Edward Thompson's hilarious pictures in his
book The Poverty of Theory (inspired no doubt by Castoriadis alias Paul
Cardan), this is a technocratic fantasy about the economic engine. Rather,
pricing is a social practice which requires real work from real people, who
are faced with this problem, of how to price things, so that they will sell
given the current state of the market and current terms of exchange. This
reflects the fact, that the market price of a product cannot be established
in an absolutely certain way before it is actually sold and paid for, and
that we only truly know what goods are worth after the fact, i.e. after
payment for their acquisition. When Henry Ford priced his first cars, he did
not have so much prblem, because he knew that people wanted to buy them, it
was just a question of what they could afford, to coin a phrase. But in
these post-Fordist times, pricing gets a whole new meaning. I have already
commented about that on Marxmail List and PEN-L List, I hope you will
understand my point.

Jurriaan









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