[Marxism] Transformation problem - helter-skelter reply to Les Schaffer

Jurriaan Bendien andromeda246 at hetnet.nl
Tue Apr 27 17:46:10 MDT 2004

Hi Les, this abstract is a bit longer than I really intend and not very
"original", but here goes...

The "transformation problem" concerns what Marx called the "transformation
of commodity values into prices of production".

Marx uses the term "transformation" in a dialectical sense of a
metamorphosis of categories which reflect a real process. In this way,  he
proposes to conceptualise the double theoretical problem that (1) output
values exist before their actual prices are manifest, and that (2) while the
profit rate and surplus-value applying to each enterprise or sector
contribute to a general profit rate and total surplus-value, the latter two
also co-determine the profit rate and profit receipts of former if competing
producers sell in the same market. The theoretical challenge is then one of
the provision of a proof for a necessary quantitative relationship between
values and prices, and the controversy centres on the nature of that proof.
If the law of value exists, then exchange-values of products must be shown
to be proportional to quantities of socially necessary work-time performed.
But, in that case, it is argued by critics, Marx must at least prove in the
pure case he himself discusses, how equal sums of capital invested could
result in amounts of profit reflecting the same rate of profit for all
capitals, even if varying quantities of labour-time were performed by the
different enterprises in a sector, or by different sectors (or what amounts
to the same thing, different capital compositions). The criticism advanced
by Von Bohm-Bawerk, Von Bortciewicz and Steedman is that Marx himself fails
to do so in his manuscript. Specifically, Von Bohm Bawerk argues that in the
attempt to ascend theoretically from values to prices, Marx reveals basic
logical errors which invalidate his concept of value; Von Bortciewicz argues
that Marx's theory logically requires the transformation of input values
into input prices; and Steedman argues that Marx is logically committed to
the absurd proposition that that the same product has two different prices,
depending on whether it is purchased, or whether it is sold. Later critics
point out that the successive attempts to provide the required proof all
fail. This then suggests the conclusion that Marx fails to prove that the
law of value operates in a capitalist economy, and consequently that his
"labour theory of economic value" is false, because, in that case, human
labour-time is not the substance of economic value, and does not regulate
relative price movements even in the simplest cases. The controversy then
centres on the postulate of a uniform rate of profit. In discussing how a
uniform rate of profit is formed in Capital Volume 3, Marx uses simple
quantitative models to illustrate some of the mutual effects of variations
in cost-prices, the rate of surplus-value, capital compositions, the value
of outputs, turnover-time and the rate of profit. But he fails to show
exactly how a given distribution of commodity values applied or produced in
production results in a distribution of commodity prices, if a uniform rate
of profit exists and if total prices=total values. So what exactly the
necessary relationship between values and prices is, still remains unclear.
He does note in his draft manuscript that capitals of the same size but
different capital compositions set in motion different quantities of labour,
producing different amounts of surplus-value and resulting in different
profit rates, but, he argues that through competition, these profit rates
are equalized over time, ultimately imposing a uniform rate of profit on all
enterprises (the pure case). This process and its result is then the basis
for his concept of a "production-price" of products, defined as cost-price +
"average" profit. But the problem remains, that his equations typically have
value magnitudes on one side, and price magnitudes on the other. Therefore,
critics argue he keeps assuming what he needs to explain, because rather
than really "transforming values into prices" by some quantitative
procedure, such that prices are inferred from labour-values, he either (1)
equates values and prices, or else (2) he combines both values and prices in
one equation.  Thus for example either Marx infers a rate of profit from a
given capital composition and a given quantity of surplus-value, or else he
assumes a rate of profit in order to find the amount of surplus-value
applying to a given quantity of capital invested. But this maneouvre does
not contain proof of any necessary relationship between values and prices,
nor proof that capitals of the same size but different compositions (and
consequently different expenditures of labour-time) can obtain the same rate
of profit. Marx explicitly argues both that prices deviate from values, and
that the sum of prices is equal to the sum of values in a purified
capitalism, but, critics claim, he fails to show quantitatively how a
distribution process could then occur such that price magnitudes correspond
to value magnitudes, and such that a uniform profit rate returns equal
profits to capitals of equal sizes. In that case, there is again no proof of
any necessary relationship between values and prices, and Marx's entire
presentation seems an endless, unwarranted theoretical detour. So
formulated, the controversy about the transformation problem can be said to
involve both a real problem and a pseudo-problem. The real problem is (1) to
understand how exactly values and prices must differ but are necessarily
related, (2) how exactly the process of the equalisation of the rate of
profit occurs, if the law of value really exists, and (3) what proof exists
that the law of value really influences relative movements of actual prices.
The pseudo-problem is the attempt to do this with the aid of a model
containing simultaneous equations which assumes both that (1) the sum of
prices equals the sum of values, and (2) that a uniform rate of profit
applies to the returns on all capitals invested, despite varying capital
compositions. Because such a model, which implicitly aims to state an
equilibrium condition in abstraction from the temporal dissynchrony between
the valorisation and realisation of capital under competitive conditions,
can only reveal simple logical paradoxes of the type that (1) it is
impossible to uphold the postulate of a uniform rate of profit and the
postulate of total values=total prices at the same time, that (2) to find
production-prices, a uniform rate of profit must be assumed, while at the
same time to find a uniform rate of profit, production-prices must already
be assumed, or that (3) a price level must be assumed, rather than be
deduced from labour-values. Such a model poses a pseudo-problem, because it
(1) misunderstands Marx's theory of the nature of capitalist markets, and
the real dynamics of business operations under competitive comditions, and
(2) it misunderstands the reason and significance of why prices must deviate
from values according to Marx's theory, and therefore fails to specify
exactly what is being measured.



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