[Marxism] The "transformation problem" and the Marxian law of value, part 11

Jurriaan Bendien bendien at tomaatnet.nl
Tue Mar 30 19:12:49 MST 2004

17. Production and exchange

Exchange, as noted, presupposes there is something to exchange. To obtain
it, you have to either produce it, or take it from somewhere else which is
has already been produced. Of course, if you have an already ongoing trading
process in goods, a parallel trading process can emerge, which serves that
ongoing trading process and derives a profit from it.

That is to say, you can "trade in the trading process itself" as a financial
intermediary. Money can exchange for money, capital, goods, and property
rights quite independently from production, and in a sophisticated market,
the parallel trading process is quite "elastic", and can flexibly adjust to
changing production conditions. This creates an enormously complex system of
legally regulated financial claims, and then you can also trade in those
claims themselves, just as human labour becomes a tradable object, along
with raw materials, equipment goods and ancillary services.

But what are all those financial claims ultimately a claim to ? Ultimately,
a net disposable income exchanged for goods and labour services, which
increases according to the ability to negotiate more advantageous deals. If
you owned a large amount of capital, all this can be taken for granted, you
can buy those goods and labour services (realise your claim to tangible
resources), and therefore values can be thought of as anything you attach
value to, and decided to buy. It's not a problem, if you like it, you buy
it. But what Marx was concerned with is how, in an economy where production
is validated and outputs valued by real demand from producers and consumers
only a posteriori, four problems are resolved:

 (1) The problem of what economic forces regulate relative prices for new
output in the longer term (setting limits to them, and establishing the
direction in which they will move) as a dynamic process occurring
on the basis of competition and market uncertainty, in which an "equilibrium
price" is only an accidental occurrence. If human labour both conserves the
value of existing assets and is the source of products and services in which
net additional value is lodged, production must in the long run always
determine exchange.

(2) the problem of the movements of objective economic values, which are
formed and imposed as the aggregate result of all the interactions of people
operating in markets - producers, distributors, financiers, property owners
and consumers,

(3) the problem of the modification and adjustment of production values in
the circulation process, such that prices realised in market sales
continuously adjust to quantities of labour previously performed by all
competing enterprises producing a similar output, and are regulated by those
quantities, under conditions where different kinds of outputs produced
influence each other,

(4) the process of the objectification of economic values, which acquire a
mind-independent existence, and impose themselves on people such that they
talk about "the state of the market" as an objective force to be reckoned
with, and which cannot be escaped from.

18. Value and objectification

As regards (4), Marx concluded that the source of the objectification of
economic values, is the subordination of the productive activity of an
economic community by commercial trade and a system of prices, which
culminates in the total command of capital over labour, i.e. what Marx
called the "capital-relation", summarised by saying that "capital buys
labour" or that property ownership dominates and constrains creativity. This
is of course not true in reality, because capital does nothing, it's just
people trading, but the point is, that the trading process has become
dominated by objective market forces, such that property ownership of assets
dominates what people can do and will do, and constrains/guides their
behaviour. That's the real basis of the dialectic of freedom and unfreedom
in capitalism. You could say, "with money in my pocket, the market provides
choice in what I can buy". But then again, you could say, "what must you do
to obtain the money in the first place, and what can you really choose from
with the money".

The objectification of values means that, in the trading relationship, the
human process of producing, distributing and consuming is transformed into a
commercial process, which as a corollary, creates an abstractive process in
human beings themselves as they interact, known as "inversion". This means
simply that objects become subjects, and subjects become objects, and the
means become ends, while ends become means, since, what is an exchange-value
for you, is a use-value for me, and vice versa.

This reification is the basis for what Marx refers to as "commodity
fetishism", which exists irrespective of people's attitudes to it or
awareness of it, since it is necessitated by the practice of the trading
process itself. Thus, the working class as an abstract labour force is
treated as capital in motion, and in economic practice, the assumption must
be made that it is capital in motion. The propertied classes in charge
appear as the "subjects" of history who compete for more important things
such as the challenge to "make history".

It therefore appears that workers don't really make their history, their
history by and large made by forces beyond their control. This is of course
not true, there are both circumstances which one can change, and
circumstances which one cannot change, but point is, the whole system of
roles and "character masks" operates "as though" this is true, and
encourages people to think that way. This is merely to say, that whatever
individuals happen to believe about history-making has no particularly
effect itself, because it is the objectfied values produced and conserved
which specify the operational rules of the social system and guide economic
behaviour, and to live in that system, you must accept the roles which its
rules require, regardless of what you believe. Because those objectified
values exist, market behaviour is governed by economic laws, specifiable in
terms of necessary price relationships, and the only thing which does have
effect, is what people actually do, i.e. how they act, on the basis of their
beliefs about the market.

Historically, the growth of capitalist trade must somehow overcome or deal
with the fact of social classes, which existed already prior to capitalism,
and Marx shows that this occurs through exchanges which formally or
juridically appear equal, but which in reality are unequal, for example, the
exchange of labour-power for a labour wage. The way this is accomplished is
by masking what is really being traded, i.e. by presenting the object of
trade different from what it really is. From the standpoint of the
bourgeois, labour-time is being bought. From the standpoint of the working
class, only labour capacity is being bought.

In trading, people may have different points of view about what exactly is
being traded. Thus, while bourgeois law affirms the juridical equality of
citizens (for example, all are created equal), in reality they are not
equal, not even mainly because of genetic difference, but because of their
social and economic position, i.e. differential bargaining positions which
already exist prior to entry into the marketplace. The legal equality thus
refers to transactors within the marketplace, therefore to only to the equal
opportunity to operate in the marketplace without discrimination or
prejudice. At a deeper level, however, the bourgeois concept of equality is
rooted in the equalisation of the rate of profit contingent on the removal
of barriers to competition, and the ideology which justifies this, is that
competition should be fair, and that nobody should have an unfair advantage
in the marketplace. This is a debate about the moral and immoral
appropriation of profits grounded in equal market access.

Undoubtedly, equal opportunity in the market place is progressive,
but simultaneously this equality is negated by the social framework within
it occurs. Equal opportunity is an opportunity at the level of exchange, not
at the level of production. For the propertied classes, production is the
not the starting point. They go into the marketplace, ply their trade, and
obtain private property as a result. But the idea, that private ownership
relations not only exists prior to going into the marketplace, but determine
the distributional results of the market place, is not something the
bourgeois normally wants to concern himself with, at least not in
theoretical detail. The concept of "market equality" is internalised by
beings in an ideological way as market access defined by rules of
inclusion and exclusion.

Humanistic postmodernism seeks to overcome the dialectical contradictions
involved, by relating commodities sold to human contacts, thus, in buying a
commodity, we also buy an equal opportunity for a human connection or
contact. This justifies buying and selling, by suggesting that buying and
selling humanises the individual, at least potentially, since it depends on
the willingness to engage in human contact. This justification should be
viewed dialectically in its humanity-affirming and negating aspects. But
basically it is a reformism at the level of exchange, sustained by the large
growth of fictitious capital as options, bonds, futures, swaps and

In the simplest case, market-bargaining involves the negotiation of a
price such that an object of trade exchanges for money. The result of it is
ownership of the object is transferred from one buyer to another, and the
money is likewise transferred. If the exchange is equal, then the money and
the traded object must be equal in value. But in fact the participants in
bargaining process may operate with quite different valuation referents.
This may mean that the participants in the bargaining process may have quite
different perceptions or judgements even about what exactly is being traded
and the value that it has. Thus, it is epistemically possible to engage
in a bargaining process even although none of the participants in that
process understand what is actually being traded or what its true value is,
while all applying different valuation referents. Marx notes in this regard,
"first people trade, and only later do they try to theorise the results of
their activity", and this already contains the idea, that we might be
even although we don't know exactly what we are doing. Consequently,
even because bargaining power appears equal, unequal exchange may
nevertheless result. This idea is essential to the defence of Marx's
theory of value and essential to the defence of the concept of reification.

Marx's claim is that the law of value operates in capitalism regardless of
how people might happen to perceive the exchange process, and indeed,
without this claim, the very idea of commodity fetishism could hardly be
sustained. However complex the trading in labour products may get, the fact
is that they must be produced before they can be consumed, this requires
labour expenditures within a specific type of social organisation, and this
regulates price movements at least in the longer term.

The question then is whether Marx's value theory can be proved
incontrovertibly as true. To answer this, consider the Newtonian law of
gravity. I can hurl an object into the air, and watch it fall down, and this
seems to prove the law of gravity. Alternatively, I can suspend an object in
an stationary orbit etc., or utilise other physical laws to create a
situation where the law of gravity is cancelled out, suggesting that the law
does not
apply. This would suggest that the law states a generalisation which cannot
be proved because, even if instances contradict it, it is impossible to
assess all possible instances to which the law applies, or could apply, or
where it
break down. What then is the scientific status of the law ? Obviously, it is
a theoretical construct, but not merely a theoretical construct, because it
reflects an essential aspect of physical reality. Nevertheless, we can
specify the field of application for the law, and study and test out its
applications. Therefore the Newtonian law of gravity is not a metaphysical
theorem because we can test it, yet there exists no ultimate test of its
validity beyond practical human verification and observed regularities.
Exactly the same applies to the law of value, but the issue is not so much
the law itself, but the study of its specific applications.

In his polemic "What the Friends of the People Are", Lenin remarked in this
regard: "Hitherto, sociologists had found it difficult to distinguish the
important and the unimportant in the complex network of social phenomena
(that is the root of subjectivism in sociology) and had been unable to
discover any objective criterion for such a demarcation. Materialism
provided an absolutely objective criterion by singling out "production
relations" as the
structure of society, and by making it possible to apply to these relations
that general scientific criterion of recurrence whose applicability to
sociology the subjectivists denied."

The substantive argument about the Marxian law of value does not concern its
veracity, but its utility, namely, it is argued that we can often explain
price movements in a much simpler way. This is undoubtedly true, but Marx's
law of value refers to an objective explanation of the whole epoch of trade
in economic history, and aims to be consistent with the materialist, rather
than the idealist outlook on history. Its explanatory power is much greater
than other conceptualisations of economic value and exchange, such as
marginal utility, which can be shown to explain very little at all and which
in addition create inconsistent theories of what capital is (cf. e.g. Piero
Sraffa's demolition of the marginalist concept of capital).

19. The law of value as the regulator of production

Because we can specify and formalise economic laws in price terms,
post-Marxists think discussions about economic value independently from
prices are totally irrelevant. But a  moment's reflection shows this is not
true even at the very simplest level, even if we have no qualification in
neuroeconomics. The human cognition of a price, and the understanding of its
meaning, requires the human cognition of a price relation, and the ability
to aggregate, compare and manipulate prices, but this relation is in fact a
value relation, a valuation. I already referred to fact this earlier. All
that really happens  is that objectified values become internalised within
human consciousness, as a routine procedure, which simply assumes a human
valuation already exists, is made, or can be made. To the crude economist,
the existence of "the market" therefore appears completely "natural", and
the idea that what a market is, can be discovered only by examining its
historical genesis is an insight completely lost to him.

What has the price of a car got to do with the price of a bunch of carrots ?
Maybe, you will say: nothing at all, I hate economics and I have my car
already, I only know about the price of fish. Maybe you will say, they are
both prices. Maybe you will say, they show the relative value of a car and a
bunch of carrots. Maybe you will say, the prices establish a quantitative
relation between the value of a car, and the value of a bunch of carrots,
expressed in money units.. From the point of view of economic science,
however, the last answer is really most correct. The fact is, the prices
establish a value relation, and that value relation exists objectively.

You could easily test this out, by approaching a hundred car dealers and
asking them, if they would trade a bunch of carrots for one of their fine
cars. And most, if not all of them will say no, because my car is worth more
than your bunch of carrots. Then you could say, "but I have a subjective
marginal utility theory of value, and in my eyes, this lovely bunch of
carrots, which I have lovingly grown in my own garden, is worth your finest
car". The car dealer might say, "very charming, but if I pursue this kind of
trade, I would go out of business".

Then you could say, "what if I performed a quick personal service for you,
would you let me have the car." And the car owner might say, "that's a kind
offer, but with all these cars, I can get all the personal services I want,
or, I would only do it, if you were Jennifer Lopez or Bruce Springsteen
etc." In other words, a structure of
relative prices exists, and its imposes itself on people, who must adjust
their behaviour to it. Rather than relate one set of prices to another, Marx
inquires into what determines that price structure, and how it comes about,
that it is able to impose itself on economic actors.

This required an examination of the meaning of exchange itself, and that is
what Marx started his book Das Kapital (published 1867) with. He started
with looking at prices in terms of exchange and value relations, in almost
tedious detail, to explain how price can express an objectified exchange
relation in trade, which is unthinkable without a concept of objective value
and objectified value relations, if indeed we seek to explain what regulates
the process.

The first step in that objectification process was the knowledge that one
bunch of carrots is worth (let's say) one banana. The next step is the
knowledge that one bunch of carrots is worth two dollars. After that, the
next step is to know that two dollars will buy a given range of goods in
that price bracket, and so onwards, working up to much more sophisticated
exchanges going well beyond the price of fish, because their purpose is no
longer to obtain a different commodity through trade, but to make money from
trade. Thomas Sekine has published an interesting article in this regard on
"the social necessity of the law of value" with reference to historical
examples of silent barter, which makes the process explicit in its more
primitive form.

Marx then develops his analysis of economic regulation. Grant that the
labour value of a commodity is the total direct and indirect abstract labour
time need for its production. Under capitalism, the question of "what
regulates the market for products" is then that the relative prices and
price movements are ruled by quantities of labour-time performed, which
conserve value and create new value, and by changes in labour-value
magnitudes. His first, simplest statement of the law of value is then of the
type John Eaton states: the exchange-value of commodities is determined by
the average socially necessary labour-time required to produce them.

But Marx aims to go much further. He seeks to link those labour values to
regulating prices which act as
"centres of gravity" for market prices, making various assumptions about
conditions of production and sales. He systematically develops the category
of regulating production prices, by introducing various different
factors into the analysis and considering their effect (normal scientific
procedure), to the point where he can discuss how, for a given monetarily
effective demand, differences in production conditions influence the process
of regulating market prices for products. And so, he arrives at the concept
of market value.

But as previously noted, Rubin, Rosdolsky, Mandel, Itoh, Giussani and Shaikh
all agreed with Marx that any concept of a regulating or ruling price
(production price) must refer to supply and demand fluctuations, because it
is through their fluctuations, that the market prices of outputs orbit
around "centres of gravity", which themselves shift over time, in conformity
with productivity growth and labour allocations required to meet market
demand for output. Even if Mattick doesn't recognise it, this is a
problem-fraught process from the point of view of the capitalist class,
because, given competition and market uncertainty, there exist no guarantees
that market prices will reflect underlying production values. That is the
whole basis for futures and derivatives markets, and the more
"globalisation" occurs, the more market uncertainty exists, since the number
of variables which can affect markets increases exponentially.

Mattick, like Greenspan, theorises as if Say's Law is true; thus, supply
will always find its own demand, and whether the price is high or low
doesn't matter (Mattick's book on the politics and economics of inflation
has a green cover). Mattick doesn't distinguish precisely between the
valorisation and realisation of capital, and hence also confuses the
relative and absolute over-accumulation of capital as well. Mattick ignores
a problem Marx was vitally concerned with, namely the forces regulating
successive adjustments of producers over time to the market for their
output, under conditions of market uncertainty and competition, in which the
realisation of capital is not automatic. And to understand this, Marx thinks
that whether prices are high or low does matter.

Unsurprisingly Mattick fails to distinguish precisely between the
possibility, necessity, recurrence and periodicity of economic crises, and
cannot theorise the capitalist response to the falling tendency of the rate
of profit. The possibility of economic crises of course inheres in
ultimately the contradictions of the commodity form itself, i.e. the
differentiation of the commodity form into goods and money, and the
appropriation of commodities with money. When money as a universal
equivalent has been adopted, then an overproduction crisis or excess
capacity can occur, simply if commodity owners for some reason do not find
buyers with sufficient money-capital to realise the exchange-value of the
commodities they wish to sell. It is precisely this basic reality, and the
falsity of Say's Law, which stimulated the growth of the international
credit system to bridge the gap in time between the valorisation of capital
in production, and the realisation of capital in exchange, giving rise
ultimately to a debt crisis. Since repayment requirements eventually exceed
the output value required to sustain the population, the capitalist class,
via the IMF, the World Bank and other financial institutions, therefore
responds to this problem by seeking to utilise the credit system to force a
change in the terms of exchange in favour of the imperialist countries,
while an increasing volume of trade begins to take place through
countertrade and offset agreements.

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