By Philip Pilkington, a journalist and writer living in Dublin, Ireland
The completeness of the Ricardian victory is something of a curiosity and a mystery. It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority.
– John Maynard Keynes
In our previous piece on profits we showed how profits ultimately come from investment. There we saw that whether this investment was from the government sector or from the private sector mattered little (once again we leave out the external sector for the sake of simplicity). Either way it was the key factor determining profits.
We also saw that this entire system was rather fragile and prone to breakdown. If either sector chose to curtail its investment at any given moment the results would be a chronic deflationary spiral, mass-unemployment and bankruptcies. In this piece we will take another, slightly more theoretical look at this inherent instability.
(It should be noted that very little of what follows will make sense to anyone who has not read the previous piece. Not only will we be referring directly to this piece as an example but knowledge of the dynamics inherent in that argument must be fully understood for what follows. If you are unfamiliar with the previous piece or feel that you may not be wholly comfortable with the argument, I implore you to read over it [again]).
It was quite surprising that at least one commenter on the last piece claimed that my criticisms of Paul Samuelson – allegedly a member of the Keynesian old guard – were off the mark. After considering it a little I came to the conclusion that the commenter must have meant that Samuelson, since he was in favour of deficit spending during times of economic downturn, must then have somehow been aware of the dynamics I put forward in that article (this even though neither he nor his co-author thought it necessary to explain these to students in their textbook). What’s more, if this was true the same could then be said for my relationship to certain other pseudo-Keynesians running popular blogs at the moment advocating fiscal stimulus – notably Brad DeLong and Paul Krugman.
These are very dubious arguments. If they were true and if Samuelson and other neoclassicals (yes, I consider Samuelson a ‘neoclassical’, see: previous piece) recognised the dynamics I am here trying to highlight I would have simply stopped typing by now and redirected the interested reader to their nearest economics department. I obviously do not believe this – in fact I believe that many of these departments engage in something akin to brainwashing or cult-induction – and so I hope that what follows will, among other things, highlight the difference of this approach with that of the mainstream.
With that caveat we will now take a look at these problems through the lens of the historical ideas that gave rise to the contemporary neoclassical doctrine – and those that ran against them.
The Strange Case of M. Jean-Baptiste Say
Most people who are familiar with economic theory have heard at some point of a doctrine called Say’s Law. The simplest elaboration of this rather unusual piece of dogma is that supply creates its own demand. So, if the capitalist on the imaginary wizard island that we studied earlier were to hire workers to produce bread, the demand for this bread would always already be there – presumably out of the wages that the workers receive.
Perhaps we should quote M. Say in the original just to ensure that we are not misrepresenting him:
It is worthwhile to remark that a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus the mere circumstance of creation of one product immediately opens a vent for other products. (A Treatise on Political Economy, Book I Ch. XV)
Well there it is in black and white.
So why do we say that this is such a strange doctrine? Readers of the last piece should have the answer tickling the top of their tongue: there’s no place for profits in this formulation!
Say was no market socialist. He was a follower in the footsteps of Adam Smith and a firm believer in capitalism. And yet if we take his formulation seriously there is certainly no room for the capitalist in search of profit. Say’s market actor – at once producer and consumer (an artisan?) – wants to offload his product as soon as he possibly can at a fair market rate. But then he also seeks to offload the money he receives for this product as quickly as possible in exchange for a new product that he can then consume.
We said in the last piece that mainstream economic theory is an ‘ideology of truck and barter’. Well, here it is in a nutshell. Any theory that implicitly assumes a Say’s Law-dynamic must scrub out the capitalist in search of profit from the theory and carry on as if we are a society of bartering artisans mediated by money. At multiple points this fallacy rears its ugly head in neoclassical theory – such as when mainstream economists must admit that profit is a transitory phenomenon; but we will not go into this here. The key point is that Say’s Law gives a picture of an economy of barter wherein the barter is undertaken through the medium of money. I give you the commodity I made; you pay me; I then carry the money to market and spend it all on another product; and so on.
When looked at in this fashion we can see why economists require the myth of money simply replacing barter as demolished by economic anthropologist David Graeber in a recent Naked Capitalism interview. This is, in a sense, the ‘founding myth’ of all classical and neoclassical economics. First men barter; then they invent money to lubricate their barter and make it easier – and it is from there that market socialism capitalism comes from.
Modern mainstream economists, when they are aware of the foundations of their theories at all – a rarity among this breed of ahistorical dogmatists – now refer to this fragment of their belief-system as ‘Walras’ Law’.
Walras’ Law is simply a rearticulation of the same article of faith by another zealous Frenchman. It states the same thing as Say’s Law but gives it mathematical form. Walras’ Law essentially says that all excess manifestations of supply or demand, be they positive or negative, must net to zero.
Does that sound sophisticated? It isn’t. It’s just a restatement of Say’s Law in jargonistic language that can then be formalised into a mathematical theorem (ΣXD = ΣXS = 0). This in turn can be used to impress mainstream economists who, as we all know, secretly dream of being mathematicians, physicists and other higher-order life forms.
So we’re back once again to our market socialist capitalist society in which everyone is simply trading amongst themselves without ever giving a thought to turning a profit. Money, in this wonderland, is simply a means of facilitating barter between comrades citizens.
Of course, this is not even remotely close to grasping how a capitalist economy actually operates. For that we need to begin with Marx. Ironically enough, while the neoclassicals continue to expound their vision of a market socialist utopia, it was Karl Marx – the father of Communism – that gave the world its first glimpse of the true functioning of a capitalist economy.
Money… More Money! MORE MONEY!
To say that Karl Marx was not fooled by Say’s Law would be a vast understatement. Marx was a dynamic theorist and understood that history was not to be thought of as a perfectly balanced phenomenon. Say’s Law, on the other hand, was the embodiment of a static society completely at odds with the capitalism Marx studied. For Marx – as for the capitalist – the driving force of a capitalist economy was profits.
But Marx detected Say’s Law running deep in the veins of classical political economy – an intellectual movement that included the figure of David Ricardo whom Marx admired so much. Reading Say’s Law into the writings of Ricardo, Marx writes:
This childish babble of a Say is not worthy of Ricardo. In the first place, no capitalist produces in order to consume his product. (Theories of Surplus-Value, Ch. XVII)
A rather obvious criticism when you think about it. By definition a capitalist is not one who produces in order to consume his product; he is one who produces in order to accrue profit.
From this simple observation Marx paints a rather different picture of a capitalist economy. He puts forward the equation:
M—C—M’
When translated into English that reads:
Money—Commodity—More Money
The capitalist invests money in order to create a commodity that is then sold on for more money. This is how the capitalist accrues profit.
Consider the capitalist on the magical wizard island we looked at in the last piece. He plunges borrowed money into the creation of a bread factory. After this he hires workers to bake bread in the factory and sell it on. But he only does this in order to get profits. As we say in that example, when profits were diminished – due to a lack of investment – the capitalist began to haemorrhage money fast – due to his not being able to finance his interest payments.
Of course, this is precisely what occurs in a capitalist economy. But it cannot be accounted for in the balancing act that is Say’s Law. Instead the capitalist is portrayed as a disequilibrating element that throws society off balance and into motion. And indeed, isn’t this exactly how the entrepreneur is portrayed today? As an innovating agent rather than a static clone? Needless to say, if he were actually caught in the system sketched out by the neoclassicals he would find himself suffocated with more violence than in even the most stagnant bureaucracy. But this is to return us to the point made in another piece that neoclassical theory, far from an ideology of individualism, is, in actual fact, a highly deterministic and conservative doctrine designed to freeze evolutionary movement and preserve the status quo. But for God’s sake don’t tell Maggie Thatcher!
The Metaphysician in Marx: An Unfortunate Historical Non-Event
Marx was close to establishing the truth of the capitalist system. Very close. But he stumbled. This was probably due, at least in part, to his ideological convictions.
Marx asked himself wherefrom the capitalist derived his profit and came to the conclusion that it must be from the worker. Marx, like Ricardo before him, believed that all value came from labour; that is, the blood, sweat and tears of workers. We might find this a convincing argument from a moral perspective – after all, doesn’t the worker do all the work? Or we may not find it a convincing moral argument at all – is that to say that the capitalist literally does nothing? But whether this is morally convincing or not it is, in essence, irrelevant to understanding the processes of a capitalist economy.
Michal Kalecki – whose theory of profit we studied in the last piece – called the idea that profit somehow came from the labourer ‘metaphysical’, and he was right. Marx should have forgotten for a moment abstract questions about where so-called ‘value’ came from and instead looked a little harder at his equation:
M—C—M’
If he had he might have noticed that at a macro-level the profit (M’) in fact must have come in some sense from the original outlay – that is, the investment (M).
In the last piece we saw that this is precisely the conclusion that Kalecki came to. He showed how all profit comes from investment. We also showed that a constant stream of investment is necessary in a capitalist economy in order for profit to continue to be accrued. (Remember that when the capitalist stopped paying his builders to work – i.e. investing in their labour – they became unemployed and the economy was threatened with massive deflation. It was only because the government stepped in with new investment capital that the economy continued to operate efficiently and bankruptcy was avoided).
Some Consequences of a System in Disequilibrium
What we have quite clearly laid out above is a picture of a system in a perpetual state of disequilibrium. This is where we rub up against the sore spot of those neoclassicals – such as Samuelson – that call themselves Keynesians. Our model – which is without doubt to be found in Keynes, indeed he credited Marx’s M—C—M’ equation as fundamental in a 1933 draft of the ‘General Theory’ – is one that is almost always off-balance; always waiting for that next hit of investment; like a junkie on the verge of withdrawal waiting for a fix.
This is not a model in equilibrium where everything flows nicely and demand automatically cancels out supply. If the investment process is interrupted at all the result could be a deflationary depression. There are numerous reasons why the investment flow might be interrupted; reasons such as uncertainty about future expectations or a Minskian collapse of the financial architecture (both of which we will explore in later pieces – and which do not tally with neoclassical/New Keynesian babble at all).
New Keynesians, following on from Samuelson, try to veneer over this fundamental uncertainty, together with the importance of debt-relations, by employing the IS-LM model – a garbage-in garbage-out abstraction that its own inventor, John Hicks, referred to as nothing more than a ‘classroom gadget’ which he thought should only be used for didactic purposes (a practice I would advise against). The IS-LM and its successor seek to turn Keynes’ theories into a policy toy by integrating a Say’s Law dynamic. In this New Keynesians like Samuelson, DeLong and Krugman are able to maintain their market socialist worldview while recognising the very real need for government spending. (Krugman almost broke his own spell once but quickly retreated back into neoclassical fantasy land).
We will explore the triggers might that set off an implosion in a capitalist economy in later pieces. For now it should simply be noted that these economies are fundamentally unstable. Indeed, it is this very instability that gives them their dynamism and their character. And it is this instability that is constantly pushed to one side by the static theories of the neoclassicals. We do not make understatement when we say that these scholars do not even know the nature of the beast they study, let alone its internal processes.
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In our previous piece on profits we showed how profits ultimately come from investment.
I don’t know who “we” is, but at any rate you certainly did try to obfuscate the fact that profits come from robbery.
But whether this is morally convincing or not it is, in essence, irrelevant to understanding the processes of a capitalist economy.
Translation: A good way to distract from the immorality of the principle is to focus on the process. The ideological move of all instrumental nihilists.
Michal Kalecki – whose theory of profit we studied in the last piece – called the idea that profit somehow came from the labourer ‘metaphysical’, and he was right. Marx should have forgotten for a moment abstract questions about where so-called ‘value’ came from and instead looked a little harder at his equation:
M—C—M’
If he had he might have noticed that at a macro-level the profit (M’) in fact must have come in some sense from the original outlay – that is, the investment (M).
You outdo yourself, sir! It’s not M, commodification, M’, and “profit” themselves which are metaphysical, but labor! Who woulda thunk it?
(Also, nice try misrepresenting Kalecki like that.)
Remember that when the capitalist stopped paying his builders to work – i.e. investing in their labour – they became unemployed and the economy was threatened with massive deflation. It was only because the government stepped in with new investment capital that the economy continued to operate efficiently and bankruptcy was avoided
IOW: The workers somehow mysteriously “became unemployed” (not: were systematically driven off the land which was stolen from them, and then had their jobs aggressively destroyed as a measure of finance retrenchment). The same government which carried out the first crime and is enforcer for the second, and which serves as general thug for the criminal system, became scared enough that the people would actually take back their stolen property. It became scared enough, and there was enough of an oil surplus available, that it decided the path of least resistance was to temporarily engage in stimulus spending, as a tactic it undertook only under duress.
Meanwhile, this command economy never functioned efficiently, only “efficiently”, meaning that the elites efficiently monopolized the power, stole the produce, and shifted almost all the costs onto society, the poor, and the environment.
That may satisfy an Orwellian definition of “efficiency”, but no other.
“I don’t know who “we” is, but at any rate you certainly did try to obfuscate the fact that profits come from robbery.”
You should explain your statements rather than making assertions. Otherwise what you say comes across as sloganeering.
“You outdo yourself, sir! It’s not M, commodification, M’, and “profit” themselves which are metaphysical, but labor! Who woulda thunk it?”
No, it was the labour theory of value that Kalecki was referring to. Not labour per se.
“(Also, nice try misrepresenting Kalecki like that.)”
Google search, at least, before you make assertions:
http://findarticles.com/p/articles/mi_hb6413/is_n4_v17/ai_n28587999/
‘Michal Kalecki belongs to the second group. Indeed, he never dealt with such Marxian topics as labor value and exploitation (in Marx’s sense). People who knew him well have reported that he felt a strong distaste for these kind of subjects which, it seems, he viewed as metaphysical.’
Michal Kalecki belongs to the second group. Indeed, he never dealt with such Marxian topics as labor value and exploitation (in Marx’s sense). People who knew him well have reported…
“People who knew him well have reported”?
Let’s recap: A tendentious piece gives an interpretation of Kalecki’s thought on something the piece itself is forced to admit he didn’t write much about. But on the basis of innuendo, we’re supposed to accept that he fundamentally differed from Marx on the labor measure of value (not to mention that such innuendo is supposed to outweigh what he actually chose to write about for publication).
Most people who knew Kalecki said the same thing. It’s well-known to those who move in those circles.
And you can also establish it by carefully studying his work.
Wow. attempter vs Philip Pilkington.
Me I’m rooting for attempter, but I will confess Mr Pilkington does sound relatively even in his response here, so far as I’ve read.
Don’t let me give the wrong impression. I am a huge fan of both. But Mr Pilkington so often comes across to me not so much combative as condescending.
Also, to try to contribute some value, to both: in my opinion sarcasm is almost never an effective rhetorical device.
If someone kept asserting that the world was flat to bolster their religio-philosophical view of the world, you’d feel like condescending on them too.
Adhering to the LTV is a bit like saying the world is flat. No one says it anymore — unless they’re cranks with a political agenda.
I’m not arguing with Attempter anymore. Any didactic value was lost after my first response. Then — as usual with some of the commenters on here — it becomes an argument based on semantics (“that’s not what I mean”) or personal political viewpoints (“LISTEN TO MEEEEE!”).
I’m not arguing with Attempter anymore.
When did you start arguing?
Any didactic value was lost after my first response.
Mm, no. It was lost years ago when I stopped listening to lies from the likes of you, and started maintaining focus on the main fact each time. In this case: All profiteering descends directly from original robbery and continues to comprise new robbery. You know, that “morality” stuff you disparage as oh so declasse.
Then — as usual with some of the commenters on here — it becomes an argument based on semantics (“that’s not what I mean”)
Yes, that’s all you’ve done the entire thread (and in previous posts), as you ever more bizarrely try to pretend this is anything other than a simple crime and justice issue. (Not to mention how it’s proven that a just world couldn’t possibly be less practically productive than the criminal system that now exists.)
@attempter, whilst I agree with your vitriol over power distribution as a “M” right, it would behoove us all to dig deep into it origins.
Skippy…Historically….city’s have been raped to add labor, or sacked to remove it, the 18th and 19th century’s are not our friends, the opines are based on metaphysics or I don’t know so insert this or not…beliefs are raped with impunity on the event horizon…get ahead of it.
Yes, and I’ve spent this thread insisting on origins, while the poster’s agenda is to pretend they don’t exist.
I used to run sub 9 min 2 mile cross country’s at a 5′ 10ish height, in the military running with in platoon formations was…Hell.
Skippy…democratic exorcises (snicker), of which you love, are a formation, one can not exorcise (~~~), ones self from.
Whether or not you like the one piece of sarcasm in that comment, I’d say the rest of it is straight substance.
And however “even” this person’s tone may be, do you see any substance in anything he’s written here? Reread all the comments. One thing comes shining through: The capitalist apparently just magically came into existence, wealth hoard and all, and started “investing”. That’s how the Book of Genesis, Pilkington edition, would begin.
Meanwhile he spent the entire thread dodging the real origin of this hoard, not to mention the ongoing robbery from people who actually work.
This particular “equation” is from Marx whose works Kalecki was intimately familiar with.
He stumbled? I think the problem was mostly that he died. At key points in volume 1, and all over volume 2, Marx has inserted variations on the statement “all of the stuff I say here changes once you introduce the credit system”. Now, with Graeber’s interview/book in mind, you could certainly argue that he was wrong not to treat with the credit system earlier, but so say that he failed “due to his ideological convictions” strikes me as rather cheap.
When I talk about his ideological convictions I’m referring to the labour theory of value. That’s what is at issue in the above. If we accept the Kaleckian equation (or the Keynesian equation) it is clear that profits do not accrue from ‘surplus-value’ — that is, the extra ‘net worth’ drained off the worker in the working day.
I’m not taking cheap shots — I consider Marx one of the greatest thinkers ever to have lived — but if he’d accepted what I put forward above his entire ‘surplus-value’ theory would have fallen apart. If you’re familiar with Marx you’ll know how damaging this would have been to his ideological argument.
Would it? If you start with credit, then what is promised in stead of surplus value, is future labor time. Sure, you lose the link between produced goods–alienation (though I suspect you could also rephrase that), but you’re still talking about a system that only keeps running because of the worker. And the only way any individual worker can get out of that dynamic is by accruing so much money that he won’t need to sell his (future) labor time to the producer again.
That is, you don’t have extraction of surplus value from the labor process, but you have a system that works because workers are willing to accept that they work now in exchange for the promise of pay later. But that still involves trust on the part of the worker (who may or may not be desperate because of other obligations). Labor remains central to the whole thing.
All true. But that is sociology, not economics.
And Marx’s political position on these things matters a great deal whether you like it or not.
Huh? Why is trusting you’ll be paid later suddenly a ‘sociological’ matter? (Ignoring, for the moment, the fact that economics can easily be argued to be a subtype of sociology.) It rather shows that trust is far more important than is usually acknowledged.
Secondly, Marx’s political position had to do with the fact that he felt the workers were being fleeced out of rightful compensation for their contribution to the production process. It is a detail whether this is because the SV is sucked out of the worker during the production process, or through a combination of investment+labor. Yes, the investment is a necessary component, but in order to realize the profit you still need to produce (and sell) the goods.
I would say trusting is absolutely a sociological issue. Yes, it plays into economics. But then so do cultural aspects and lots of other things. We have to say at some point that these are separate issues. Otherwise we’d get majorly bogged down.
Then I think you should read your own interview with Graeber again. ;) That whole credit/debt system he talks about only exists by virtue of a reciprocal willingness to trust each other (and/or to be generous). Sure, this gets perverted in lots of ways, and you can introduce violence into the equation in order to enforce compliance, but those are side issues.
(Also: I’m not sure why I have to keep asking you this, but could you please stop adding stuff on the end like “If you’re familiar with Marx you’ll know how damaging this would have been to his ideological argument.” It’s tiresome.)
I think that you are misunderstanding Marx’s opinon that “profit come from the exploitation of labour”, which has nothing to do with the “labour theory of value”, which is just a theory of equilibrium prices of commodities.
Marx’s theory works this way:
1) Capitalist hires some workers and buys some materials to produce some stuff, that he plans to sell for 100
2) In order to have some profits, he has to pay the workers and the materials less than 100. Let’s say that he pays materials 50 and workers 40, so that he has a profit of 100 – (50+40) = 10. The capitalist thus puts in 90 in advanced capital.
3) Let’s suppose that the capitalist then uses the profits for personal consumption, so that deflation doesn’t occur and the cycle can go on indefinitely (“simple reproduction of capital” in Marx’s terms).
4) Now there is a question: why do the workers agree to be paid less than the full amount of the “added value” that they added to the materials, instead of just become self employed and keep all the money for them? The reason is that they cannot work by themselves since, in modern economy, most stuff is produced in mass production, and it would be uneconomic to produce, sy, cars as artisans. Thus the workers need the capitalist because they don’t have the 90 in advanced capital to start the mass production, or in other words the capitalist owns the means of mass production.
5) As a consequence, profits are a rent on the advanced capital, but the advanced capital never goes away because it is reproduced in every cycle. Thus, in this “simple reproduction” situation, the capitalist is just a rentier that will consume his rent forever. Rent is by definition a deduction from the value produced by someone else (the workers).
6) But in reality, capitalists compete a lot one against the other, by trying to grab each other’s market share. So they don’t use their all profits for consumption, but they spend a lot of profit to improve their technologies and increase the scale of their production, which drives down the price of their products. This continuous additional investiment keeps the absolute quantity of profits high.
7) But while the absolute quantity of profits doesn’t fall, the quantity of capital goods increases faster, so that all production becomes more capital intensive, and the consumption stays more or less static. Thus the rate of profits falls (because capital increases faster than profits).
8) Hence a capitalist economy in equilibrium is in itself deflationary, although esogenous shocks (such as technologic improvements) can reset upward the rate of profit for a while.
But, as Foppe over here says, Marx never included a full theory of credit in his works. If you add Minsky to Marx, you can have a model that gives long periods of non-deflationary capitalism as long as the credit system keeps demand high increasing leverage, and sudden crises when debt can grow no more.
“Now there is a question: why do the workers agree to be paid less than the full amount of the “added value” that they added to the materials…”
There it is. You’ve just added a labour theory of value to your explanation. That ‘added value’ you speak of, in Marxist terms, is surplus-value.
In reality profit does not come from this — unless you want to make moral judgements — it comes from the original investment (plus capitalist consumption, in your model).
So, no, even if you added a credit system to your model you would still be assumed that something called ‘added value’ or ‘surplus value’ was being extracted from the worker.
Now, the labor measure of value is self-evidently true because beyond the products of nature, nothing can be done without: Labor.
The necessity and desirability of high concentrations of capital itself, on the other hand, is questionable.
Needless to say, “profits” and capitalism are unnecessary and destructive.
In reality profit does not come from this — unless you want to make moral judgements — it comes from the original investment (plus capitalist consumption, in your model).
Clearly “moral” is a code word here meant to disparage not only all morality (you know, one of the few core things that make us human?) but all facts which get in the way of this Theory of Immaculate Profit.
For example, this phrase “original investment” makes me wonder where capital came from in the first place, and how the capitalist got his hands on it. Hmm, wasn’t it stolen in the first place? Through land enclosure and other violent resource grabs? Yes indeed. Marx even had a term for it: Primitive accumulation.
How come this wasn’t mentioned as prior to what you’re fraudulently calling the immaculate “original investment”.
Oh, right. We didn’t want any filthy peasant “morality” stinking up our spic-n’-span capitalist technocracy discussion. Honestly, who lets bums like that in here?
You’re making a philosophical argument and you can’t even see it. Besides, sure we can ‘trace’ all finished products back to ‘labour’. But we can also trace them back to those things consumed by labour to make it labour-worthy — like water, air, carbohydrates etc. Why not have an oxygen theory of value? After all labour cannot produce without sufficient oxygen!
From an economic perspective you cannot measure LTV. It is unquantifiable. It is, to use Marxist terms, a mystical abstraction. It doesn’t exist in tangible form. And that’s just it. That may shatter your ‘scientific socialistic’ worldview, but that’s the reality.
Anyway, LTV has been dead for at least a century. I’m not debating it anymore. I may as well debating the scientific verificity of caloric — in fact, the two theories are rather similar.
You’re making a philosophical argument and you can’t even see it.
“Can’t even see it”? When do I ever claim to make anything but a philosophical argument, which is all any of us ever makes, ergo for example my insistence on morality? You’re just sore that I call you out for your (misdirectional pro-system) argument. (Your disparagement of morality is of course a(n a)moral argument itself.)
(You should also proofread better. You start out accusing me of being an inadvertent philosopher, but end up accusing me of attempted science. I’m of course always an intentional political philosopher.)
Besides, sure we can ‘trace’ all finished products back to ‘labour’. But we can also trace them back to those things consumed by labour to make it labour-worthy — like water, air, carbohydrates etc. Why not have an oxygen theory of value? After all labour cannot produce without sufficient oxygen!
Do you have a comprehension problem with the term “nature”?
From an economic perspective you cannot measure LTV. It is unquantifiable.
1. I never said I need to quantify it. I said it’s self-evidently true on the moral, rational, and practical levels. Nevertheless..
2. It can certainly be quantified as effectively as any other actual economic input, and far better than fake ones like your fraudulent “profit” construct.
Nor are we restricted to state-dictated money for such measurements. For example, a time bank can extend its domain to include exchange of goods by measuring their value by the time it took to produce them. If in principle a VAT can be an accurate monetary measure, then so can a labor-added time measure be accurate.
Hilarious. Attempter accusing someone else of having a “comprehension problem.” Almost as bad as if attempter had accused someone else of having an “insecurity problem.”
Attempter, sir, your “comprehension problem” is that you do not know what you do not know. You are unable to sift through those things that are in your sphere of knowledge and those things that exist outside of your sphere of knowledge.
Anyway, buddy, call us all “amoral” or “immoral” or any other kind of vapid, inconsequential pseudo-epithets, but all your blather don’t mean nothing. You can have all your own personal “morality” and sit in judgment upon everything else, but all that doesn’t even make you Sisyphus. It’s more meaningless than all the meaninglessness around us. It doesn’t even get the boulder started up the hill, let alone to the point where it starts falling back down.
You want to make the argument that investment produces savings rather than savings being required for investment. Fine, I’ve got no problem with that; that what the credit system does. And real “savings” amounts to the economization of means through increased productivity.
However, that isn’t something the Marxian LTV ignores. Simply stated, it amounts to saying that workers produce more value/output than is returned to them as wages from the purchase of their commodified labor-power, and that that extra value and output shows up as the savings and investments of capitalists. And it’s the vagaries of that surplus-value and its distributions and it’s perpetual need for expanded reproduction that drive the whole system, not labor itself. And “value” isn’t some abstruse metaphysical concept, but rather is shown forth in its deviation from price, i.e. when market prices don’t clear. (What? If something isn’t measurable and “operationalized” it doesn’t thereby exist? Sheer positivist nonsense! Imputed “entities” to make sense of measurable data are essential to explanatory theories.)
And the key point is that all investment must be realized from production incomes, wages and profits, to pay off the credit speculatively extended in anticipation of future production and production incomes. Investment itself can’t be the source of profits, since profits are required for investments. And it’s the competitive situation between capitalists that drive them to make productivity-improving investment (and thus generate savings qua reducing costs), such that the system is driven into dynamic instability. Which is why Marx’ theory is one of over-accumulation and not of over-production/under-consumption, because the distributional consequences are already baked-into-the-cake with the need and difficulty of realizing productive investment: as profits over-accumulate and opportunities for productive re-investment are used up and diminish, the build up of credit/debt extension mismatches what can be actually realized and crisis occurs. So the connection between the realization of productive investment and the problem of real effective aggregate demand has already been made. One can think of the accumulated “mass” of labor-value that builds up as what would be required to sustain full employment at wages sufficient to permanently sustain adequate real effective aggregate demand, which is precisely what Marx does think is long-run possible under capitalism.
“Why not have an oxygen theory of value? After all labour cannot produce without sufficient oxygen!”
Please don’t make really bad philosophical arguments. (Er, I’ve seen you badly misconstrue various philosophers before. Yes, former philosophy major). The reason that labor would be associated with a criterion for economic value theory is that labor is the only “factor of production” endowed with intentionality. (Though nowadays robotics and AI might be giving that proposition a run for the money).
“Simply stated, it amounts to saying that workers produce more value/output than is returned to them as wages from the purchase of their commodified labor-power, and that that extra value and output shows up as the savings and investments of capitalists.”
Yes. And how does the ‘value’ turn into the extra money that capitalists receive? (Hint it doesn’t; this is pseudo-philosophical nonsense).
“And “value” isn’t some abstruse metaphysical concept, but rather is shown forth in its deviation from price, i.e. when market prices don’t clear.”
How does value ‘deviate’ from price if its not measurable? If the price of a good is X how can we meaningfully say that X deviates from the ‘value’ inherent in the product if we cannot give this ‘value’ a variable?
There’s a good question for a philosophy student.
“Er, I’ve seen you badly misconstrue various philosophers before. Yes, former philosophy major.”
Strange. I don’t recall you calling me on it.
Then again, every bloody philosophy student has their own ‘interpretation’ of Nietzsche or Kant or whoever. It’s a bore.
“The reason that labor would be associated with a criterion for economic value theory is that labor is the only “factor of production” endowed with intentionality.
This is just a metaphysical statement. It always comes down to this. Then we start jacking-off like good philosophers to what ‘intentionality’ is and what it means.
‘Does the horse that pulls the plow have intentionality? Should it’s labour be included in the determination of our value pseudo-concept? What would an animal rights philosopher say?’
Metaphysics and trollop. These are moral arguments with NO bearing on economics. If you want to form a worldview out of these speculations you’re a free citizen and no-one is stopping you from doing so. But that’s all it is: a worldview.
Well isn’t this nice? Another Pilkington post, with Anonymous Jones sucking up to the Pilker.
And I just ate. Where’s my f**king barf bag?
Philip Wrote
“…..Besides, sure we can ‘trace’ all finished products back to ‘labour’. But we can also trace them back to those things consumed by labour to make it labour-worthy — like water, air, carbohydrates etc. Why not have an oxygen theory of value? After all labour cannot produce without sufficient oxygen!”
How horrible. You could, but then that would be a rather tedious exercise because you already have their precipitate which some of us call labour.
In any case you need not have distracted your readers with a series of silly pot shots at Marx and Marxian economics. You should have just pushed forward with your focus on investment. Which by the way I think most Marxists would agree with. That Marxist view the ultimate origins of that investment in the exercise of human labour does not stop them from understanding the centrality of investment to the circuit of capital.
Indeed for Marxian economists investment in labour saving technological innovation is understood as the dynamo of capitalist accumulation proper, i.e., when it is not in the form of accumulation by dispossession.
So please do continue but just help us all stay on topic by staying on topic.
“Yes. And how does the ‘value’ turn into the extra money that capitalists receive? (Hint it doesn’t; this is pseudo-philosophical nonsense).”
Umm… that’s obvious and has already been explained. “Value” has already been extracted in the production/labor process, and the question becomes: will it be realized on the market?
“How does value ‘deviate’ from price if its not measurable? If the price of a good is X how can we meaningfully say that X deviates from the ‘value’ inherent in the product if we cannot give this ‘value’ a variable?”
Because “value” amounts to a unit-of-account in an explanatory schema. Because you can’t explain nominal price formation in terms of nominal prices. That’s tautological and non-explanatory. (Here’s a hint: if the productivity of labor is technically doubled, labor-value has not thereby increased, but rather the unit-labor-value of the produced item has halved). And the values produced then partly re-circulate as surplus-value, (which is not quite the same as profit, since it is redistributed among several payment streams), which drives the system. (BTW the “transformation problem” is not about the conversion of labor-values into cost-prices of production, but rather it’s about the inter-sectoral redistribution of labor-value to achieve the supposed equalization of profits that drive investment allocations, such that it amounts to a complex account of industrial price formation under technical change and crucially of how large-scale capital-intensive firms draw off labor-value from lesser labor-intensive sectors through concentrated oligopolistic market power. In fact, what it states is not that labor-values must be translated into cost-prices to have any effect and thereby labor-values are redundant as the inverted neo-classical criticism had it, but rather that cost-prices can’t be determined without first determining the distributions of surplus-value, which should be fairly obvious). Money and the various functional roles it plays is itself something that stands in need of basic explanation in any adequate economic theory. And obviously, things must first be produced before they can be exchanged and thus converted into money. That’s what the reproduction schema is all about: it’s a requirement imposed as a fundamental constraint by the production system on market exchanges, which may or may not be market-mediated, but which determines whether expanded, balanced reproduction is realized or not. “Value” then amounts to a kind of counter-weight to nominal prices and monetary flows, because there is always a potential gap between value produced and value realized, and when that gap widens, price-quantity adjustments don’t “clear”, monetary flows dry up and financial asset “values” collapse.
IOW it’s not at all unusual to have imputed unobserved “entities” in an explanatory theory. Because if you insist on entirely measurable and operationalized variables, you might just end up with spaghetti-o’s, where it’s not clear what the alleged explanation is about or what the relevant domain of phenomena is that it would apply to. (An outcome not uncommon in economics. One of the things philosophers are tasked to think about is what constitutes a good explanation and what doesn’t). At any rate, even if you reject Marxian LTV, whether on good grounds or not, you can’t just reject or denounce all economic value theory, since questions about the value of “things”, whether assets, products or services, are at the core of its domain.
“Strange. I don’t recall you calling me on it.”
You were so far of the mark that I didn’t bother. And I don’t think you have any good grasp of what the term “metaphysical” means, nor of the various ways in which it might be criticized rather than just denounced. Vulgar positivism seems to be just about all you can muster. Philosophy might be a bore. Sure. But you’re just boorish.
“This is just a metaphysical statement.” Umm… intentionality is a metaphysical concept? I would think it’s a fairly common-sense one. And since you’re dealing with a social and not a natural system, ultimately the agent’s perspective and the systemic-structural perspective must be reconciled somehow. And appealing to the experience of labor and its conditions and the use-values it produces and the human and natural ends that they might serve is hardly the least relevant candidate criterion for evaluating (sic) the system. It might be a bit better than the merely technocratic one of what merely ‘stabilizes” the system and keeps the whole scam going, holding the large majority of the population hostage to the fortunes of the capitalists.
BTW Marx’ work has a considerable phenomenological dimension, which you mistake for “metaphysics”, which is to say, he organizes a considerable amount of empirical material together with his concepts, as much as was then available. But then if you’re a positivist, there can be no underlying reality structuring the data, just mere appearances and more-or-less arbitrary relations between them. And at least some of his prognostications of the developmental tendencies of capitalism, especially with regard to the tendency toward the oligopolistic concentration of capital, were accurate.
But the basic question is just what causes economic crises? Are they mere accidents or endogenous to the system? And if the latter, why isn’t the problem of the realization of value relevant to the account?
There be bankers is hardly an account of the sources of productive surpluses and profits. Beside which Marx has an account of the crucial role of credit and finance in Vol.3 of “Capital”, (placed there for reasons of the systematic organization of the work), including a quite prescient sketch of the role of “fictitious capital” and how the crisis in the production cycle is always much worse if the cycle is prolonged by means of financial speculation on asset “values”. (Er, which might go to explaining nowadays why flooding the system with excess money supply and zero interest rates to prop up such asset “values” is of little avail). It’s true that his account was made easier by writing in the gold standard days, (which also helped his crisis theories by virtue of the deflationary bias it imparted), and at a time when the financial system (and the ratio of financial assets to output) was far less developed than nowadays. But he does reverse the quantity theory of money, and at least approaches an endogenous theory of money and credit.
In short, I don’t see much that your bumptiousness has accomplished here, aside from displaying certain of your points of ignorance.
“Umm… intentionality is a metaphysical concept? I would think it’s a fairly common-sense one.”
I know one philosophy student who needs to go back to the books — start with scholastic metaphysics:
http://en.wikipedia.org/wiki/Intentionality
You mention phenomenology. Vulgar positivist that I am, I recognised that you must have missed a lot of that work (Heidegger, Merleau-Ponty, Husserl, Sartre) because ‘intentionality’ was front and center. Of course, you’ll say that these thinkers were ‘not metaphysical’ and I’ll say… stop talking to me; I hate philosophical arguments. I love philosophy, but, like sexual fantasies it should be kept to oneself.
Life advice to be given to a child: Beware philosophy students. They will tell you how little you know about philosophy while displaying IMMENSE amounts of philosophical ignorance.
Obviously, the term was meant in a roughly Hegelian sense. (C.S. Peirce had a similar concept, though he, as usual, gave some weird neologism of his own invention to it). Husserl was just a schoolboy back then. But the idea that human being possess agency, i.e. intentional capacity, is scarcely controversial or “metaphysical”.
But then you have address any substantive point that I made, just sneered and displayed your own preening prejudices. No, debt is not the source of profits. (For one thing banks themselves need to be capitalized.) A better formulation of your point would be to say that profits are produced by the expectation of future profits. But then there is nothing to say that this process of endless expansion in anticipation of future re-investment opportunities would not reach its limits, whether temporarily or permanently. Because productive surpluses need to be realized.
But I’m quite familiar with this Keynes/Kalecki/Sraffa territory, so you aren’t somehow instructing with your benighted condescension and biliousness. Who are you? You’re just a journalist.
From an economic perspective you cannot measure LTV. It is unquantifiable.
Ummm… you are aware that engineers and mechanics have a concept called “horsepower” which is to measure the output of engines. As the name implies, horsepower is ultimately derived from the labour of horses.
Those running projects plan in terms of the number of man-hours needed to complete something. They even expand and contract this unit into man-minutes and man-weeks, man-months and man-years as needed. Each man-hour represents an hour’s worth of labour — not an hour’s sleeping or socializin, but an hour’s labour.
Wages are denoted in amount per hour and, again, that’s an hour’s worth of labour, not of just hanging around, but of actually working.
It would seem that those who aren’t economists don’t have any difficulty whatsoever in measuring the amount of labour that goes into production process and, what’s more, using those measures in a variety of straightforward and practical ways.
Given that, determining the amount of labour that goes into the production of any given good or service would seem to be more a question of engineering and accounting than any inherent theoretical difficulty. It wouldn’t be hard so much as tedious.
Why economists can’t do this, I don’t know.
If your want something that’s really unmeasurable and unquantifiable, I suggest you look at what’s usually offered in place of the labour theory of value: marginal utility. As it’s usually presented, marginal utility comes across as an entirely subjective quality, prone to wild swings based on passing whims. Given some major breakthroughs in psychology, we might be able to reliably measure and quantify it, but until such breakthroughs occur, it seems a pretty useless notion.
@Kukulkan: horsepowers can generate much usefulness (use-value) or be wasted. Also there is use-value in items not produced by work (human work at least), for example the air that you and I are breathing right now.
While there is some truth to the LTV essentials, on its own it is worthless. Labor may be a principle of retribution or whatever but it is not the only origin of wealth (use-value) and can be wasted into doing nothing of use. For example if I move a rock from here to Brussels, I make a huge work… but, as nobody wants that rock for anything in Brussels, I produce zero value (it could be even negative, for example soldiers typically produce negative wealth because they are into killing and destruction, not construction or production), yet they do work.
@Maju
The claim was that labour can’t be measured; that it is unquantifiable. This is clearly nonsense.
As for the usefulness of doing so, it would the same as for any other form of measurement: so you can make valid comparisons between things across space and time. The labour involved in moving a rock such as Cleopatra’s needle from Alexandria Egypt to London can be measured. So can the labour involved in moving its twin from Alexandria to New York. And the labour involved in moving a similar obelisk from Luxor to Paris.
Once we have such measurements we can start making comparisons between them and against other measurements such as the distances travelled and use those to derive other measures, such as the effectiveness of different forms of transport. Analysis can also be made as to how much labour was involved in actually transporting the rocks and how much was needed to overcome various obstacles and to deal with various problems that arose due to poor planning, and so on.
Now, you may have no particular use for any of the Cleopatra’s Needles and so have no interest in how they were moved, but to claim on that basis that the labour involved can’t be measured is the height of self-agrandising solipsim.
I swear, economics constantly comes across like a Chemistry class where the professor announces that “Today we’re going to talk about the properties of the element lead” and one of the students stands up and says “Oh, I don’t like lead. It’s dull. Can’t we talk about rubies instead. I like rubies. They are really pretty” — and the student believes that not only is the comment relevant, but that it’s also an informative contribution to the discussion.
You don’t find it useful. That’s nice. But it doesn’t somehow magically obliterate the fact that it can be measured.
Profit comes from the original investment. But then where does the original investment originate? What is provided by nature is then transformed by investments? No, by labor. And no, nature in and of itself is not the transforming agent. That agent is labor, or humanity if you please. So it seems to me that profits originates from investments is simply a circular argument that gets no where.
“But then where does the original investment originate?”
I say it many times in both pieces: either private sector debt (capitalist takes out bank loan) or government sector deficits.
Saying it comes from labour is just an abstraction.
Mr P. You are heroically laboring as a true scholar by actually reading many of the texts and writing about economics. Needless to say, your delving into Marx might profit from looking further into left field. As far as M-C-M’, the original or primitive accumulation of profits comes before the market is developed. It comes in the form of the alienation of a society from its own assets. This comes by means of force. Hence, the first investment is to raid from the stationary farmers and artisans, the productive working communities of the fruits of their labor. People have made the original investment in banding together into communities capable of food production, a stable agriculture, as opposed to variable hunting and gathering, and built up economies of surplus food, artisan manufacturing, the typical peasant villages. Raiding parties or organized warrior groups, after waiting for the grains to be built up and other useful tools and implements to manufactured, move into to loot or incorporate into kingdom or empire. Hence, the Marx’s idea of a feudal society moving towards a capitalist society, was founded upon the initial investment of people laboring to build their communities and the economic foundations that supported them. This of course was done over time without government or private capital, since that had yet to develop to the level we talk about today.
But, after the pump is primed, where do the profits come from? M-C-M’? Yes, because C can be anything, even a financialized commodity such as mortgage backed security, sitting in between trances of other collateralized debt obligations. And investment, the creation of new spaces, where new markets can develop, allowing for more trade, and hence more profits, is definitely a part of the equation. Building up the capacity to supply the laboring public with more commodities, such as education, health care, leisure vacations, home ownership!!! It becomes of virtuous cycle of profits with each new investment, which pays for itself, in supplying more demand, and more profits. These profits, M’ start the cycle all over again, creating new markets or new spaces within established markets for profits to be deployed to supply something new to be sold.
Don, I think we’ve seen enough to realize it comes from magic.
But certainly not from primal robbery.
Debt. DEBT. D-E-B-T.
Do you even bother reading comments that eat away at your century-old worldview?
If you put enough dashes between those letters, it might become so vaporous as to aid your obscurantist intent here.
Meanwhile the truthful words I insist upon, violence and robbery (the sources, of course, of “debt” in your sense of the term; you ought to read the recent Graeber post to which your name was attached – you might demand it be removed), need no such punctuation.
Sorry for the late reply.
I think that you are mixing two different things:
a) one is the idea that all value is produced by workers. This is of course implied by Marx but is NOT the same thing of the “labour theory of value”
b) the second is the labour theory of value proper. This is a theory postulated by Ricardo that says that the equilibrium price of every stuff is proportional to the amount of labour needed to produce it. For example, it to produce an apple you need 2h of labour, and the apple sells for 10$, and you need 3h to produce the orange, the orange will cost 3$.
My model needs a), but not b), which is the LTV (although most people misunderstand the LTV and think that it is a metaphisical idea about value).
The LTV is implied in many simplified assumption that are still used today. For example.
In the country A, there are some people who are poets, and some others that are plumbers. Say 70 poets and 30 plumbers.
But the people of A need plumbers much more than poets. So what happens? there are two steps:
1) plumber can ask a lot of money for their work, whereas poets gain very few. This is rationing through prices.
2) but then, since the poets are rational actors, they change their trade and become plumbers. This way the market is efficient, because through prices incentives it tends to produce more useful stuff (plumbers).
Now, if you think of point 2), that I think is a pretty mainstream assumption in simplified economics still today, it is obvious that workers will shift from “poets” to “plumbers” as long as the plumbers are paid more than the poets. But while the number of plumbers increases they are forced to lower their prices, while poets will ask higer prices because of diminished competition. The market will stabilize only when plumbers are paid as poets: but this means that the cost of their services will be proportional to the labour time used – the LTV.
a) one is the idea that all value is produced by workers. This is of course implied by Marx but is NOT the same thing of the “labour theory of value”
That’s what I’ve been arguing. (But adding natural resources as well. Nature + labor = value.)
I think that you are mixing two different things:
a) one is the idea that all value is produced by workers. This is of course implied by Marx but is NOT the same thing of the “labour theory of value”
b) the second is the labour theory of value proper.
Pilkinton, OTOH, seems to be intentionally mixing and confusing the basic fact with whether or not a particular measure of it is accurate. This, I’m contending, is a systematic obscurantism on his part.
Philip:
I don’t believe one can dismiss arguments by saying they are philosophical. BTW, I also think it impossible to grasp the nature of money without resorting to concepts (values, symbols, real, nominal) that have significant philosophic implications. Philosophy is also fundamental to understanding politics, which is an obvious part of political economy.
Without the concept of value (a philosophical category), economics has no meaning at all. Economics uses the terms nominal and real, which is a derivation from philosophical categories of real: material and relational. Oxygen, air, carbohydrates are all in the category of material, labor is in the category relational, there is no labor “substance”. Labor is a relationship.
You are correct that we cannot measure labor, but we DO measure labor time (otherwise wages and productivity have no meaning). And that category of time is yet another philosophical category required by economics (e.g., what does “discount” mean without time?). Is time a material?
I am certainly NOT saying we need to have a long, complex philosophical discussion every time we talk about economics, but we should not dismiss the philosophical basis of economics as trivial or unimportant.
I have sympathy for this view. It’s one of the reasons I wanted to start the Graeber thing off. But…
“I am certainly NOT saying we need to have a long, complex philosophical discussion every time we talk about economics…”
Unfortunately this is what happens when you introduce these questions. You ever seen Marxists meet? I haven’t, thank God. But I’ve seen them on the internet bickering about the meaning of ‘alienation’ or ‘value’ or whether Althusser really was influenced by Hegel or whether this influence actually came through Gramsci who in turn was influenced by Croce who in turn was influenced by Hegel.
Yawn-fest. No wonder they never get anything done!
Yes, those discussions are not only a yawn fest but a waste of time. I have had more than my share also.
When you bring up something fundamental to some people’s political and economic context, such as LTOV, you are going to get exactly that discussion.
That is not saying that one should not post on the subject, if it is germane. I didn’t think your swipe at LTOV was necessary to the article, and the subject does require a lot of abstraction and philosophic discussion to give it a proper hearing. Probably best not to go there unless absolutely required.
What of the equation M-C…P…C’-M’, wrt how Marx approaches the labor theory of value?
Is it unfair to argue that value as such is specious or factitious and that profits are just one aspect of a larger metaphysics?
Yes, I think ‘value’ is largely a fiction cooked up to justify ideological worldviews (LTV for Marxists — but also Marginal theory of value for neoclassicals). These theories give metaphysical weight to these systems of thought.
Oh, and the expansion you put forward above doesn’t change my argument.
Another interesting piece, thanks. I am interested in your forthcoming minsky piece.
A couple of remarks.
A capitalist, in your example, is not someone with capital, but someone with debt. In truth he comes up with an idea, finds the financing (debt, VC etc) and puts forth the effort to build something. Indeed he is a entrepreneur. Bar your cynical remarks on the word in your previous piece. That is work. Complicated work. A marxist capitalist is someone that lends money and extracts a profit for no work. Our ‘capitalist’ here doesn’t have ‘capital’ in the monetary sense. The marxist vocabulary seems to throw many people off here and one view is in fact that the “profit” is simply the entrepreneur WAGE (albeit embodied in equity of the concern, and therefore with big upside) for THE WORK put by the entrepreneur. As if, bringing ideas to life in a modern economy was a dime a dozen. Ridiculous.
What people are appalled by is the inequality that may arise from such arrangements, yes equity may (emphasis on MAY) pay more on the long term for the entrepreneur. It is in fact what attracts many. The promise of riches. Period. Again the marxist narrative seems VERY outdated in a world of ubiquitous bank debt. Savings don’t finance investments, MMT + securitization does.
I find the dynamic point interesting. So yes, profit is the monetary pay that the capitalist extracts for his work and unless he saves it that money, it continuously flows through the system, that much is obvious. Whether ‘the worker’ or ‘the capitalist’ saves that money is irrelevant to the dynamics of the monetary levels. It is just money taken out of / put in circulation. Again only non-productive investment (i.e. cash at velocity zero) creates a deflationary environment. This as far as I know, was not lost on keynes with his liquidity preference (I don’t claim to be any kind of expert).
The ‘surplus value’ is in fact there, there was a product created that was not there before and that is part of “GDP”. So in your example. the ‘builders’ had to go somewhere to build something “new”. I agree that a monetary capitalist society does need growth to keep going. As people need pay to consume. It may not be a bad thing. A ‘limit scenario’ would be where machines do create things for the world to consume and without work we could consume. How goods are distributed in that scenario becomes interesting as no one works. One can argue that today’s deep recession with people un-employed, but living at home (most of the time) eating from walmart and playing XBox is a far cry from the soup lines of the 30’s.
I somewhat fail to see how this contradicts the austrian view. I find MMT to be, well, very focused on the money. While the austrians to be focused on the “good” or commodity in your example. Without money as a financing mechanism there is no ‘good’ (MMT). Without good there is no exchange and no need for money (austrian). It remains that money = work in modern monetary systems.
And while the bootstrapping makes the causality explicit in your example, in steady state, I wonder if your logic holds. Specifically the money in circulation goes down because the entrepreneur gets more efficient and he has non-recurring costs in building the infrastructure. So that money needs to be picked up somewhere else. So the mathematics says that the new investment needed must be equal or greater to the non-recurring expense in the concern, at a macro level.
It is obvious why housing would create such a bad minsky moment where new investment evaporates and little can be done to recapture the same level given that housing is such a big savings magnet.
Looking forward to your production (do you have a website outside of NC?)
“…he is a entrepreneur. Bar your cynical remarks on the word in your previous piece.”
I agree. I was only being cynical because I think when people generally talk about entrepreneurs it is usually vacuous. There’s also the issue that most capitalists are not really entrepreneurs. That’s not a value judgement, just a fact. A CEO is not an entrepreneur. But he IS a capitalist.
“…the “profit” is simply the entrepreneur WAGE…”
I’m not a Marxist so I largely agree with that. With two caveats:
(1) As mentioned above being a capitalist doesn’t usually mean being a entrepreneur.
(2) Profits are often arbitrarily by capitalists — which means that they can, if they want, fleece the place (asset-strip etc.).
As I said, I agree with your sentiments. I’m not a Marxist and I don’t possess those illusions. However, to stress again, capitalists are not usually entrepreneur — to live by that illusion is just as silly as the Marxist illusion of ruthless exploiter.
“Again the marxist narrative seems VERY outdated in a world of ubiquitous bank debt.”
Again and to be VERY CLEAR: I am NOT making the Marxist argument. I’m using Marx because he was the first to truly recognise these dynamics. So, I totally agree with you. In fact, I don’t think the Marxist EVER held up.
“Whether ‘the worker’ or ‘the capitalist’ saves that money is irrelevant to the dynamics of the monetary levels.”
No, this is VERY important. Look at the Kalecki in the last piece. If workers save, all else being equal, aggregate profits go DOWN. If capitalists consume aggregate profits go UP. I might do a piece clarifying this next. It’s VERY important.
“Again only non-productive investment (i.e. cash at velocity zero) creates a deflationary environment.”
No, excessive saving can cause deflation. Remember the ‘paradox of thrift’? Or, to be more tangible: the current deleveraging deflation that we’re going through. Again, I’ll have to do a piece on this next. VERY important point.
“The ‘surplus value’ is in fact there, there was a product created that was not there before and that is part of “GDP”.”
Nope. An investment product (the factory) is not ‘sold’. It is used. So only the outlays that go to finance it (wages etc.) turn up in GDP. After that the products it produces that are sold are measured too. No surplus value here.
“I somewhat fail to see how this contradicts the austrian view.”
Austrians believe in Say’s/Walras’ Law. They believe that if a downturn occurs it will ‘automatically’ fix itself without government intervention through price declines. This is exactly opposite to the point I’m making (it’s also a fantasy, but hey).
“Specifically the money in circulation goes down because the entrepreneur gets more efficient and he has non-recurring costs in building the infrastructure.”
Race to the bottom, I’m afraid. If no new money enters the system GDP will never rise. Profits will stagnate and investment will wind down. Queue: depression. This is a popular Austrian fantasy though (the more serious theorists don’t adhere to it though). It’s logically incoherent.
Think about it. If no new money enters the system we’re all competing for the same money. So, my profit is your loss. It’s zero-sum. Aggregate profits cannot increase. A recipe for depression.
“Looking forward to your production (do you have a website outside of NC?)”
Nein. I put quite a bit of time into researching these pieces to make them fairly beefy (I hope). Hence the drip-feed output.
“There’s also the issue that most capitalists are not really entrepreneurs. That’s not a value judgement, just a fact. A CEO is not an entrepreneur. But he IS a capitalist.”
nope. I dont’ think there is any confusion on these semantics
A worker: works for his income
A capitalist: doesn’t work for his income, income is a derivative of existing capital. income comes from equity or debt.
By this simple definition, an entrepreneur is a worker, a CEO is a worker (he may be outrageously better paid than a rank-and-file worker but he is still a worker). However a retired entrepreneur or CEO may become a capitalist, living off his/hers capital assets). Last I read, 50% US workers are capitalists through 401k.
“(1) As mentioned above being a capitalist doesn’t usually mean being a entrepreneur.
(2) Profits are often arbitrarily by capitalists — which means that they can, if they want, fleece the place (asset-strip etc.).”
Ok, so on (1) I agree and it is worth spelling out. On (2) I actually like when ‘marxists’ focus on the banking system rather than “the capital”. There is no “the capital vs the worker”. 50% of the US is a capitalist/worker and the distinction feels academic and leads to class warfare. It is NC politics. Scarecrow. However there are banks and there is industry. That is how I view the modern “dialectique”. That the banks can create money out of thin air and charge a tax on it is outrageous when you spend 2 years thinking about it. The whole fiat-money birthed as debt in the banking system leads to inequality. Forget “capitalists” at least most capitalists earned/saved their capital (or inherited it). It is the ‘banks” you want to focus on. On that note I find that most MMT’ers get lost in the weeds, they focus on high-powered money and central banks, and ignore (at least in the treatments I have read) securitization, which is the modern way of creating “infinite” effective liquidity in the economy. The CB lost control of that. I can’t remember who said “central banks lost control of monetary levels long time ago”. The point being that monetary creation by the banking system through debt is what should really be in question from a ‘marxist’ standpoint (and is in some of the lit I read).
““Whether ‘the worker’ or ‘the capitalist’ saves that money is irrelevant to the dynamics of the monetary levels.” No, this is VERY important. Look at the Kalecki in the last piece. If workers save, all else being equal, aggregate profits go DOWN. If capitalists consume aggregate profits go UP. I might do a piece clarifying this next. It’s VERY important.”
Hmmm, I do not understand what you are saying above. In fact, if workers ‘save’ then profits go down, if capitalists “save’ then profits go down. If workers spend then profits go up, if capitalists spend then profits go up. I anyone SAVES money is out, SPENDS money is in. you are violently making my point :) almost as a definition of the velocity of money. Not to be cynical but I think you are off target here.
““Again only non-productive investment (i.e. cash at velocity zero) creates a deflationary environment.” No, excessive saving can cause deflation. Remember the ‘paradox of thrift’? Or, to be more tangible: the current deleveraging deflation that we’re going through. Again, I’ll have to do a piece on this next. VERY important point.”
cash at velocity zero == SAVINGS == NO INVESTMENT. We are in agreement. This is classic Keynes, AFAICT.
““The ‘surplus value’ is in fact there, there was a product created that was not there before and that is part of “GDP”.” Nope. An investment product (the factory) is not ‘sold’. It is used. So only the outlays that go to finance it (wages etc.) turn up in GDP. After that the products it produces that are sold are measured too. No surplus value here.”
Not following you here either. The factory is build and SOLD to the capitalist even in your example of the fantasy island. It DOES go to GDP. (the workers make 5)
“Think about it. If no new money enters the system we’re all competing for the same money. So, my profit is your loss. It’s zero-sum. Aggregate profits cannot increase. A recipe for depression.”
I have been thinking about it actually. Here is where I come out. In your “island” example, there is a depression because the people who work in ‘infrastructure’ are not employed in the second cycle. Classic Keynes says you need to give these people mullah to consume to go counter cycle otherwise you have a pure depression at a price and activity level. You conclude from that that the profit that the capitalist sees is the investment. I think that does not hold beyond your example, I am not even sure it is true in your example. We see a depression because half your population is un-employed (the builders don’t have anything to build) and the only way to keep things going is through keynesian public spending. In this narrow case, the ‘profit’ is because of the investment. In the general case the ‘profit’ is the wage. In fact the ‘austrian’ market view would say that those that build house and those that build bread will exist in market EQ. If building houses was done every year that is. In your example you choose a NON-RECURRING item (building the factory) and because of that you see a depressed demand in second cycle because you only have 2 products. But an economy where men hunt mammoth and women provide babies is in fact stable without monetary involvement and a pure barter approach. What I am getting at is that I am growing convinced that your ‘profit is investment’ is actually misguided. Another example: the wages TOO come from the ‘investment’. The monetization comes from the existence of money (tautological) and the existence of money comes from debt, which takes the form of investment.
I don’t mean to be harsh, I actually enjoy your writing, but to be honest, I find your main argument flaky. I will spend some more time noodling on it, because I am actually interested in minsky + generalized MMT, which I pin as the main underlying theme of the current crisis. but I am 80% convinced you are embarking on a wrong path.
Okay, I’ll try to deal with some of this.
I don’t accept your definition of capitalist and worker. As you can see from the piece a capitalist is anyone who takes money and then invests it to make more money (M–C–M’ again). An entrepreneur does this directly, a CEO does this insofar as their salaries are tied to to company growth and they are in charge of this.
When I talk about asset-stripping I am referring to CEOs tearing apart a company in the long-term to get short-term gains. This is a HUGE problem. I’m no class warrior but if the US doesn’t sort this out they’re going to be in major trouble.
I don’t understand where I go wrong on saving. The more saved, the less profit. It’s pretty basic. But SO important.
When you said ‘non-productive investment’ I thought you were talking about how the Austrian school deal with that (which is a distraction). If you meant ‘saving’ then sorry, my bad.
The factory is not ‘sold’ to the capitalist. He hires workers, they build it. Only the wages are counted in GDP (in our wizard island, it would be a bit different outside).
You say: “In this narrow case, the ‘profit’ is because of the investment. In the general case the ‘profit’ is the wage.”
The wage comes from investment. Hence, profit = investment. I’m really boiling this down here. And this comes in handy.
You say: “But an economy where men hunt mammoth and women provide babies is in fact stable without monetary involvement and a pure barter approach.”
My model only works for a monetary economy. You’re talking about a barter economy. If you want to study barter, don’t use the above model.
P.S. This IS Minsky. If you don’t agree with the profit = investment approach, you don’t agree with Minsky’s work. It’s all there in black and white and I’ve even run my stuff by Randy Wray (who was his top-dog student). So, if you don’t agree with me, you don’t agree with Minsky.
Walras’ Law is simply a rearticulation of the same article of faith by another zealous Frenchman. It states the same thing as Say’s Law but gives it mathematical form.
That is wrong.
I studied this from E.K. Hunt’s, “History of Economic Thought: A Critical Perspective”
Say’s law implies demand for all newly produced commodities. This does not follow from Walras’s law. Say does not allow for general gluts whereas Walras definitional law allows for total market disequilibrium. I just thought you might like to know that you are making a classic neoclassical mistake in equating the two.
Keep up the good work. I enjoy your work.
I think you may have been misinformed. Walras’ Law can (apparently) explain disequilibrium but only by saying that the excess demand or supply is passed into another market. Here’s a good summary:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/04/walras-law-vs-monetary-disequilibrium-theory.html
“Walras’ Law says that a general glut (excess supply) of newly-produced goods (and services) has to be matched by an excess demand for some other good. But it could be matched by an excess demand of anything that is not a newly-produced good. It could be an excess demand for money. Or it could be an excess demand for: bonds; land; old masters; used furniture; unobtainium; whatever.”
This is identical to Say’s Law insofar as there is no GENERAL excess demand or supply. Any disequilibria are just passed from one market to another. The system then — if you’re neoclassical — will balance itself out as the prices for the goods respond to the market and ‘reprice’.
I think the guy you might be reading is wrong on this. I’ve seen a lot of good economists make this mistake.
The question wrt to reprising is the convoluted logic of from wrong prices come correct prices. Why is it correct to assume marginal secondary effects? is Hunt’s question.
Hunt say’s it isn’t because, “…large, powerful business firms that have some control over prices tend to reduce their level of output and attempt to maintain their price in the face of an excess supply that they view as temporary. This reduction in output reduces incomes, which further reduces demand for other products. If these producers react to the resultant excess supply in their market by reducing output, then general glut, economic crisis, or depression would seem to be the only possible result” (History of Economic Thought p.278)
Price stickiness is only one aspect. But you’re still thinking in terms of equilibrium. Just get away from that altogether.
I see what you’re saying. I was just trying to point out that certain things fallout of Walras’ logic that can’t fallout of Say’s constructs. I think you may enjoy aspects of Hunt’s style.
“Despite his aversion to socialism, Walras chose this crier and central planning agency model as a means of avoiding the issue of the ‘anarchy of the market’…Walras realized, of course, that such a crier did not exist. But he had faith–and it was never anything more than faith–that the actual working of the market would be similar to this” (ibid. p277)
Thanks for the discussion.
So the – crazed – Freidmanite notion that using models based on clearly falsifiable assumptions is o.k. just as long as the model’s results seem to match reality is, actually, a mutated progeny of this Walrasian “act of blind faith” ?
Graeber didn’t say which came first, debt or gain. Some neolithic soul had to have achieved some level of comfort in order to be able to give it to another. Or invest in another. After everyone was comfortable, maybe profits gave one or two enterprising people an advantage and hierarchies grew. But they have never obliterated the obligation of each member to the society. It isn’t a question of profit. It is a question of how profit is used.
Philip, I think “instability” is a natural law not an artifact of some economy. For example oil: Hydrocarbons can be divided into carbon and hydrogen. Carbon can be used to manufacture high tech stuff while hydrogen can be used as an efficient fuel which breaks down into water vapor. Sounds relatively green and clean, which is now an over-riding concern. So the more we know the more we can extract gain, or capital, from the environment. Education should be paramount, but nevermind that for now. We cannot extract “profit” (whatever that is) unless we’ve got our act together. And another thing which dovetails with instability being an a natural law: Etymology. Ideology, modern ideology, is a synthetic construct. “Capitalism” traces its origins to the first debtor. Forgive us our debts…. They were the first capitalists (if I read you and Graeber correctly) willing to take on an obligation. You/Graeber used these words: Geld (both gold and guilt), Schuld (both debt and shame); and as one commenter added, Shulter (shoulder, manpower, promise). Shoulder a responsibility. Too interesting. I think it can be agreed that “instability” creates opportunity. Instablity being that which we have not yet come to understand.
I think ‘instability’ and ‘stability’ are just concepts that humans invented to help make sense of the world. That’s why you find them across different disciplines (your example being chemistry).
But then, there’s been enough more than enough philosophy on this thread for one day. ;-)
What Marx essentially says is that benefit is taken from workers’ due wages (plusvalue). Is this a moral matter? Not really: it is the privilege that the capitalist acquires as legal owner of the Capital but, specially, as de facto leader of a fraction of the working class (for which property is just an instrument, because all or most value effectively comes from work).
Denying Marx’ claim is pretending that money creates money, what is nothing but bankers’ fantasy – and a socially pernicious one by all accounts.
Marx was indeed a bit blind to all value derived from non-human and non-mechanical work, that of nature. There is value in natural fresh water even if neither Marx nor Capitalist ideologues are able to see it (unless it’s first appropriated, the latter, or manipulated, the former). This important element Nature’s work is something they both could not fathom but otherwise Marx is closer to the truth: all artificial value derives from work… or from the plusvalue, the “tax” extracted to it, by the bourgeois elites leading the working class but (normally) producing nothing themselves other than organization.
Money is instrumental in organization and it does represent value. But it is not true value: use value.
With the concept of ‘use value’, which approximates ‘demand’ (a notion born a bit later than Marx’ life), Marx really describes value not as work (this is actually Ricardo) or as money (the bourgeois ideologues and academic priests, Marx’ exchange value, quite distinct from true value) but as utility, usefulness. Another issue is how to measure this utility but I believe that Marx approaches all that in his work to at least some extent and the notion of demand is also akin and can be used as well (although demand can be created well beyond utility and that generates overconsumption, waste and environmental destruction while generating almost no extra happiness).
“…it is the privilege that the capitalist acquires as legal owner of the Capital…”
That’s a fantasy. Look at the piece again. The capitalist borrows the money and incurs debt. That’s the real mechanism. Not some sort of inherent heredity.
Capitalists seldom borrow the money: they inherit it. Even if they borrow, it does not matter because what matters is their ability to “cut corners” (i.e. squeeze the worker and possibly the consumer as well)
You as most economists are blinded by the scholastic doctrine (not science: Economics as we know it is not any science but ideology or even religion) that is focused on markets.
But as J.M. Naredo put it already in 1992 (‘La economía en evolución’, s. XXI editores – a great book): what they teach us in economic faculties is not economics (management of the environment) but mere sophisticated variants of accountancy.
That is useless for true economics: a deeper understanding and a true scientific approach is needed.
“Capitalists seldom borrow the money: they inherit it.”
I’d like empirical evidence on this please.
Then I’d like you to explain the Japanese case where corporations became HEAVILY indebted in the 1980s.
Then I’d like some more empirical evidence — because all the evidence I’ve ever seen indicates that capitalists borrow heavily.
Then I need you to explain stocks and bonds. If capitalists inherit their wealth why do they issue stocks and bonds to borrow from the general public.
The LTV is a fantasy. People need to get over it. It’s been a century for Christsake!
That’s because they were already losing. Also it was the 80s: Reaganism: borrow and make up the bubble so we keep up the demand… for a while… until it bursts. I have not studied the Japanese case but for what I can see is an advance of what is happening now elsewhere, right?
In general capitalists do not begin borrowing because borrowing, beyond minor liquidity issues, is losing the whole business or at least gambling with it. And bourgeoises, at least the ones I know, the ones with multi-generational business, hate to gamble.
Anyhow, that’s not my point: it was indicated to emphasize that borrowing and working hard = makes you rich is a myth and not at all the truth. There may be the occasional exception but it only confirms the rule: most capital is inherited or robbed/scammed by rather irregular means. Accumulation does not happen in the idealized way that ideologues of capitalism say: it happens by robbing and squeezing the poor, the working class (or occasionally other competitor capitalists as well).
My point is that, wherever the capital comes from, the capitalist does not make money from money (unless he’s a banker and therefore a sui generis form of capitalist) but from “producing” (transforming) into useful stuff (commodities) that people need or otherwise want. If anything the capitalist would be creating is VALUE.
But he does only organize (and as organizer he’s just a worker who deserves his salary, not brutal profits), so he is getting an unfair share of that VALUE, which is not work value but demand value, use value.
Because a million workers digging holes with spoons may work a lot but produce zero value (unless the holes have some purpose).
“The LTV is a fantasy”.
I totally agree: it is the DTV or UTV (i.e. demand or usefulness theory of value) what matters and what Marx actually produced.
You and others (and even myself in the past sometimes) misunderstand Marx defense of equal work = equal pay, with labor being alone the source of value. Labor may or not produce value but value is defined by usefulness, (rational) demand.
That’s why Marx talks of use value and exchange value (money), only the former being true value.
Did you read that Graeber piece the other day which was represented as an interview by you? He seemed to think money and wealth hoards actually had a cause, and neither evolved from the bottom up nor flicked into being via spontaneous generation the way you’re claiming.
Did I read the Graeber piece — you mean, that I wrote? (We did it through email, I edited the final piece — a good deal was my wording).
Sometimes rhetoric becomes so asinine you’d just have to wonder.
Yes, I was questioning your actual role in it, since you now seem to reject Graeber’s whole thesis.
I missed the part where you asked him, “How do your findings fit in with the fact that the capitalist was born immaculate with a wealth hoard?”
The reason I insist upon placing this entire issue into historical context is that, as you know perfectly well, the mode of expression you’ve chosen here and elsewhere (to discuss things like kleptocracy, class war, “profit”, etc. in any other than criminological terms) is usually meant to obfuscate the fundamentally criminal nature of capitalism.
Sure enough, you spent the entire thread dodging and weaving, beclouding, sniffing at “moral arguments”, denying the obvious fact that only nature and labor actually contribute anything, basically doing anything other than engaging with reality, because your goal is to obscure reality.
The capitalist borrows the money and incurs debt. Philip P
More precisely, the capitalist steals purchasing power from the rest of the population via loans from the government backed/enforced counterfeiting cartel, the banking system.
PS- We have to understand that Marx is not so much ethical (also, I guess) as terribly pragmatical and objective. His life’s intellectual task was to understand Capitalism for what it is (and to attempt to organize the workforce/people beyond Capitalism). His advantageous viewpoint besides his genius was that he was of bourgeois extraction, that he acknowledged value as usefulness (almost a matter of dictionary definition) and that he was able to understand that what the bourgeois class was doing was to organize the proletariat from outside (and against its own objective class interests) via monetary manipulation into a titanic social enterprise of development we are still immersed in.
And we have to understand that money is nothing but a chaotic rationing card, one that does not attempt to be fair or just but just “free” (free money and possibly free markets but not free people). It is a system of rewards, rewards that are not fair but earned by means of disregard for others’ well doing and for justice.
That’s why money is immoral: because it puts our creative power (work in the widest possible sense) at the service of manipulation, of deceit, of mere accumulation of annotations on a bank account (in the past colored bank notes and earlier gold coins).
And that’s why all economy based on the notion of money as fundamental (and not just instrumental) is scientifically wrong and mere ideological doctrine.
Nothing is really about money, except in a very shallow sense: it is about social power and about the ability to acquire or even produce what we need (or in some cases what we do not need at all but fancy anyhow). Money is just a tool for some (necessarily malevolent, even truly evil) people to manipulate the reward system. Money is a way to make sure that people with ethics (most) can’t play, except in the lower (or at best intermediate) tiers of the game.
Money is also a way to make most people effectively slaves of a few masters, who know how to control it.
But money is NOT value.
I wonder if it’s true that money is not “value”? I’ve been told that money is power. The word value is interesting: from the Latin, valor, to be strong; akin to wield, to be strong.
Perhaps what exchange value really is is a measure of strength? Of clout?
It seems only tangentially related to so-called use value. Use vale is not what men wishing to develop and exhibit their prowess are interested in.
Lat. (and Sp.) valor (value) is primarily worth. It has also that meaning of bravery but it’s no really important here. Worth is also the only synonym I found for value (in the typical English Romance/Germanic duality of similar or identical words).
Money is not value but the socially consensual (or imposed sometimes) way we measure value for our convenience (in principle) or the convenience of those dominating in the game of ‘Market’ (in the end), i.e. of oligopolistic agents who have got so dominant positions that the game is not anymore ‘Market’ but ‘Monopoly’.
Money is exchange value and, for convenience, all classical economists, including Marx and even the Physiocrats like Quesnay, used it in their works. It has many limitations however. I was just re-reading someone (Naredo) who proposes to at least explore the use of energy units instead, giving true scientific (physical and ecological) basis to economics.
Marx should have forgotten for a moment abstract questions about where so-called ‘value’ came from and instead looked a little harder at his equation:
M – C – M’
If he had he might have noticed that at a macro-level the profit (M’) in fact must have come in some sense from the original outlay – that is, the investment (M).
Far be it from me to defend Marx. I simply don’t know enough about his labor theory of value to comment about that, but I can comment about Phil’s statement above.
But “M – C – M'” is not an equation, is it? It isn’t M minus C minus M’, nor is it M minus C = M’, it is simply “M – C – M'” and is used to describe a particular “circuit.”
And is M’ profit, or is it M plus profit equals M’, i.e., that the amount of money has increased? I think it is the latter.
But let’s ask Prof. Michael Hudson:
Industrial capital makes profits by spending money to employ labor to produce commodities to sell at a markup, a process he summarized by the formula M-C-M’. Money (M) is invested to produce commodities (C) that sell for yet more money (M’).
http://michael-hudson.com/2010/07/from-marx-to-goldman-sachs-the-fictions-of-fictitious-capital1/
Thank you, Prof. Hudson.
Thus, M’ is greater than M, which means that, M’ minus M = x, where x is the profit and x is greater than 0. So, where did x come from? It could not have come from the initial investment because we just netted that out.
Hmmm… don’t even know where to start with that one.
Is M–C–M’ an equation? No, probably not. That was a bad way of phrasing it.
“Thus, M’ is greater than M, which means that, M’ minus M = x, where x is the profit and x is greater than 0. So, where did x come from? It could not have come from the initial investment because we just netted that out.”
This is very garbled. The profit here is represented by: ‘. We don’t need to add in an X. That just turns the whole thing into a mess.
Does M’ arise from M? It’s not apparent in the Marxian circuit (which is why he was wrong). But it is apparent in the Kaleckian equation which is what we’re discussing.
I write:
“If he had he might have noticed that at a macro-level the profit (M’) in fact must have come in some sense from the original outlay – that is, the investment (M).”
The key words here are ‘AT A MACRO-LEVEL’. What I’m doing here is switching the argument from the micro-level (M–C–M’) to a macro-level. Then, if we take what we have already learned from the Kalecki equation into account, we will see that profits come from investment.
I don’t think you followed the thrust of the argument. That’s why you missed the transition to the macro-level.
P.S. While I admit I shouldn’t have used the term ‘equation’, I did actually explain this formula when I introduced it:
” M—C—M’
When translated into English that reads:
Money—Commodity—More Money
The capitalist invests money in order to create a commodity that is then sold on for more money. This is how the capitalist accrues profit.”
There was absolutely no need to ‘ask Hudson’. It was all there in black and white.
Part of the problem profits, M’, is that they are extracting all of M from the economy as a whole. Wages reintroduce money back into the economy, but at a quantity less than it started before profits are extracted. Accumulated capital is then lent out, in the form of investments, public and private that will produce more spaces for profitable enterprise to expand into. The credit granted is based on M’, the service of the debt is further extraction of M form the economy as a whole. This cycle needs to moves a mass of M at a high enough velocity to circulate to reproduce labor, service debt, and maybe even allow for taxation in more complex nation states. But always, M’ is an extraction leaving society with a deficit of money. This of course is made up through the extension of credit, built upon surplus profits.
Credit is a structural component of capitalism because it is the authorizing relationship of a money/market social system. Our behavior in capitalism is governed by money, and a regular deficit of money, due to profit extraction, ensures that the ruling class will be composed of capitalist in a permanent, structural governing role. The extension of credits allows for a more dynamic expansion, but is also a governing component of capitalism. Labor, and the wages and benefits granted to labor, limit the quantity of extraction, as well as the limit the extent of credit authorization, and if enough wages and benefits are granted, surplus wages can become capital stock, allowing for entry level enterprise formation as a small land lord, shop keeper etc. The word “value” is not what needs to be focused on, but on the governing mechanism of the social order. And in capitalism, the social relations are mediated by money and in its accumulated profits, capital. Profits, come from investment, but only investment that employs labor to create wealth. Wealth is created by organized labor, but organized by who and for what purpose? In our society, for the most part, labor is organized by the investment of the capitalist to produce a profit. Lee Iaococa gave thunderous speeches about the purpose of Chrysler was not to make cars, but to make money. If you can reduce the amount of money you pay labor in wages and social benefits, e.g. public schools, health care, public universities, etc, you will increase profits. The hidden abode of profit making lies not in the noisy market, according to Marx, but in the labor that is employed to supply it.
In Philips exercise from the last article x comes from either the initial investment of the capitalist (builders and bakers) or after that the government spending to employ idle builders.
In the larger sense the article is arguing that x comes from any other increase in investment other than the capitalists original injection of M. So this description
M – C – M’
M’= M+x
x = credit or loan/ other capitalists profits/ government spending.
is what it sounds like this article is trying to say.
Ping! Thank you. That is what I’m saying.
“x = credit or loan/ other capitalists profits/ government spending”.
Marx would say that x is what the workers should have been paid and are not. Surplus value. The workers can almost always live with a “little less” and the capitalist, who is in control of all the mechanism, forces them to work for that “little less” (or a lot less often enough) and makes his profit from there.
This is not the origin of value, which is in demand (use value), but how the profits are unequally divided between the capitalist and the workers. The capitalist, of course, needs to get enough to pay for the capital and reinvest but beyond that Marx considers he is not entitled to any other but a salary for his work. Instead he gets benefits which should go to the workers (surplus value).
Surplus value is an ethical or even political concept but it deals with true value only indirectly. It is normally measured in exchange value (money) instead.
Value is something different and is defined by its use. However Marx uses a number of Ricardian references that may make his work confuse in this matter. But it is not: value for Marx approximates demand, a concept that did not exist yet in his time, as far as I know (or was otherwise quite marginal).
“I simply don’t know enough about his labor theory of value”…
There’s no such thing. Marx has not a labor theory of value, Ricardo did (and Marx was somewhat influenced by Ricardo). Marx’ theory of value is one of use value, which is similar to the mainstream notion of (aggregated) demand, which was published only after his death. However Marx acknowledges that use value is hard to measure and that therefore the capitalist or market economy uses something different: a rough approximation he calls exchange value (prices, money). But he insists quite a bit on exchange value being NOT the same as true value or use value, which is defined by what would be eventually known as demand, or at least as some sort of “rational demand”: what people/society do need and not caprice.
…
M – C – M’
Is an enunciate: a primitive logical flow chart: M(oney) makes C(ommodities), which make M(oney)’.
Actually, isn’t the real relationship M(oney) pays for raw materials that are worked by labor to create a C(ommodity), the sale of which results in even more M'(oney)?
Money makes nothing (except in the financialist circuit of M-M’), right?
Absolutely in agreement, Tao. While the enunciate is from “Capital” it is nothing but a basic generalist enunciate, if my memory is correct and not the whole story at all.
But it’s late to search in the bible-papered double volume for the details right now. Some comments down, Juan posted a link to a very handily indexed online version of volume IV and the whole work is certainly online nowadays, at least at marxists.org, the #1 Internet Marxist archive/library.
It seems to me that a large flaw in Marx’s ltv is that, like most economists of all schools, he ignores the fact that “property” is not “free”. No matter how energetic and clever a man may be, his labour (labour power?) is worthless in the middle of a sandy desert without any resources. “Property” is absolutely essential for production, indeed for life itself.
Unfortunately, property has two almost contradictory meanings: first, the resources needed by a person to actualize the potential value of his own labor. If all labour providers actually owned for themselves this property, ltv might make sense. But of course, such is not the case.
Secondly: property as land, machines or other resources that require someone else’s labour to actualize their value.
The first kind of property is what many of us think property is, but to capitalists (or feudal lords for that matter) what the second, “rights of private property” means. Thus the need for the “primitive accumulation” to destroy the first kind of property and replace it with the second.
Getting and keeping property requires clout. The blindness to the importance of property and thus of clout in all economic activity seems to be the controlling paradigm of mainstream and much heterodox economics. Once the concept of clout is put center stage, not only do concepts like the ltv, but also those of supply and demand and comparative advantage, among others, appear somewhat differently from what we formerly thought.
Why would anyone be “in the middle of a sandy desert without any resources”? Are any of us?
Unless, of course, this “sandy desert” is purely artificial, as in the case of “property”.
There’s resources everywhere, and no one has any right to hoard them, to “own” them, only to productively use them.
But metaphors like “sandy desert” are favorites of propertarian ideologues, since they’re so good for obscurantist purposes.
Hi Philip.
I’ve been following and enjoying your posts. Let me start by saying that despite adhering to some version of the LTV, I enjoyed reading this contribution as well. I think you actually beg the question of value, under the guise of transcending metaphyics, but whatever.
The I see your comments here. Really disappointing. Have you outsourced your commenting to a graduate student in the neoclassical economics you so openly criticize? It is almost a parody. I thought you might have a different reading of Marx than I, but I was wrong. You have no reading of Marx.
Someone told you all cool kids think Marx is an outdated metaphysician and parroting this line allows you to push your own obscure sect of heterodox economics while feeling serious. “The LTV is a fantasy. People need to get over it. It’s been a century for Christsake!” Oh, yeah, because the General Theory or Kalecki’s accounting identities are really new and cutting edge!
I suppose these accounting identities and a little Minsky is all you need and that is fine, but do us a favor and leave Marx out of it. Other than the letters M-C-M’ nothing you’ve said resembles Marxian economics at all – except perhaps for the things you claim it doesn’t address. It is here to get mocked so that you can criticize economic orthodoxy without coming off as a loon yourself. “How can I be a loon?! The LTV nuts are the real loons!”
If you are ever bored one day you might think about the following. Let me phrase this carefully without using the word value since that would automatically disqualify me from serious discourse:
On the aggregate we end up with more M. Nothing metaphysical – just more M. Either this “more M” represents the same amount of good/services on the aggregate, or it represents more (ignore the final option). If the former, then this more M isn’t really interesting. Inflation happens, but it would be absurd to say that is all that happens. Indeed, to say capitalism is “just inflation” is a slight to the system even nasty old Karl Marx himself would never make. What if it represents more stuff (such as the more stuff that was realized by the more money)? Well, what accounts for this difference between the stuff we had before and the stuff we have now?
I’m not trying to prove the LTV here, but you are missing the point. You are not abandoning value. You assume that the M’ is bigger than M in both a nominal and in some real sense. You are assuming something about the value of that M’ and then making fun of Marxists for trying to think about that value. I don’t agree with everything in the Marxian tradition, but at least they are trying.
I hesitate to post this because I sound like a jerk, but I can’t resist. Maybe some of the people you were responding to were aggressive themselves but Tao Jonesing above was quite polite, and tried to pose a simple and direct question. What does he get? You begin complaining about his use of the variable x instead of your beloved “‘”. Yeah, how dare he represent profit with the letter x!? You tell him! Then it is back to simple assertions that something is not apparent in Marx (very little in apparent in Kapital if you don’t open the cover and read). And then you finish it off insulting his intelligence – “oh, you people couldn’t follow my sophisticated transition to the macro-level!” Wow, the macro level. Isn’t that a setting on my camera? Guess what, we actually could follow you, and problem he posed remains.
“Other than the letters M-C-M’ nothing you’ve said resembles Marxian economics at all…”
That was the general idea.
I’d also point out that the ‘profit-driven’ approach is also similar in some senses to Marx. So is the refutation of Say’s Law. Apart from that, yes, Marx would be dead.
“You assume that the M’ is bigger than M in both a nominal and in some real sense. You are assuming something about the value of that M’ and then making fun of Marxists for trying to think about that value.”
I’m only assuming something about the value of M insofar as it is a currency denominated in units of account. All goods are then denominated in this M.
The ‘value theories’ being discussed above are not like this. They refer to abstract theories about where ‘value’ itself comes from. These are what I would call ‘substance’ theories of value and they are metaphysical.
““Other than the letters M-C-M’ nothing you’ve said resembles Marxian economics at all…”
That was the general idea.”
I guess I was unclear. Nothing you’ve said about Marx resembles Marxian economics at all. It is all a straw man.
“I’d also point out that the ‘profit-driven’ approach is also similar in some senses to Marx. So is the refutation of Say’s Law. Apart from that, yes, Marx would be dead.”
Here we go again with the spirit of Paul Samuelson speaking through you. I understand that according to real economic scientists Marx is bullshit. Just like most of Keynes and Kalecki is bullshit. From your posts, I thought you were critical of orthodox economics, but you suspend your disbelief in embracing their views on Marx.
““You assume that the M’ is bigger than M in both a nominal and in some real sense. You are assuming something about the value of that M’ and then making fun of Marxists for trying to think about that value.”
I’m only assuming something about the value of M insofar as it is a currency denominated in units of account. All goods are then denominated in this M.”
Ok then, matters are worse than I thought. Do you really mean to say that you are only interested in the nominal amount of currency? Profit is just, “oh well we got more money in the economy! who care what you can buy with it! let’s hope we get a hyperinflation.” You’ve defended the heroic entrepreneur from Marxian slights above, and now you characterize the fruits of their “labor” as a simple accounting gimmick? There is a tremendous difference between thinking money is essentially a unit of account (sensible), and claiming that aggregate profits are just an increase in the unit of account (not a sensible way of thinking about a dynamic capitalist economy).
Excellent post, Joseph, specially the first paragraphs. The least that people who want to debate Marx can do is browse “Capital” minimally and get a grasp of what he meant.
Marx is not Ricardo: he uses Ricardian concepts (and who doesn’t among the classics) but he is not any LTV fanatic, much less can Marx be reduce to it.
The least I expect when debating Marx theory of value is a mention or two to the concept of use value, which is the real Marxist concept of value.
You don’t need Marxian economics or Circuitist monetary theory to disprove Say’s Law. All you need is money. JS Mill was explicit about the fact that the existence of money invalidated Say’s Law. Keynes was clear on this too, when he said that the decision to save was distinct from the decision to invest. Refraining from consumption was merely that, deciding not to spend; the decision to invest those savings is a completely separate decision, made after the former decision if at all. One thing many do not realize is that in the Classical corn and steel models, savings LITERALLY was the same thing as investment. The farmer harvests 100 bushels of corn and consumes 90 of them. His decision to save 10 bushels is LITERALLY the same thing as his decision to invest in 10 bushels of seed corn capital. Capital wasn’t created, it was saved. In the real world, capital is created. That’s a point Minsky harped on as well.
Of course Keynes was clear on it. He’d read his Marx, and Marx was clear on it. What’s wrong with turning to Marx?
Anyway, your system wouldn’t work if it were closed, and it only does work because it’s open-ended. See Graeber’s interview if you haven’t; it’s worth reading.
We live in a kleptocracy. I just don’t see the relevance of the above. Kleptocrats don’t seek profit. They seek loot. Kleptocracy is the economy and political process as an elite-run criminal enterprise. What we need is a theory/explanation of that.
So what you want is a theory of how monopoly/oligopoly capital destroys both the market and the political process? I don’t find this account ultimately convincing, as it mostly discusses symptoms rather than the mechanisms producing them, but this article from a while ago has a bit to say.
Thanks for the article. I have been trying to put forward here for a while some ideas leading to a theory of kleptocracy. I think criminality is central to an understanding of it. Corporatism and financialization are certainly important aspects of it, but looting is much more than the concentration, often portrayed as agentless, of capital.
Hugh, not only Marx, but other social scientists, including some economists, see the primitive accumulation or the original accumulation of capital as the dispossession of a people of all their productive capacity and having it forcibly dragged into a market economy with a currency outside of their control. The people are left with nothing but their labor to rent for wages. The governing mechanism of money is backed up by the state’s monopoly on violence. The rules of law are written by those who took everything, in their favor and they call it property rights.
Yes, well.. The problem with ‘criminality’ of course is that a lot of destabilizing and parasitical behavior is legitimated by the state — sometimes because it indeed is nontrivial to recognize how the behavior is destabilizing, but much more often in order to placate local business elites, who have outsized influence locally because they provide GDP/employment locally. Because then you get politicians willing to perpetuate the status quo.
The question, in any case, is why markets start to consolidate, and what should be done to counter that, and why people stop thinking that industries should be prevented from consolidating once the low-growth ‘mature’ phase sets in. Consolidation seems to happen in part for historical-accidental reasons, partly because of IP legislation allowing them to raise barriers to entry etc., and partly for other reasons that don’t come to mind offhand.
Once you get consolidation you usually also see — think of the ’70s/’80s — companies whining for the right to lower employee wages (since their right to profit ‘growth’ is bigger than their employee rights to wage stability), creating instability. But I suspect that the looting phase mostly sets in because mature markets have trouble growing further, because the market roughly saturates — companies want growth, but can only get growth at the expense of lowering costs, which happens by lowering wages, which leads to Aggregate Demand drops and thus, in time, to instability.
Right now, profits are sitting on the sidelines. Capital is sitting on the side of wealthy families and networks of power that are mapped in dozens of sociology studies all around the world. Markets can be deployed for the benefit of the people in a nation. The mass production mass consumption model of Fordism, the ensuing Treaty of Detroit and the bailout of the UAW at the expense of shareholders, bondholders and small dealers as well as suppliers and creditors show the New Deal put capital under the political control of the bureaucratic mechanism of the state, which heavily regulated what banks, brokers, traders could and could not do.
We had over 25,000 S&Ls in a widely distributed system of credit granting that allowed for small business and homeowners to flourish. That period saw a counter revolution that is well chronicled in a nice little agit=prop triumphal series on PBS. The Commanding Heights: The Battle for the World Economy. Based on the book of the same name.
http://www.pbs.org/wgbh/commandingheights/
You can see the people in nation after nation having their standard of living diminished to transfer power from the US Federal Regulators and The Federal Reserve policies of full employment, to de regulation, de industrialization, from policies issued by governments that provide for the general welfare, to policies which lower wages, reduce health care, reduce education, reduce pubic infrastructure investment and reduce taxes for corporations so that their profits will go up. It really is not the obfuscation festival of what does alienation mean. Forget Marx if you get woosey thinking about all of that dead white male European stuff.
Look at today, where Turnpikes are being sold and leased back, NYC rolling subway cars were sold to Wachovia then leased back, providing depreciation that enabled them to pay no income taxes. There is a reason why conservatives say there is no more money for teachers or Social Security, that have already put it on their books on an accrual basis as their property. Or as Marx would say, public assets are alienated and appropriated by the capitalist. It is usually done to the state during times of economic crisis. Just a short term loan to tide you over. Of course, in the next down phase of the business cycle you lose the public asset completely. Such as the case of the State of Arizona.
http://www.azfamily.com/outbound-feeds/yahoo-news/State-sells-20-properties-for-735-million-81533017.html
I hope this clear example of alienation, appropriation or extortion during hard times gets the point across without causing any philosophical migraines.
Back in the 70s Volcker’s policies treated wage growth as inherently inflationary. We got 35 years of flat wages as a result. Wealth continued to be created but was siphoned off and transferred to the rich. We changed from a labor-based to an investor-based economy. Working Americans struggled to keep up and eventually went deeply into debt. The rich could not productively invest this excess wealth in part because the middle class was being decimated. So it spurred the creation of the financialized paper economy, an economy not dependent on the middle class: money chasing itself and creating the multiple bubbles we have seen.
As you note, corporations when they reach a certain size find it easier to rig markets than to innovate. And when they feel the need, they just buy innovation by purchasing other companies rather than investing in and coming up with it themselves. This usually means that they don’t really understand the innovation they have acquired and it doesn’t fit their products particularly well. But they will try to stuff them down the throats of their captive markets anyway, and charge them more for it. I always thought Microsoft was a great example of this. The other thing we saw is that some of these big corps, like GE and GM, went the financialized route themselves and began acting more like banks. It was great money on the upside of the bubble but would have destroyed them after the bust without a sugardaddy government to fall back on.
It is kleptocracy, wealth inequality, and class war which tie all the events of the last 35 years together. Just because the criminals bought the judges and the legislators doesn’t make it any less criminal. The great wealth transfers and the buying of the political process didn’t just happen as the result of vast impersonal economic forces. Seeing this as crime brings the focus back to the human agents behind it. It recasts these wealth transfers for what they really are and always have been, the looting of the middle class by the rich. The first step in breaking the power of our kleptocratic elites is to recognize their criminality, not before a law which they now own and control, but the higher law of We the People, the same authority which established this country in revolution and endowed its Constitution with its legitimacy and power. We did it once. I submit we can do it again.
Nice try, Mr. Pinkington, whoever you are. NC is probably not the best place to attempt to lecture people who have understood for years, decades in some cases, that economics is errant nonsense, that a good deal of the nonsense came from Marx (although he was quite good in describing early nineteenth century social conditions), and that everything in the tradition of Marshall is academic rubbish. For something to get your teeth into, try Veblen and Henry George. I particularly recommend Veblen’s Theory of Business Enterprise (1904).
As for explaining the instability of capitalism, the essential problem is loan credit and the relationship between credit and collateral- the bubble factor. Of course, most of the credit is created fraudulently, enabled by the Fed. This makes the bubbles larger, the crashes more devastating. On the bright side, it makes the looting continuous, which brings the enraged and ragged intellectuals running back to Mommy Marx. Very tiresome, but so it goes.
Let m (t) stand for the real value of money per capita measured in units of the output good, that is, m (t) = M (t) / P (t) all agents. With u being the constant net growth rate of the money stock, M (t) evolves over time according to the following: M (t) = (1 + u) M (t-1) u > 0 At the beginning of the period t, (t) – M (t-1) additional units of money per capita into circulation in order to finance all government expenditures via 0 and (iii) lim K > 0 f ‘ (k) = 00 and lim k > 00 f’ (k) = 0 Money is introduced by assuming that a central bank distributes at no cost to the population a per capita amount of fiat money M (t) > 0 The scheme according to which the money stock evolves over time is deterministic and known to (t) = F (K (t), N). We assume that F is neoclassical. Now introduce f (k (t) = F (k (t), 1) where k(t) = K (t) /N The function of N has the following properties (i) f (0) = 0 (ii)j f is increasing strictly concave on R+ and c2 is on R++; f’ (k) > 0 and f” (k) 0 and f” (k) 00 f’ (k) = 0 Money is introduced by assuming that a central bank distributes at no cost to the population a per capita amount of fiat money M (t) > 0 The (t-1) u > 0 At the beginning of the period t, (t) – M (t-1) additional units of money per capita into circulation in order to finance all government expenditures via 0 and (iii) lim K > 0 f ‘ that is, m (t) = M (t) / P (t) all agents. With u being the constant net growth rate of the money stock, M (t) evolves over time according to the following: M (t) = (1 + u) M For the seigniorage mechanism to work, injections of the additional units of money take place before the other markets open. Let m (t) stand for the real value of money per capita measured in units of the output good, Nominal GDP (PQ) c. The demand of money d. Government of spending Let K (t) denote the capital existing in period t and N the flow of labor services used at time t for production. Assume N to be fixed. As my model PQ / M + V = GDP b. V = M + PQ *c. MV = PQ d. M + V = P + Q In the equation of exchange *a. MV represents aggregate demand, PQ represents aggregate supply (nominal GDP) b. PQ represents aggregate demand, MV represents aggregate supply (nominal GDP) c. MV = 0 (ii)j f is increasing strictly concave on R+ and c2 is on R++; f’ (k) > 0 and f” (k) 0 f ‘ (k) = 00 and lim k > 00 f’ (k) = 0 Money is introduced by assuming that a central bank distributes at no cost to the population a per capita amount of fiat money M (t) > 0 The scheme according to which the money stock evolves over time is deterministic and known to (t) = F (K (t), N). We assume that F is neoclassical. Now introduce f (k (t) = F (k (t), 1) where k(t) = K (t) /N The function of N has the following properties (i) f (0) For the seigniorage mechanism to work, injections of the additional units of money take place before the other markets open. Let m (t) stand for the real value of money per capita measured in units of the output good, that is, m (t) = M (t) / P (t) all agents. With u being the constant net growth rate of the money stock, M (t) evolves over time according to the following: M (t) = (1 + u) M (t-1) u > 0 At the beginning of the period t, (t) – M (t-1) additional units of money per capita into circulation in order to finance PQ / M + V = GDP b. V = M + PQ *c. MV = PQ d. M + V = P + Q m (t) = M (t) / P (t) to change at a constant growth rate over time. We use the conventional production function to describe a relationship between inputs and output. The function F (t) defines the flow of production at time t. The production process is described by some sufficiently smooth function, F aggregate supply (nominal GDP) In equation of exchange, if V is constant, an increase in M will necessarily increase a. The velocity all government expenditures via 0 and (iii) lim K > 0 f ‘ (k) = 00 and lim k > 00 f’ (k) = 0 Money is introduced by assuming that a central bank distributes at no cost to the population a per capita amount of fiat money M (t) > 0 The scheme according to which the money stock evolves over time is deterministic and known to (t) = F (K (t), N). We assume that F is neoclassical. Now introduce f (k (t) = F (k (t), 1) where k(t) = K (t) /N The function of N has the following properties (i) f (0) For the seigniorage mechanism to work, injections of the additional units of money take place before the other markets open. Let m (t) stand for the real value of money per capita measured in units of the output good, that is, m (t) = M (t) / P (t) all agents. With u being the constant net growth rate of the money stock, M (t) evolves over time according to the following: M (t) = (1 + u) M (t-1) u > 0 At the beginning of the period t, (t) – M (t-1) additional units of money per capita into circulation in order to finance PQ / M + V = GDP b. V = M + PQ *c. MV = PQ d. M + V = P + Q m (t) = M (t) / P (t). = F (K (t), N). We assume that F is neoclassical. Now introduce f (k (t) = F (k (t), 1) where k(t) = (k) = 00 and lim k > 00 f’ (k) = 0 Money is introduced by assuming that a central bank distributes at no cost to the population a per capita amount of fiat money M (t) > 0 The (t-1) u > 0 At the beginning of the period t, (t) – M (t-1) additional units of money per capita into circulation in order to finance all government expenditures via 0 and (iii) lim K > 0 f ‘ that is, m (t) = M (t) / P (t) all agents. With u being the constant net growth rate of the money stock, M (t) evolves over time according to the following: M (t) = (1 + u) M For the seigniorage mechanism to work, injections of the additional units of money take place before the other markets open. Let m (t) stand for the real value of money per capita measured in units of the output good, Nominal GDP (PQ) c. The demand of money d. Government of spending Let K (t) denote the capital existing in period t and N the flow of labor services used at time t for production. Assume N to be fixed. As my model PQ / M + V = GDP b. V = M + PQ *c. MV = PQ d. M + V = P + Q In the equation of exchange *a. MV represents aggregate demand, PQ represents aggregate supply (nominal GDP) b. PQ represents aggregate demand, MV represents aggregate supply (nominal GDP) c. MV = 0 (ii)j f is increasing strictly concave on R+ and c2 is on R++; f’ (k) > 0 and f” (k) 0 and f” (k) 0 At the beginning of the period t, (t) – M (t-1) additional units of money per capita into circulation in order to finance all government expenditures via 0 and (iii) lim K > 0 f ‘ (k) = 00 and lim k > 00 f’ (k) = 0 Money is introduced by assuming that a central bank distributes at no cost to the population a per capita amount of fiat money M (t) > 0 The scheme according to which the money stock evolves over time is deterministic and known to (t) = F (K (t), N). We assume that F is neoclassical. Now introduce f (k (t) = F (k (t), 1) where k(t) = K (t) /N The function of N has the following properties (i) f (0) = 0 (ii)j f is increasing strictly concave on R+ and c2 is on R++; f’ (k) > 0 and f” (k) < exhibits constant returns to scale, the dynamics will not be affected if we allow the population to change at a constant growth rate over time. We use the conventional production function to describe a relationship between inputs and output. The function F (t) defines the flow of production at time t. The production process is described by some sufficiently smooth function, F aggregate supply (nominal GDP) In equation of exchange, if V is constant, an increase in M will necessarily increase a. The velocity of money *b. Nominal GDP (PQ) c. The demand of money d. Gover nment of spending Let K (t)PQ / M + V = GDP b. V = M + PQ *c. MV = PQ d. M + V = P + Q m (t) = M (t) / P (t).
The Bride’s Clothes are to be found on the horizon–the line that governs the Bachelor Apparatus’ perspective and which is in the far distance. Thus, the Clothes seem to be the source of the waterfall. Moreover, the Clothes are undoubtedly the hiding-place of the Standard Stoppages, as well. For this part, as it is executed on the Glass, looks exactly like the glass plates as they appear set in the croquet case – as if the Clothes simply repeated the three glass plates in profile. One might say that it is the three threads that set the Chariot in motion.
Not having read most of the thread, but having read enough to see it raises interesting questions of value and profit, I would like to attach Vol. IV of Capital [and suggest as well a reading of ‘the resultate…’ –
Theories of Surplus-Value
[Volume IV of Capital]
http://www.marxists.org/archive/marx/works/1863/theories-surplus-value/
In that case, I guess I’m not going to be working today then, huh.
Which just goes to show that there are NO economies, only political economies. Not mere “political constraints.” (What are we, Obama? (Now if only those spreadsheet fetishist Dick Cheneys over at UM-KC got even that much. (Definitely on the autistic spectrum. (But I digress))).
It is sort of too bad that someone like Nietzsche never had a crack at Marx, if one is interested in that transvaluation of all values sort of thing. Hannah Arendt was working on him, but then she died too.
So, all we’re left with is the vocal stylings of Ayn Rand. To wit,
“I am not primarily an advocate of capitalism, but of egoism; and I am not primarily an advocate of egoism, but of reason. If one recognizes the supremacy of reason and applies it consistently, all the rest follows.”
Well. That settles it then. (And this from a pulp fiction writer, no less).
For my viewing pleasure (since I have the day off): http://www.youtube.com/watch?v=hwqyn8xPHS0
BTW, Marx also distinguished between use value and exchange value, the contradictory sides of any thing/service produced to be sold, which is to say commodities in an older sense of the word.
value
use value
exchange value
For ’tis labor indeed that puts the difference of value
on every thing; and let anyone consider. what the
difference is between an acre of land planted with
tobacco, or sugar, sown with wheat or barley; and
an acre of the same land lying in common without
any husbandry upon it. …’
[John Locke]
Philip,
You have written some good articles before. But I must say, this one is really terrible.
Your “Profits in a Capitalist Economy – Where Do They Come From, Where Do They Go?” was a clever and interesting piece, if ultimately wrong.
In that article you articulated a formal and cogent argument and derived reasonable conclusions from it, but perhaps because you aren’t too knowledgeable in Marxian economics, you missed some finer points that invalidated your conclusions (if you hadn’t yet, please see my 2 replies). That’s understandable and does not speak badly of you. People live and learn.
In the current piece, however, you start badly (“In our previous piece on profits we showed how profits ultimately come from investment.”), as your starting point seems to be already negated.
I find your second point (on Say’s “Law”), which I have argued somewhere else in similar terms, accurate.
From here, things go downhill.
And it’s not only your first article at fault here. You use sloppily the words “ideological” and “ideology”. It seems ideology, for you, means “theorizing of a visionary or impractical nature”, which is the common usage of the word nowadays.
But, check any dictionary you want, and you’ll find that in Philosophy (and Marx was primarily a philosopher, as you know) it means, among other things, something like “the study of the nature and origin of ideas”.
In that sense, every human being currently alive, long dead or yet to be born represents some ideology. Marx, too and admittedly so.
From this you leap to conclude that Marx was a Metaphysician:
“The Metaphysician in Marx (…) But he stumbled. This was probably due, at least in part, to his ideological convictions” (!?)
Then, you claim support on Kalecki. I confess I haven’t read him (and after this, his priority in my reading list has fallen). You say he used the term metaphysical to describe the labour theory of value (in a response to Foppe: “When I talk about his ideological convictions I’m referring to the labour theory of value”). That’s fine and dandy. But as Kalecki is not with us to explain himself, wouldn’t it fall upon you at least to explain why or is just enough to argue on his name’s authority?
But if your article is frankly deficient, your attempts to counter the objections are, to put it bluntly, catastrophically awful. Although I haven’t read all the comments, some commenters (notably, among those I read, Random Lurker and Foppe, already mentioned) attempted a reasoned dialogue.
Let me take a few examples.
Random Lurker pointed where profit comes from:
“Marx’s theory works this way:
“1) Capitalist hires some workers and buys some materials to produce some stuff, that he plans to sell for 100
“2) In order to have some profits, he has to pay the workers and the materials less than 100. Let’s say that he pays materials 50 and workers 40, so that he has a profit of 100 – (50+40) = 10. The capitalist thus puts in 90 in advanced capital.”
You replied:
“In reality profit does not come from this – unless you want to make moral judgements – it comes from the original investment (plus capitalist consumption, in your model).”
I can object some of what Random Lurker said, but frankly, I can’t see the moral judgement in the text above. As I see it, it’s not a matter of morals: it’s a matter of arithmetics!
More importantly, where is the moral judgement in Marx? Allow me to quote what Marx had to say about capitalists and landlords (Das K, vol. 1, preface to the 1867 edition):
“I paint the capitalist and the landlord in no sense coleur de rose. (…) My standing point, from which the evolution of the economic formation of society is viewed as a process of natural history, can less than any other make the individual responsible for relations whose creature he socially remains, however much he may subjectively raise himself above them”.
So, Marx is precisely warning against moral judgements and he also mentioned those who may subjectively raise themselves above them (which I am sure is not your case, right?).
With Foppe the argument was largely around workers’ need to trust that employers will pay them. To be honest, it’s not at all obvious to me why this is relevant, but whatever the relevance of it, you conceded Foppe’s point (“All true”) just to dodge the bullet with “but that is sociology, not economics” and when pressed by Foppe, the reply is simply: “I would say trusting is absolutely a sociological issue”. So, that’s it: it’s a matter of sociology because you would say so.
But perhaps the most memorable is this reply to Attempter, which I quote in its entirety:
“You’re making a philosophical argument and you can’t even see it. Besides, sure we can ‘trace’ all finished products back to ‘labour’. But we can also trace them back to those things consumed by labour to make it labour-worthy – like water, air, carbohydrates etc. “Why not have an oxygen theory of value? After all labour cannot produce without sufficient oxygen!
“From an economic perspective you cannot measure LTV. It is unquantifiable. It is, to use Marxist terms, a mystical abstraction. It doesn’t exist in tangible form. And that’s just it. That may shatter your ‘scientific socialistic’ worldview, but that’s the reality.
“Anyway, LTV has been dead for at least a century. I’m not debating it anymore. I may as well debating the scientific verificity (sic) of caloric – in fact, the two theories are rather similar
Okay, I’ll be spare here. You ask “Why not having an oxygen theory of value? After all labour cannot produce without sufficient oxygen!”
At a humorous level, perhaps that punch line could work. So, in a humorous spirit, I hereby challenge you to do so. I am really interested in seeing what you can come up with.
Then you claim that “you cannot measure LTV. It is unquantifiable”. I cannot measure a legal system, democracy, literature, either. They cannot be quantified. That’s just it. Does it mean they are mystical abstractions, too? I’m feeling shattered.
For a worldview based on a theory not to be shattered, according to you, the theory the worldview is based upon must be quantified and measured. Thus, for the good of science, I challenge you to measure and quantify scientific theories. I’ll be specific here: produce a quantitative measure of the Theory of Natural Selection or of any theory of your choosing.
How do you measure and quantify a scientific theory, or any theory, for that matter?
I thought that people could measure only variables (and only a subset of them would by amenable to quantification) and that variables related to each other necessarily through abstract, immaterial relationships, without tangible form. Not so, I’ve just learned. Live and learn, like I said before.
So, please, for the good of mankind, next time report that you found the tangible form of the Theory of Gravitation. And I want to see photos, chemical analysis, spectroscopy, (measurements that’s the word); you know, the works. And I want to see it all quantified.