Andrew Kliman: Reclaiming Marx’s “Capital”: A Refutation of the Myth of Inconsistency: Review

Lexington Books 2007: Pp 231

Andrew Kliman, is an Marxist economist and leading proponent of the Temporal Single System Initative (TSSI), an interpretation of Marx’s economic writings, which seeks to refute charges that Marx’s value theory was inconsistent. These charges pose a fundamental challenge to Marx’s value theory, as internally inconsistent theories cannot by definition be correct. Although as Kliman is at pains to point out;

“None of this implies that Marx’s theoretical conclusions are necessarily correct. It does imply, however, that empirical investigation is needed in order to determine whether they are correct or not. There is no justification for disqualifying his theories a priori, on logical grounds.” (p xiii)

And indeed the strongest defence in favour of Marx’s theory, that it is a true analysis of the capitalist mode of production is never made by Kliman who, constrained by the limits of academic convention spends pages proving that it is the purpose of an analysis to actually understand the text it is analysing.

Marx’s labour theory of value (in itself a contentious term) has to explain how profit arises in a system of production based on the exchange of equivalents. If indeed property is not theft and commodities are sold at their values, what then is the origin of profit?

This is something never explained by the neo-classical marginal utility theory fashionable in economics faculties across the world as put simply, value and profits cannot be created in exchange, as if a consumer buys a commodity for a pound, then they have receive in exchange for their money a pound’s worth of commodities. The total amount of value has not changed, but the pound and commodity have changed hands. The consumer has received commodities equal to the same value as their money. What’s more even if a crook manages to rip off some fool in the market, then they only gain by the same amount as the sucker loses, there is still no change in the total quantity of value, it has simply been redistributed from the fool to the gangster.

So if value cannot arise in circulation where does it come from? Production obviously.

Marx’s theory, following in the school of classical economists which includes, Petty, Smith and Ricardo, shows how value is created in production through the expenditure of a given amount of socially necessary labour time.

Marx distinguishes between the usefulness of a commodity, its use value, and its exchange value, how much it costs, its value or price. All criticisms of Marx’s value theory stem from a failure to adequately appreciate this distinction. All commodities must be useful or no one would buy them, but it is not their usefulness per se which determines their value, as there is no common standard by which use values can be measured, a tonne of steel has a qualitatively different use from a tonne of feathers.

Marx shows that the common standard by which the value of all commodities is measured is the quantity of socially necessary labour power incorporated in them during the production process.

Marx’s critics assert that it is the physical quantities of things, the amount of useful things produced in excess of the initial quantity of inputs that create exchange value.

This is known as “physicalism” and it runs alongside two other key propositions, “simultaneism”, the idea that “inputs entering production now and outputs emerging later must have the same prices or values” (p35) and the idea of a “dual system”, the notion “value and prices are determined independently of each other” (p32)

The TSSI aims to refute each of these assertions and so restore the logical integrity of Marx’s value system.

The history of this particular dispute over Marx’s value theory can be traced back to a Russian, Dimitriev. Dimitriev whilst little known in the West, as his work was only latterly translated from the Russian, was nonetheless very influential on both Bortkiewicz and Sraffa, the two key theoreticians who developed the alternative propositions outlined above.

Dimitriev was the first modern physicalist (p42) he asserted that there could be profits “even if no living labour were performed at all.” (p42) and to prove his proposition developed a model economy, which consisted solely of machines. In Kliman’s example based on Dimitriev’s model, four machines are used up in the production of five machines. As there is one more machine produced than were used up in production, the physical surplus is one machine. For Dimitriev this physical surplus forms the profit, which is 25%. Profit seems to have been produced without labour.

Yet as Kliman demonstrates this model assumes that the machines had a “positive price.” But why should we make such an assumption? “…if the machine were free, then p = 0…the original equation becomes 0 = 0. The rate of profit is undefined.” (p43)

Rather than explaining the source of exchange value, Dimitriev’s model is predicated upon its prior existence. But let us assume that the machine does indeed have a positive price even then according to Kliman, Dimitriev; “does not prove but simply assumes that valuation is simultaneous – in other words that input price equals its output price.” (p43)

Dimitriev’s physicalist model only works if the price of the output equals the price of the input, in other words if the original machines were worth one price each, then the machines which were produced have the same price each.

This is counterposed to Marx’s model, which asserts that as the five machines incorporated the same socially necessary quantity of labour as the four machines, then their individual price would fall by 20%. The total price of the five machines produced would be identical to the price of the four machines, which produced them but their individual price would fall. While productivity has increased - the physical quantity of output has expanded, more use values have been created with the same quantity of labour - the exchange value of the total output has not changed, but the individual parts of it have.

This can be demonstrated through the following example, let’s say a capitalist widget manufacturer buys a new machine that doubles her output using the same quantity of inputs - labour and machinery. At first glance the physicalist model seems correct.

The manufacturer has twice the output to sell; the market price has not changed, so they will yield twice the profit, even though the widgets only incorporate half the original labour, the machine seems to be the origin of the additional profit, not labour. But what may be true for the individual capitalist, is not true for the capitalist class as a whole.

Physicalism could only be correct in a static world, where production does not take place in time, i.e. it is not temporal, and where inputs and output are priced simultaneously.

In order to sell her new higher output and realise the profits embodied within her production, the capitalist widget manufacturer will need to expand their market share. They will have to marginally cut their price to such a level that widget consumers will buy their widgets rather than their competitors. She will still be able to sell her widgets above the cost of production, so yielding a super profit in excess of the average, but her rivals, in order to sell their now inefficiently produced production, will have to cut their prices below the socially necessary labour time in order to compete. The profit of her competitors will be cut by the same amount as her profits increase. The super profit she earns is not a new value, but part of what was the existing profits of her rivals.

And as a result her super profits act as a powerful motivation for those rivals. They are both a positive motivation and a negative incentive, the rivals want a slice of the richer cherry topped widget pie, but have to escape the lower rate of profit they now earn. They must modernise or go bust. They will buy the same machine as the first manufacturer. They in turn will have to expand their market share. They too will have to cut their prices. Eventually competition will ensure that a new price for widgets is established in accord with the new lower socially necessary time it takes to produce widgets, plus the average rate of profit.

The machine creates no additional value, it simply redistributes it between capitalists, until it is generalised across the entire industry.

And critically as the proportion of constant capital to variable capital across the whole economy has increased, there will be a tendency for the overall rate of profit to fall.

So Dimitriev is wrong, profits cannot be created in an economy consisting solely of machines. Kliman, abjures from making this assertion. He simply wants to limits himself to proving that Marx’s account is not inconsistent. We need not be so abstemious; Marx’s account is true, because it is a description of the real forces which drive capitalist accumulation.

This example also neatly addresses the other central problem of Marx’s critics, the alleged separation between values and prices and the so called “transformation problem.”

In Capital Volume I, Marx assumes that values equal prices to ease the presentation of the subject. But as he was aware in real life values rarely equal prices. Rather values form the basis upon which prices rest. But Marx’s critics question the validity of Marx’s solution to the transformation of values into prices.

If indeed prices are separate from values, then the very point of Marx’s value theory is necessarily refuted as given that in the real world all commodities are sold at definite, concrete price, if these prices have no relationship to values, then values cannot determine prices and the labour theory of value cannot be correct; we are back to the beginning, with a theory that cannot explain the origin of profit, price or value.

Capital always seeks to maximise profits as the example above shows, but if labour is the source of all profits, take two industries, one with a high proportion of labourers to constant capital - machinery and raw materials, (Marx called the proportions between constant capital and variable capital the organic composition of capital) - and one with a low proportion of labourers to constant capital, then capital will be attracted to that industry with a higher proportion of labourers to constant capital, as it will produce more surplus value and profits.

But as capital has to maximise its profits, if this were the case no capitalist would ever invest in the industry with a lower profit rate, with a high organic composition of capital.

And the recognition of this fact forms the starting point for Marx’s explanation of the transformation of values into prices.

If more capital is attracted to those industries with a higher proportion of labourers, then the output of these industries will increase and the output of those industries with lower proportion of labourers will fall. The price of the industries with an increased output will fall, as competition intensifies and conversely, the price of those industries with a lower output will rise, as competition diminishes. Capitalists in industries with a higher output, a lower organic composition of capital or more labourers to constant capital, will earn a lower rate of profit, capitalists in industries with a lower output, with a higher organic composition of capital will earn a higher rate of profit.

Profits will be redistributed from those industries with a low organic composition of capital, to those with a high composition of capital. There will be a tendency towards the establishment of an average rate of profit, values will systematically not arbitrarily, diverge from prices, but values still form the basis upon which prices rest.

This movement of capital forms the basis for Marx’s solution of the transformation problem, the systematic divergence between value and price in a capitalist economy.

Bortkiewicz rather sought to establish a separate “dual system” for values and prices. Kliman explains “The crux of Bortkiewicz’s argument is that Marx account produces a difference between input and output prices, and that this difference leads to “internal contradictions” – specifically to a spurious disruption of the reproduction process.” (p46)

And of course Marx’s account does produce a difference between input and output prices, but far from this being an inconsistency in his account, it is absolutely consistent with his explanation of the derivation of prices from values.

In other words Marx had a temporal, single system method.

Kliman’s book contains much other interesting material, around the discussion of the effect of changes in socially necessary labour time on constant capital, the tendency for the rate of profit to fall and the value of labour power and it is good for those of us who were previously unaware of this dispute, to know that it has been settled in Marx’s favour.

But we must add, simply proving Marx’s theory was consistent will not be enough to encourage the renewal of Marxist economics. After all as Kliman points out himself, consistent theories can be wrong, just like inconsistent ones. To restore Marxist economics we need to apply Marx’s method to contemporary globalised capitalism to explain better than the neo-classicals the various trends in world capitalism today.

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As an aside, Kliman’s theory has interesting ramifications for our understanding of globalisation today. The restoration of capitalism in the former centrally planned economies of the USSR/China/Eastern bloc etc. meant that a mass of means of production which produced use values, where transformed into fixed capital. But critically this means of production was stolen from the former workers states for free. The capitalists did not pay for Leningrad, Moscow, Shanghai, Prague, Warsaw or any of the attendant infrastructure which underpin modern manufacturing processes. This meant that the world organic composition of capital fell as profit rates are measured against the actual cost of fixed capital, i.e. which was essentially zero rather than its notional cost. Consequently the actual rate of profit in these economies is exceptionally high. As capitalism has been restored however, the notional value of this means of production has risen. If the rate the rate of profit is measured against the new notional value i.e. its value if it had to be paid for at present prices, then it is possible to show that rates of profit are low or falling, even when they are high and rising.

 

Sun 25, November 2007 @ 16:23