Friday, June 30, 2023

Leontief On Reswitching

An old puzzle is why do those who build on Leontief's empirical work not make more of Sraffa? And why do those who build on Sraffa's theory not interact more with those building on Leontief?

Sraffa implicitly refers to Leontief, von Neumann, and others in the preface to his 1960 book. Those, like Zambelli, that have done empirical work on capital-theoretical 'paradoxes' draw on Leontief matrices constructed from national income and product accounts. So do those who are exploring empirical data to test a simple labor theory of value or Marx's law of the tendency of a declining rate of profits.

But consider ten Raa (2022), which I recently stumbled upon. This is a short reflection on Leontief and an exchange of letters in 1985 and 1986. Apparently, Leontief wrote a paper about then exploring if reswitching was likely to arise empirically in the United States economy. He asserted a simple example could be constructed with three produced commodities. This example would include (an approximation for) fixed capital. The editors of the American Economic Review rejected it as of being of no interest to their readers. Leontief published it as a chapter in the second edition of his book on input-output analysis. (By the way, I attended a guest lecture by Leontief a few years before that.)

Thijs ten Raa says that in his exchange of letters, he developed an explicit two-good example. He notes that a few empirical examples of reswitching have been found, for example, by Han and Schefold. He concludes this paper by quoting Samuelson (1966) and Pasinetti (2003) on how "current neoclassical economists do not seem to like Samuelson's 'facts of life.'"

Those who say, "economics is fake", have a point.

Selected Reference
  • Thijs ten Raa. 2005. The economics of Input-Output Analysis, Cambridge University Press.
  • Thijs ten Raa. 2022. Reswitching and capital models. Journal of Economic Structures 11 (1).

Monday, June 26, 2023

Is Socialism Possible?

The strongest argument against socialism, understood as entailing central planning, comes from Enrico Barone. Von Mises popularized this argument. Maybe he was subjectively original. I think von Mises did not have a good understanding of duality theory and shadow prices. Anyways, his argument is supposed to be an argument in principle, an impossibility argument. Oskar Lange, Abba Lerner, and Fred Taylor, for example, provided answers. Hayek proposed a revision emphasizing practicality and distributed tacit knowledge. The argument still needs to be remade, since marginalist price theory has been shown half a century ago to be, at best, wrong.

But socialists need to have no opinion on the possibility of central economic planning in a democracy. One can advocate a plethora of policies and institutions in the here and now which give the vast majority of the population more control over their lives, more participation in their society, and more opportunities to develop their potentials. Achieving these goals requires a much less extreme inequality in the distribution of income and wealth. Some examples of policies and institutions are:

  • The creation of Sovereign Wealth Funds.
  • Universal Basic Income.
  • Co-determination. Corporate charters are a creature of the state, often Delaware in the United States. Laws can mandate workers have representatives on the board of directors and other goverance practices be put in place.
  • Government ownership, at various levels, of utilities, railrods, port facilities, telecommunications infrastructure and so, keeping in mind the principle of subsidiarity.
  • Extensive re-creation of infrastructure and industry to diminish the threat of global warming.
  • The support for loans or subsidies for the formation of co-operatives.
  • Simplifing the organization of labor unions. Card check is a current possibility in the United States. (Is Labor Notes a worthwhile site?)
  • Legalizing union contracts in which a contract clause mandates that all workers at certain tiers in an unionized firm pay union dues. (The prohibition of such contracts is dishonestly called 'the right to work'.)
  • Legalizing sympathy strikes.
  • More generous funding on education, basic research, and so.
  • A generous social safety net
  • Universal health care, disconnected from employment.
  • Higher taxes on the wealthy, especially on property income.

I have banged on like this before. I think for all of the above to be possible in the United States necessitates a much different political climate than currently prevailing. When such a country is achieved is time enough to argue about (other) varieties of socialism.

References

Friday, June 23, 2023

What Are Prices Of Production?

Suppose one rejects the labor theory of value as a theory of prices. Or, even more, one could reject Marx's theory of value in volume 1 of Capital. Still, one could elaborate the theory of prices of production. In my published works, I have tried to extend the theory a step or two. And the theory of prices of production is opposed to a marginalist theory, a theory of supply and demand, if any such coherent theory exists.

In this post, I offer one explanation of the setting of the theory of prices of production. I am heavily indebted to Alessandro Roncaglia. Heinrich Bortis is another point of reference here. As usual, my favorite textbook expositions of the details of prices of production are by Luigi Pasinetti and Heinz Kurz and Neri Salvadori. I have yet to read Fabio Petri's recent textbook.

Suppose, for purposes of exposition, time is broken up into discrete intervals, namely, years. And the economy to be considered is a capitalist economy. Managers of firms, at the start of the year, hire so many workers and buy so many commodities on the market for fuel, raw material, tools, and so on.

One can imagine taking a snapshot at the end of the year, after the harvest. Produced commodities are in the hands of the (owners of) firms which have produced them. They need to be redistributed, among industries and among consumers, for production to continue.

Workers will purchase some commodities, with their wages and through a retail sector. Capitalists will also purchase some commodities for consumption. Firms that continue in business will buy their needed inputs from firms in other industries to continue production in the next year. Some firms will retain some of their output for use in production. I am thinking, for example, of seed in agriculture. Used machinery or a plant can be thought of as jointly produced with a more obvious commodity. Joint production proper occurs in oil refineries and breweries, I guess.

A realization problem arises here. Some will find that the (market) prices at which they buy and sell deviate from what they expected. Capitalists had certain expectations and plans when they made production decisions at the start of the year, and they may find those plans incapable of being realized at the end of the year.

But one can ask what must be prices be such that capitalists would find no need to modify their plans? These are prices of production. In a competitive capitalist economy, one assumes a common rate of profits rules in all industries. In calculating prices of (re)production, one takes either the real wage or the rate of profits as given. One might think of the wage as embodying all sorts of conventions and norms about what workers in different strata are expected to be able to purchase. At any rate, prices of production allow buying and selling that go on after the harvest to be such that produced commodities are redistributed such that a capitalist economy can be reproduced.

Some points on this abstract description of a capitalist economy:

  • Decisions on what and how much to produce are made upstream from the realization problem, so to speak. At no point in time can one simultaneously validate current decisions.
  • Decisions on production also generate, at the end of the year, the income used to purchase the output. Many of these decisions are for the production of capital goods quite distant from consumption.
  • The workers are are hired with the promise of a payment of a money wage. The possibility arises of a conflict over distribution at the end of year in which total money claims add up to more than the output produced.
  • Say's law is not assumed. Realization problems may lead to some capitalists having more unused capacity than planned or too little capacity. (Typically, firms plan to have some unused capacity so as to meet unanticipated demands.)
  • No need exists to talk about supply and demand functions in explaining prices of production. No assumptions are made about any tendency for the labor market to clear in calculating prices of production.
  • Perhaps capitalists can approximate prices of production, given accounting conventions about markups. Would deviations of market prices from prices of production be taken into account when they revise their plans? Or should such a story only be concerned with market prices?
  • The equations for prices of production provide an open model, in some sense. The level of aggregate demand and the distribution of income are taken from outside the model.

I hope you can see some family resemblances between the approaches of Sraffa and Keynes to economics. A parallelism to the works of Marx also exists here.

Sunday, June 18, 2023

A Letter From Marx To Engels In 1867 On The Order Of Presentation In Capital

This is another letter in a series I have been transcribing in which Marx explains his theory to Engels. In 1867, he was going through the proofs of Capital and so penned several such letters. I think one can ignore Hegel and read Marx as presenting a scientific theory, from abstract principles to more concrete applications. I would not necessarily disagree with those who think such a reading misses much. But I find it interesting how much this reading captures.

I like that in this letter, Marx explicitly says that his dialectic method of presentation provides traps for bad readers. You can easily find many such poor readers today. We see that Marx here distinguishes again scientific from vulgar political economy. I think Marx's letter, on 11 July 1868, to Kugelmann, echoes points here. There he objects to those who want to give the "science before the science".

27 June 1867

Dear Fred,

The 2 half 5 pound-notes received with kindest thanks. With respect to the address, use Borkheim. He knows my situation, though with as much concealment as I consider necessary in his regard. I would even like him to know that you are lending me money. But you must write and tell me when the money is to be sent to him. I do not see why I should involve yet a 3rd philistine.

The Fenians should be delivered to you today.

I was so very pleased by your lines of yesterday, and that requires no further elaboration from me.

Sheet 20 was the latest to reach me. It will probably run to 40 or 42 sheets in all. I've not as yet received any corrected proofs after the ones already sent you. On your departure send me back those which are in your possession.

Regarding the objection that you mentioned the philistines and vulgar economists will infallibly raise (they forget, of course, that, if they reckon paid labour as wages, they are reckoning unpaid labour as profit, etc.), it amounts, in scientific terms, to the following question:

How is the value of the commodity transformed into its price of production, in which

1. the whole of the labour appears paid for in the form of wages;

2. the surplus-labour, however, or the surplus-value, assumes the form of an addition to the price, and goes by the name of interest, profit, etc., over and above the cost-price (=price of the constant part of capital + wages).

Answering this question presupposes:

I. That the transformation of, for example, the value of a day's labour-power into wages or the price of a day's labour has been explained. This is done in Chapter V of this volume.

II. That the transformation of surplus-value into profit, and of profit into average profit, etc., has been explained. This presupposes that the process of the circulation of capital has been previously explained, since the turnover of capital, etc., plays a part here. This matter cannot therefore be treated prior to the 3rd book (Volume II is to contain books 2 and 3). Here it will be shown how the philistines' and vulgar economists' manner of conceiving things arises, namely, because the only thing that is ever reflected in their minds is the immediate form of appearance of relations, and not their inner connection. Incidentally, if the latter were the case, we would surely have no need of science at all.

Now if I wished to refute all such objections in advance, I should spoil the whole dialectical method of exposition. On the contrary, the good thing about this method is that it is constantly setting traps for those fellows which will provoke them into an untimely display of their idiocy.

By the by, Para. 3: 'The Rate of Surplus Value', which was the last one you had in your possession, is immediately followed by the Para.: 'The Working Day' (struggle for the reduction of working time), whose argument demonstrates ad oculos [vividly] to what extent those bourgeois gentlemen comprehend the source and nature of their profit in practice. This is also shown in the Senior CASE, where your bourgeois assures us that his whole profit and interest derive from the last unpaid hour of labour.

Kindest regards to Mrs Lizzy.

Your

K. M.

You must stop over for a few days here on your journey home.

Apropos. I judged it in every way imprudent to take Mr Meissner into my confidence regarding my private circumstances.

Saturday, June 17, 2023

Daniel Ellsberg (1931 - 2023)

I find that I summarized the Ellsberg paradox back in 2009. I have also commented on who in the United States was prosecuted for leaking classified information to the press. Eric Loomis has an obituary. The Pentagon Papers are now unclassified and available from the National Archives. As I understand it, Ellsberg copied each page personally - no downloading to a thumb drive in his day. David Halberstam's book, The Best and the Brighest is a well-known work of journalism (the first draft of history) on Vietnam.

Thursday, June 15, 2023

Elsewhere

Having read his book, I think Zachery Carter is quite aware of the reputation of the University of Massachusetts at Amherst, the New School for Social Reserarch, Utah, and a few other places. In his New Yorker article, he does not say anything about heterodox or non-mainstream economics. He does not say anything about the sociology of the field. He does note Krugman and others calling Weber (or her work) 'stupid'. Carter treats Weber as any other economist that has something interesting to say about current issues in understanding the economy of the United States and other countries.

I think some of my work is not too far away from Weber's work. I wonder if she knows about the work of Adam Rose and others using input-output analysis to understand the economic impact of disastors, such as hurricanes and earthquakes.

Update 16 June 2023: Added link to Meg Jacobs article.

Saturday, June 10, 2023

A Iterative Procedure Converging To Prices Of Production

Figure 1: Prices of Corn and Ale in an Iterative Process
1.0 Introduction

Anwar Shaikh proposed, sometime in the 1970s, I guess, an interpretation of Marx's transformation problem. Marx's solution in volume 3 of Capital is the first step of an iterative process. I thought I might work through this idea with an example from an old exposition of mine. I am not sure how faithful I am to Shaikh's approach. I notice that as I explain it, the equality of total values and of total prices is maintained for gross output. In this conception, Marx's solution to the transformation problem is not incorrect or incoherent, but merely incomplete.

My favorite solution to the transformation problem is based on von Charasoff's original capital, also known as Sraffa's standard commodity. Both Shaikh and Sraffa's solution raise a question about what is special about labor. As I understand it, Shaikh's iterative procedure does not need to start at labor values. One needs to look outside what is formalized in the mathematics.

2.0 Technology and Labor Values

Consider a simple capitalist economy that produces only two goods, corn and ale. Assume the amounts of corn and ale produced each year are given, as well as the production processes used in each industry. Corn and ale are each produced by processes that require a year to complete. These processes require a certain number of workers to be hired at the beginning of the year, as well as the purchase of certain quantities of corn and ale to be used as inputs in production. Operating these processes then produces certain quantities of outputs of corn and ale for use at the end of the year. Table 1 shows the amount of inputs per unit output for both industries. The data allow for surplus production, that is for more corn and ale to be produced than are used as inputs. I might as well assume Constant Returns to Scale (CRS).

Table 1: The Technique of Production
InputCorn IndustryAle Industry
Labor1 Person-Year1 Person-Year
Corn1/8 Bushel3/8 Bushel
Ale1/16 Bottle1/16 Bottle
Output1 Bushel1 Bottle

I now want to consider a couple of levels at which these processes can be operated. Suppose the first process is scale to produce a gross output of 15/16 bushels, and the second process is used to produce 1/16 bottles. Then the quantity flows shown in Table 2 result. With these gross outputs, one person-year is employed throughout the economy. The ale used up in production is exactly replaced by the output of ale industry. 9/64 bushels of the corn produced replace the corn used up in production. So these quantity flows are for a stationary state in which one person-year of labor are used to produce a net output of 51/64 bushels of corn. So a bushel of corn embodies 64/51 ≈ 1.255 person-years per bushel. If the wage consists entirely of corn, the maximum wage is 51/64 bushels per person-years.

Table 2: Processes Scaled to Produce a Net Output of Corn
InputCorn IndustryAle Industry
Labor15/16 Person-Year1/16 Person-Year
Corn15/128 Bushel3/128 Bushel
Ale15/256 Bottle1/256 Bottle
Output15/16 Bushel1/16 Bottle

On the other hand, suppose that 3/10 bushels of corn are produced in the corn industry, and 7/10 bottles are produced in the ale industry. The quantity flows shown in Table 3 result. Here, too, one person-year is employed throughout the economy. The corn produced is wholly used to replace the corn used as inputs throughout the economy. The net output of the ale industry, after replacing the ale used as capital goods, is 51/80 bottles. That is, a bottle of ale embodies 80/51 ≈ 1.569 person-years per bottle. The maximum wage is 51/80 bottles per person-years.

Table 3: Processes Scaled to Produce a Net Output of Corn
InputCorn IndustryAle Industry
Labor3/10 Person-Year7/10 Person-Year
Corn3/80 Bushel21/80 Bushel
Ale3/160 Bottle7/160 Bottle
Output3/10 Bushel7/10 Bottle

Labor values are 64/51 ≈ 1.255 person-years per bushel and 80/51 ≈ 1.569 person-years per bottle.

3.0 An Iterative Procedure

To specify the iterations of prices, a general notation is useful. Accordingly, define the following variables.

  • a0: A two-element row vector of direct labor coefficients.
  • A: A 2x2 Leontief matrix.
  • q: A two-element column vector of gross outputs.
  • y: A two-element column vector of net outputs.
  • w: A two-element column vector of the commodity wage.
  • p: A two-element row vector of prices. Indexed in the iterative process.
  • Cn: Constant capital, evaluated at prices in the iterative process.
  • Vn: Variable capital, evaluated at prices in the iterative process.
  • Sn: Surplus product, evaluated at prices in the iterative process.

The rate of profits is defined in terms of the ratio of surplus value to the value of the capital advanced. Both the numerator and the denominator are aggregated across all industries. Accordingly, I find it convenient to specify the level and composition of the economy as such that employment is one person-year, and the net output of the economy is in the proportions of the wage basket. These assumptions are more restrictive, I think, than is needed. Anyways, for this exposition of the first case, suppose quantity flows are as in Table 2. And let the commodity wage be at a level where half the net output is paid out as the wage. In this case, only corn is a consumption good.

Initially, prices are assumed to be labor values. The price of constant capital, at a given iteration, is:

Cn = pn A q

The value of advanced wage goods, at a given iteration, is:

Vn = pn w a0 q

The value of surplus value is the value of net output not paid out to the workers:

Sn + Vn = pn y

I take wages as advanced, along with constant capital. Accordingly, the overall rate of profits at a given iteration, is:

rn = Sn/(Cn + Vn)

Prices are iterated as follows:

pn + 1 = pn (A + w a0)(1 + rn)

Notice that all the terms on the right-hand side are defined at a given iteration. Table 4 shows the results for the first few iterations in the case of the numeric example, with the assumptions for the first case.

Table 4: One Set of Iterative Prices
Countp1 (approx.)p2 (approx.)S/(C + V) (approx.)
064/5180/510.645570
11.2422441.7585010.634923
21.2427761.7505190.635368
............
1.2427551.7508390.635350

As I understand, this iteration occurs in logical time. It is not a process in historical time. This process converges to prices of production, which satisfy the following equation:

p (A + w a0)(1 + r) = p

Marx sets out the first iteration above. One can modify the assumptions. I do not think much is gained by restricting attention to schemes of simple and expanded production, as at the end of Volume 2 of Capital.

Figure 2: Rate of Profits in an Iterative Process

In Figures 1 and 2, the lines labeled 'Corn Wage' are for the quantity flows in Table 2. The lines labeled 'Ale Wage' are for the quantity flows in Table 3. I suppose a better numeric example would not converge as quickly.

4.0 Conclusion

This post is one more illustration that academics have had ways of making sense of the transformation problem. One could argue about which way is more insightful. Do these discussions help make sense of capitalist economies and of the confusions in mainstream economics?

References
  • Deepankar Basu. 2020. Can commodities be substance of value? UMass Economics Working Papers. 290.
  • Fred Moseley. 2020. A critique of Shaikh's two interpretations of Marx's 'transformation problem'. Cambridge Journal of Economics.
  • Anwar Shaikh. 1977. Marx's theory of value and the 'transformation problem'. The Subtle Anatomy of Capitalism (ed. by Jesse Schwartz).

Thursday, June 08, 2023

Marx To Vera Zasulich In 1881

Is historical materialism a deterministic theory? Must all societies (in particular, Russia) go through the same stages, including feudalism, capitalism, and, eventually, socialism? Perhaps Marx says otherwise in the following letter.

London, 8 March 1881
41 Maitland Park Road, N.W.

Dear Citizen,

A nervous complaint which has assailed me periodically over the last ten years has prevented me from replying any sooner to your letter of 16 February. I am sorry that I cannot provide you with a concise exposé, intended for publication, of the question you have done me the honour of putting to me. Months ago I promised the St Petersburg Committee to let them have a piece on the same subject. I hope, however, that a few lines will suffice to dispel any doubts you may harbour as to the misunderstanding in regard to my so-called theory.

In analysing the genesis of capitalist production I say:

'At the core of the capitalist system, therefore, lies the complete separation of the producer from the means of production ... the basis of this whole development is the expropriation of the agricultural producer. To date this has not been accomplished in a radical fashion anywhere except in England... But all the other countries of Western Europe are undergoing the same process' (Capital, French ed., p. 315).

Hence the 'historical inevitability' of this process is expressly limited to the countries of Western Europe. The cause of that limitation is indicated in the following passage from Chapter XXXII:

'Private property, based on personal labour ... will be supplanted by capitalist private property, based on the exploitation of the labour of others, on wage labour' (l.c., p. 341).

In this Western movement, therefore, what is taking place is the transformation of one form of private property into another form of private property. In the case of the Russian peasants, their communal property would, on the contrary, have to be transformed into private property.

Hence the analysis provided in Capital does not adduce reasons either for or against the viability of the rural commune, but the special study I have made of it, and the material for which I drew from original sources, has convinced me that this commune is the fulcrum of social regeneration in Russia, but in order that it may function as such, it would first be necessary to eliminate the deleterious influences which are assailing it from all sides, and then ensure for it the normal conditions of spontaneous development.

I have the honour to be, dear Citizen,

Yours very faithfully,

Karl Marx

Is the above in agreement with a letter of Engels?

I think of Georgi Plekhanov as having introduced Marxism into Russia. Vera Zasulich, however, was another who had an early interest. Others include Pavel Axelrod, Nikolai Danielson, Ivan Fesenko, Julius Martov, Pyotr Struve, and Nikolai Ziber. The founders in exile in Geneva of the Emancipation of Labour group provide another list. Danielson translated Capital. Struve was part of the school of legal Marxism before becoming a liberal. Axelrod and Martov became prominent Menshevik. Nikolai Chernyshevsky and Pyotr Lavrov are of interest. The former wrote a novel, What is to be done?, from which Lenin took the title. The latter headed a movement opposed to the Narodniks.

Sunday, June 04, 2023

A Letter From Marx To Engels In 1862 On The Transformation Problem

Here Marx sets out the transformation problem in a letter to Engels. The first volume of Capital was published in 1967. So this is another instance of Marx distinguishing labor values and prices of production before publication of Capital. This post is the second in a series I am working on in which he sets out critical parts of the (critique of) political economy in Capital in letters to Engels. As I understand it, the concept of absolute rent was original with Marx.

Marx criticizes Ricardo for not distinguishing the labor embodied in inputs in production from their cost price. Is the distinction between cost price and prices of production clear in this letter? Maybe not. He goes on here about rent. He assumes that the organic composition of capital is lower in agriculture than in industry. Hence, for Marx, more surplus value is generated in agriculture, for a given expenditure of capital, than in industry.

2 August 1862

Dear Frederick,

Best thanks for the 10 pounds.

I very much dislike your being in financial difficulties on my account, but que faire? Who is capable of withstanding such a crisis as the American one? Not to mention my peculiar bad luck in having a rotten rag like the Vienna Presse to deal with. OTHERWISE, the fellows might, at least, have been able to make up for the loss of the Tribune TO SOME EXTENT. Do you suppose, perhaps, that the time has now come for me to approach, say, the Evening Post (THE ABOLITIONIST PAPER in New York) about my contributing to it?

All things considered, it's a real miracle that I have been able to get on with my theoretical writing to such an extent. I now propose after all to include in this volume an extra chapter on the theory of rent, i.e., by way of 'illustration' to an earlier thesis of mine. Let me say a word or two about what will, in the text, be a lengthy and complex affair, so that you may let me have your opinion on it.

As you know, I distinguish 2 parts in capital: constant capital (raw material, matières instrumentales, machinery, etc.), whose value only reappears in the value of the product, and secondly variable capital, i.e., the capital laid out in wages, which contains less materialised labour than is given by the worker in return for it. E.g. if the daily wage = 10 hours and the worker works 12, he replaces the variable capital + 1/5 of the same (2 hours). This latter surplus I call SURPLUS VALUE.

Let us assume that the rate of surplus value (that is the length of the working day and the surplus labour in excess of the necessary labour performed by the worker to reproduce his pay) is given, e.g. = 50 p.c. In this case, in a 12 hour working day the worker would work e.g. 8 hours for himself, and 4 hours (8/2) for the EMPLOYER. And indeed, let us assume this to apply to all TRADES SO that any variations there may be in the AVERAGE WORKING TIME simply allow for the greater or lesser difficulty of the work, etc.

In these circumstances, given equal exploitation of the worker in different TRADES, different capitals in different spheres of production will, given equal size, yield very different AMOUNTS OF SURPLUS VALUE and hence very different rates of profit, SINCE PROFIT IS NOTHING BUT THE PROPORTION OF THE SURPLUS VALUE TO THE TOTAL CAPITAL ADVANCED. This will depend on the organic composition of the capital, i.e., on its division into constant and variable capital.

Let us assume, as above, that the surplus labour = 50 p.c. If, therefore, e.g. 1 pound = 1 working day (no matter whether you think in terms of a day or a week, etc.), the working day = 12 hours, and the necessary labour (i.e. reproductive of the pay) = 8 hours, then the wage of 30 workers (or working days) = 20 pounds and the value of their labour = 30 pounds, the variable capital per worker (daily or weekly) = 2/3 pounds and the value he creates = 1 pound. The AMOUNT of SURPLUS VALUE produced by a capital of 100 pounds in DIFFERENT TRADES will vary greatly according to the proportion in which the capital of 100 pounds is divided into constant and variable capital. Let us call CONSTANT CAPITAL C, and VARIABLE CAPITAL V. If, e.g. in the COTTON industry, the composition was C 80, V 20, the value of the product would = 110 (given 50 p.c. surplus value or SURPLUS LABOUR). The amount of the surplus value = 10 and the profit rate = 10 p.c., since the profit = the proportion of 10 (the SURPLUS VALUE): 100 (the total value OF THE CAPITAL EXPENDED). Let us suppose that, in a large tailoring shop, the composition is C 50, V 50, so that the product = 125, the surplus value (at a rate of 50 p.c. as above) = 25 and the profit rate = 25 p.c. Let us take another industry where the proportion is C 70, V 30, hence the product = 115, the profit rate = 15 p.c. Finally, an industry where the composition = C 90, V 10, hence the product = 105 and the profit rate = 5 p.c.

Here, given equal exploitation of labour, we have IN DIFFÉRENT TRADES very DIFFERENT AMOUNTS OF SURPLUS VALUE AND HENCE VERY DIFFERENT' RATES OF PROFIT for capitals of equal size.

If, however, the above 4 capitals are taken together, we get

1.C 80V 20110profit rate = 10 p.c.Rate of surplpus
value in all
cases = 50 p.c.
2.C 50V 50125profit rate = 25 p.c.
3.C 70V 30115profit rate = 15 p.c.
4.C 90V 10105profit rate = 5 p.c.
Capital400Profit = 55

On 100, this makes a PROFIT RATE of 13 3/4 p.c.

If the total capital (400) of the class be considered, the profit rate would = 13 3/4 p.c. And capitalists are brothers. As a result of competition (TRANSFER OF CAPITAL OR WITHDRAWAL OF CAPITAL FROM ONE TRADE TO THE OTHER), capitals of equal size in DIFFERENT TRADES, DESPITE THEIR DIFFERENT OGRANIC COMPOSITIONS, YIELD THE SAME AVERAGE RATE OF PROFIT. In other words, the AVERAGE profit, which F.I. A CAPITAL OF 100 pounds yields IN A CERTAIN TRADE, it yields, not as a capital specifically applied to the same nor, therefore, in the proportion in which it of itself produces SURPLUS VALUE, but as an aliquot part of the total capital of the capitalist class. It is a SHARE the dividend on which will be paid in proportion to its size out of the total amount of the SURPLUS VALUE (or unpaid labour) produced by the total variable (laid out in wages) capital of the class.

If then 1, 2, 3, 4 in the above illustration are to make the same AVERAGE PROFIT, each category must sell its goods at 113 1/3 pounds. 1 and 4 will sell them at more than their value, 2 and 3 at less.

The price so regulated = THE EXPENSES OF CAPITAL + THE AVERAGE PROFIT (F.I. 10 p.c.), is what Smith called the NATURAL PRICE, COST PRICE, etc. It is the AVERAGE PRICE to which competition between DIFFERENT TRADES (by TRANSFER OF CAPITAL or WITHDRAWAL OF CAPITAL) reduces the prices in DIFFERENT TRADES. Hence, competition reduces commodities not to their value, but to the cost price, which, depending on the organic composition of the respective capitals, is either above, below or = to their values.

Ricardo confuses value and cost price. He therefore believes that, if there were such a thing as absolute rent (i.e., rent independent of variations in the fertility of the soil), AGRICULTURAL PRODUCE, etc., would be constantly sold for more than its value, because at more than cost price (THE ADVANCED CAPITAL + THE AVERAGE PROFIT). That would demolish the fundamental law. Hence he denies absolute rent and assumes only differential rent.

But his identification of VALUES OF COMMODITIES and COST PRICES OF COMMODITIES is totally wrong and has traditionally been taken over from A. Smith.

The facts are as follows:

If we assume that the AVERAGE COMPOSITION of all NOT AGRICULTURAL CAPITAL is C 80, V 20, then the product (assuming that the rate of surplus value is 50 p.c.) = 110 and the profit rate = 10 p.c.

If we further assume that the AVERAGE COMPOSITION of AGRICULTURAL CAPITAL is C 60, V 40 (in England, this figure is statistically fairly correct; rent for pasture, etc., has no bearing on this question, being determined not by itself, but by the CORN RENT), then the product, given equal exploitation of labour as above = 120 and profit rate = 20 p.c. Hence, if the farmer sells his AGRICULTURAL PRODUCE for what it is worth, he is selling it at 120 and not at 110, its cost price. But landed property prevents the farmer, like his BROTHER CAPITALISTS, from equalising the value of the product to the cost price. Competition between capitals cannot enforce this. The landowner intervenes and pockets the difference between value and cost price. A low proportion of constant to variable capital is in general an expression of the poor (or relatively poor) development of the productive power of labour in a particular sphere of production. Hence, if the AVERAGE COMPOSITION of AGRICULTURAL CAPITAL is e.g. C 60, V 40, while that of NOT AGRICULTURAL CAPITAL is C 80, V 20, this proves that agriculture has not yet reached the same stage of development as industry. (Which is easily explicable since, apart from anything else, a prerequisite for industry is the older science of mechanics, while the prerequisites for agriculture are the completely new sciences of chemistry, geology and physiology.) If the proportion in agriculture becomes C 80, V 20 (in the above premise), then absolute rent disappears. All that remains is differential rent, which I shall also expound in such a way as to make Ricardo's assumption of the constant DETERIORATION OF AGRICULTURE appear MOST RIDICULOUS AND ARBITRARY.

Having regard to the foregoing definition of COST PRICE as distinct from VALUE, it should further be noted that, besides the distinction between constant capital and variable capital, which arises out of the immediate production process of capital, there is the further distinction between fixed and circulating capital, which arises out of the circulation process of capital. However, the formula would become too involved if I were to seek to incorporate this in the above as well.

There you have - ROUGHLY, for the thing's fairly complicated - the critique of Ricardo's theory. This much you will admit - that by taking into account the ORGANIC COMPOSITION OF CAPITAL, one disposes of a mass of what have so far seemed to be contradictions and problems.

Apropos. There are certain reasons, of which I shall inform you in my next letter, why I should be very glad if you would write me a detailed military critique (I shall deal with the political aspect) of Lassalle-Rüstow's liberation nonsense.

Your

K. M.

Regards to the ladies.

Imandt has announced himself. Izzy leaves on Monday.

It will be evident to you that, given my view of 'absolute rent', landed property (UNDER CERTAIN HISTORICAL CIRCUMSTANCES) does INDEED put up the prices of raw materials. Very important, communistically speaking.

Assuming the correctness of the above view, it is by no means essential for absolute rent to be paid under all circumstances or in respect of every type of soil (even if the composition of AGRICULTURAL CAPITAL is as assumed above). It is not paid when landed property does not exist, either factually or legally. In such a case, AGRICULTURE offers NO PECULIAR RESISTANCE TO THE APPLICATION OF CAPITAL, which then moves as easily in this element as in the other. The agricultural produce is then sold, as masses of industrial products always are, at cost price for less than its value. In practice, landed property may disappear, even when capitalist and landowner are one and the same person, etc.

But it would be otiose to go into these details here.

Differential rent as such - which does not arise from the circumstance that CAPITAL is employed ON LAND INSTEAD OF ANY OTHER FIELD OF EMPLOYMENT - presents no difficulty in theory. It is nothing other than SURPLUS PROFIT which also exists in every sphere of industrial production wherever capital operates under better than AVERAGE CONDITIONS. It is firmly ensconced in agriculture only because founded on a basis as solid and (relatively) stable as the DIFFERENT DEGREES OF NATURAL FERTILITY of various types of soil.

Friday, June 02, 2023

Selected Biographies Of Karl Marx

Selected Biographies
AuthorYearTitle
Gustav Gross1885Karl Marx: Eine Studie
William Liebknecht1896Karl Marx, Biographical Memoirs
Paul Lafargue1905My Recollections of Karl Marx
Various1908Karl Marx: In memoriam
Jonathan Spargo1910Karl Marx: his life and work
Clara Zetkin1913Karl Marx und Sein Lebenswerk
Franz Mehring1918Karl Marx: The story of his life
Otto Ruhle1926Karl Marx: Leben und Werk
David Riazanov1927Karl Marx and Frederick Engels: an introduction to their lives and works
Institute of Marxism-Leninism of the Central Committee of the CPSUKarl Marx: a biography
E. H. Carr1934Karl Marx: A study in fanaticism
Boris Nicolaevsky1936Karl Marx: Man and Fighter
Karl Korsch1938Karl Marx
Isaiah Berlin1939Karl Marx: His Life and Environment
Leopold Schwarzschild1947The Red Prussian: the life and legend of Karl Marx
David McLellan1973Karl Marx: a biography
Fritz J. Raddatz1975Karl Marx: Eine politische biographie
Francis Wheen1999Karl Marx: A life
Jonathan Sperber2013Karl Marx: A nineteenth century life
Gareth Stedman Jones2016Karl Marx: greatness and illusion
Michael Heinrich2018Karl Marx and the Birth of Modern Society (1st of 3 volumes.)

Karl Marx was a great man. In other words, he had a huge impact on the world. Many, as seen above, have written biographies. I try to give the original year of publication. I am inconsistent about whether or not I translate the title.

Early biographies tend to be memoirs, based on recollections and oral stories, with little documentation. Later, biographies tend to be more intellectual histories. I have read the Mehring biography and the Lafarge memoir. Most of what I have read about his life were in studies of his thought, that are not included above. Examples include Shlomo Avineri, Ernest Mandel, and Takahisi Oishi. Some around the mid twentieth century focus on being pro or against the Soviet Union. The last couple of decades have seen academic works with lots of documentation.

References
  • Lenin. 1915. Karl Marx. Collected Works, V. 21
  • Segrillo, Angelo. 2019. Two centuries of Karl Marx biographies. LEA Working Paper, No. 4.