Sraffa On Marx Being Approximately Correct

Sraffa (1960) is an epoch-making book. It is a part of a demonstration that neoclassical economic theory is incoherent and incorrect.

Ian Steedman created a stir in the 1970s. He turns Sraffa's theory against some aspects of Marx's theory of value. He argues that labor values are redundant in explaining prices of production and the rate of profits. This was a novel accusation. He also argues that many analyses, such as the effects of variations in the length of the working day, can be made at the level of prices of production.

Sraffa did not see his book as refuting Marx, either before or after publication. John Eaton wrote a review of Sraffa's book. Eaton was the pen name of Stephen Bodington. Sraffa wrote him a letter, in 1961, after this review. A draft is in Sraffa's archives:

"Dear Bodington,

It was most kind of you to send me through M[aurice] D[obb] an offprint of your article in Societa. I am grateful for this splendid review, which presents the subject in a more lucid and interesting way than I should have thought possible; it certainly sets a high standard for the discussion which I hope it will stimulate [initiate?].

should like to take this opportunity to try and give a brief answer to the question you hint at, when you express some doubts as to the usefulness of the construction of the 'Standard Commodity'. First of all I am convinced that it does represent a real property of the econ[omic] system; and while this could be described in other ways, it should not be ignored, even if it did not find immediate application. It is, however, applied in one or two cases in the book: For instance, in the proof that there is a unique set of all-positive prices in the case of single-product industries. (the proof isn't without importance for the number of sets of solutions is very large, being equal to the number of commodities in the system; if any appreciable proportion of these sets could be all-positive, a large element of uncertainty would be introduced.) Another application is for defining basic and non-b[asic] comm[oditie]s. (This can be done intuitively in a system of s[ingle]-p[roduct] industries, but in complicated cases of multi-product industries, this or some equiv[alent] math[ematical] construction is, I think, necessary.)

There are besides, many possible applications, which I have not mentioned in the book, in problems discussed by Marx. Take, e.g., the determination of a general rate of profits, from the rate of surplus value. Marx takes an average of the rates of profits, obtained from the proportion of the different commodities on the basis of 'values', and he gets, as he acknowledges, an approximately correct result. An exact result could however be obtained by taking, instead of a simple average, a weighted average: and it can be shown that the appropriate weights can be derived directly from the proportions in which the comm[odities] enter the st[andard] comm[odity]. Similarly, in th application of M[arx]'s notion of the comm[odity] produced by 'a cap[ital] of av[erage] org[anic] comp[osition]': for an exact result the average must be found in the same way. In other words, that comm[odity] is the st[andard] comm[odity].

I doubt, however, that it would at the present [time?] be wise to direct the discussion onto these lines.

With kind regards,

Yours sincerely," -- Piero Sraffa. D3.12.111/132

I cite Eatwell (1975) in explaining how the standard commodity is a commodity of average organic composition of capital. It provides a solution of the transformation problem.

In finding the general rate of profits, Sraffa starts with the value rate of profits in each industry. The value rate of profits is the ratio of surplus value to the sum of the value of variable capital and constant capital, with each found in the system of labor values. The rate of profits in the system of price of production is the weighted sum of the value rates of profits, where the weights are a modification of the weights for Sraffa's standard system. This weighted sum is one way that Sraffa draws a connection between labor values and prices of production. I have written about this before. Perri (2023) explains further.

Inasmuch as Marx's solution of the transformation problem is not exactly correct, it can be and has been set right.

References

• Enrico Bellino. 2006. Banfi, Eaton, Dobb and Johnson review Sraffa's Production of Commodities. Storia Del Pensiero Economico
• John Eatwell. 1975. Mr. Sraffa's standard commodity and the rate of exploitation. Quarterly Journal of Economics. 89(4): 543-555.
• Stefano Perri. 2023. Sraffa's response to Eaton's review: a note on the standard commodity and Marx's general profit rate.
• Piero Sraffa. 1960. Production of Commodities by Means of Commodities: A Prelude to a Critique of Economic Theory. Cambridge University Press.
• Ian Steedman. 1981. Marx after Sraffa. Verso.

Keen On Steedman On Marx

I have been reading Steve Keen's 1990 doctoral thesis. As I understand it, Marx explains the origin of surplus value, in Capital, by the distinction between the use value and exchange value of labor power. The use value is the labor expended under the capitalist's direction. This labor is generally more than the labor embodied in labor power. The labor embodied in labor power, under volume 1 assumptions, is the money wage.

Keen argues that Rudolf Hilferding's treatment of skilled labor is an application of Marx's use value/exchange value dialetic. Skilled labor is to be explained by the training that goes into upgrading a worker's skill. The value created by skilled labor is not to be explained by the transfer of the labor embodied in skilled labor as being depreciated over time. Hilferding writes, "The labor of the technical educator thus transmits, not only value (which manifests itself in the form of the higher wage), but in addition its own value-creating power." The value created by a skilled worker in a hour of time is not required to be in the same ratio to the value created by a unskilled laborer in a hour of time as the ratio of their respective wages. Their rates of exploitation can vary.

Why can this dialectic not apply to fixed capital, also known as machinery? According to Keen, Marx did momentarily so apply it in the Grundrisse. The use value of a drill, for example, is so many holes drilled over the life of the drill. But, at a more abstract level, the use value of the drill is a value-creating power. Just as the concrete labor performed by a particular kind of skilled laborer is, strictly speaking, incommeasurable with a particular expenditure of unskilled labor, so the concrete application of a drill is also incommeasurable. But, if you think of the one as having value-creating power, in units of abstract labor time, why cannot the other have value-creating power? If so, fixed capital is just as much a source of surplus value as labor power.

The point of this post, though, is to record a footnote for my commonplace book:

"Rosdolsky['s] contribution certainly called into question the traditional interpretation of Marx, but as for actual revisions of Marx's theory on the basis of Rosdolsky's work, little of merit has happened. Marxian theory in general has been in turmoil since the publication, at much the same time as The Making of Marx's Capital was translated into English, of Steedman's Marx after Sraffa (NLB, London, 1977). In fact Sraffian criticism of Marx predates Steedman's book - as Meek's second edition clearly illustrates. However Steedman's work was the most accessible of these critiques, and the most strident. Steedman's demonstration of the implications for the labour theory of value of Sraffian analysis has left Marxism in disarray, with many deserting the fold. Meek's introduction and appendix to his second edition of Studies , and his Smith, Marx and After (Chapman and Hall, London, 1977) imply that he was amongst the many inclined to this position. Those that remain are split into two camps, with one calling for the theory of value to be dropped from Marxism altogether (l.c. Carling, Hodgson, Bose) while the other argues that value, somehow, is fundamental. This second camp is itself heavily divided, with some for business as usual along the lines of the traditional interpretation (l.c. Sweezy and Shaikh), others explaining surplus on the basis of unequal exchange (l.c. Desai, Bowles and Gintis), and still others seeking refuge in Marx's discussion of concrete versus abstract labour (l.c. Mohun, Carling, Sekine) or the non-commodity nature of labour (Bowles and Gintis, Mohun, Laibman)." -- Steve Keen (1990).

I should expand the list of references below to contain more than one.

I tend to not like dialectical arguments, and I try to confine my analysis to to the level of prices of production. I need to look at labor values, in some sense, in calculating the labor expended in a stationary state to produce a given net output. I do this, following, say, Samuelson, in noting a switch point exhibits capital-reversing. I can see why some find the level of prices of production too confining. Marx goes further in volume 1. For example, consider his presentation of primitive accumulation and the 'double freedom' of the worker under capitalism. Or his distinction between absolute and relative surplus value. Maybe a good analysis should treat labor values anyways.

In contrast to Steedman, Sraffa did not see his book as refuting Marx. After the publication of his book, he wrote a letter to John Eaton (pseudonym of Stephen Bodington) responding to Eaton's review (Perri 2023). In it, he started with the value rate of profits in each industry. The value rate of profits is the ratio of surplus value to the sum of the value of variable capital and constant capital, with each found in the system of labor values. The rate of profits in the system of price of production is the weighted sum of the value rates of profits, where the weights are a modification of the weights for Sraffa's standard system. This weighted sum is one way that Sraffa draws a connection between labor values and prices of production.

References

• Stefano Perri. 2023. Sraffa's response to Eaton's review: a note on the standard commodity and Marx's general profit rate

Yanis Varoufakis Has A Podcast

Varoufakis Interviewing Richard Wolff

I recently stumbled across the podcast Econoclasts. Usually, he co-hosts with the Wolfgang Munchau, a journalist. The above is an extract from the end of an episode where Varoufakis, by himself, interviews Richard Wolff.

It takes lots of study to show why marginalist economics is wrong. Varoufakis says that he no longer can recommend to students that they do that study. He asks Wolff what he does. Wolff responds:

"Well, here's what I tell them. And again I share much of what you have to say. In the ten years I spent at Harvard, Yale, and Stanford, I had to learn, I had to teach neoclassical microeconomics and Keynesian macroeconomics and all the rest. I believed then as I guess you did, too, that this was necessary. I had to understand how the system, not just how it worked, but how it rationalized itself, how it imagined itself to be working.

I did learn early on that the system also understands that dichotomy. So, it has economics departments who develop the ideological cover, as you put it, the rationale, why it all works out for an optimal - look at the language - an equilibrium - more silly language, you know - a system that is neither optimal nor presenting itself as all of that.

And then they have a business school where you actually learn a little bit about how to market something, how to go. They recognize the separation of function.

So, I say to students, you have to do something else, which I had to figure out how to do. I'm going to save you the time. And they look at me, but this is what I do, and I'm answering your question. You have to learn Marxian economics. You do. You have to immerse yourself in the volumes of Capital, in the other literature. Not because everything is clear there, it isn't. Not because there aren't contradictions, there are. Not because there's nothing in neoclassical economics you can't make use of. It's not that.

It's that if you think what I am doing is interesting, it's not me. And it's not what I got at Harvard and Yale. What it is, it comes out of trying to squeeze useful understanding out of the Marxian tradition, separated from the propaganda and from the mistakes and the lessons that weren't learned that should have been, in order to do that - you have to do, and the university cannot do that for you precisely because it fits your description. It’s not - it could care less.

It never was interested in - I never had a class in 10 years and except for Paul Baran, I never had a class in which anybody ever put together a Marxian idea, a neoclassical idea, and then went with us as students through what they had to say, where they were silent and shouldn't have been, where ' etc., etc. None of that was ever done. I had to do all that myself or with a few other students. But the payoff is you get a way of thinking, a way of posing questions that you can then use for all of the new material that Marx, you know, died long before it became relevant.

You know that you try to do that when you try to understand the Cloud. What does the Cloud make possible? What are these conglomerations of wealth and power able to do that capitalists couldn't do before? Where does that take us? Where are the obstacles? What is our best - You need a critical mentality.

And I know many people believe they can develop that on their own. I don't think so. I think if you really want to get beyond Marx, which is fine, you got to go through it to get beyond it. You can't skip over it At least, I’ve never seen anyone pull that off." -- Richard Wolff

I learned Marx on my own. It would be challenging to get through even the first volume of Capital in a semester. The teacher could use one of a number of textbooks. (For some reason, I do not have Resnick and Wolff's Contending Economic Theories in that list.)

Ludwig Von Mises Led A Cult In New York City

When Von Mises came to American, he could not get an academic position. He ended up at New York University, funded by the Volker fund and the Foundation for Economic Education (FEE), not the normal academic position. He had a seminar, so to speak, from 1948 to 1969. I should find these experiences inspiring. Von Mises started his seminar past retirement age, when he was older than me

His students consisted of the usual youngsters seeking credit for a grade and a weird cohort of adults, who attended year after year.

"As Robert Nozick … said, 'In 18 years of teaching at Princeton and Harvard, I never encountered any professor teaching a seminar where non-degree-seeking adults would continue to attend year after year . . . [Mises was] unique in attracting mature minds without demanding discipleship.'" -- Brian Doherty. 2008. Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement.

Israel Kirzner describes what many saw as Von Mises’ arrogance:

"But by the time I was at his seminar, he was of advanced age and had heard all of the arguments in favor of other points of view. There's no doubt he felt convinced that he knew what was valid and invalid. That awareness on his part was fairly obvious to anyone, from body language if you like, and it could be that some members of the seminar might have felt put off." -- Kirzner, quoted by Doherty

Kirzner also comments on the weird cohort:

"Another aspect of those years that has to be kept in mind is that for various sociological reasons Mises became surrounded by people who were very eager to protect him. Some of those well-meaning individuals may have projected an image Mises is not to be criticized, not to be disagreed with. That was unfortunate..." -- Kirzner, quoted by Doherty

Margit Von Mises, the great man's wife describes the behavior of his acolytes:

"four or five students had formed a group in order to protect the professor against dissident students who opposed his views. They occupied a table ahead of the class next to the professor in order to be ready to protect him against any possible violence." -- Margit Von Mises, quoted by Doherty

Murray Rothbard was one of these followers. Others included Bettina Bien Greaves, Richard Cornuelle, Percy Greaves, Leonard Liggio, Ralph Raico, George Reisman, Hans Sennholz, Louis Spadaro, and Leland Yeager. George Koether was another admirer:

"Mises's friend George Koether, an editor at Look magazine, commissioned a bronze bust of the great scholar." -- Doherty

I have not exhausted the oddities of Von Mises' seminars. These cult meetings were important in preserving the Austrian school until the 1974 South Royalton Conference on Austrian Economics

Thomas Sowell Despises Democracy And Supports Imperialism

I quote:

"when another famine struck India in the nineteenth century, now under the colonial rule of British officials and during the heyday of free market economics, opposite policies were followed, with opposite results:

'In the earlier famine one could hardly engage in the grain trade without becoming amenable to the law. In 1866 respectable men in vast numbers went into the trade; for the Government, by publishing weekly returns of the rates in every district, rendered the traffic both easy and safe. Everyone knew where to buy grain cheapest and where to sell it dearest and food was accordingly bought from the districts which most urgently needed it.'

All elementary as this may seem, in terms of economic principles, it was made possible politically only because the British colonial government was not accountable to local public opinion." -- Thomas Sowell. 2011. Basic Economics: A Common Sense Guide to the Economy, fourth edition. p. 64-65

The ‘Nobel’ laureate Amartya Sen has a very different view of famines. Naturally, Sowell does not tell the student that or even who he is quoting. I think Sowell is quoting W. W. Hunter, The Annals of Rural Bengal: Vol. I. The Ethnical Frontier of Lower Bengal, with the Ancient Principalities of Beerbhoom and Bishenpore (1868). The Irish, too, might have a view on how the English handled famines outside England.

Here is an old interview in which Sowell says that third world countries that were lucky enough to be colonized by European powers have better prospect of development.

I do not expect to like Basic Economics. It has no math, no graphs, and no charts. I may not appreciate where he explains things that others would describe with functions - e.g., supply and demand.

'Nobel' Prize-Winning Economists Show Capitalism Is Not Efficient

The bankers at the Swedish central bank, in the 1960s, wanted to justify their political independence. It would be nice if the general public thought of them as experts in some sort of science, not making political decisions in favor of the owning class. So they set up a 'Nobel' prize, that is, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

The first prize was awarded in 1969. You can find the start of a list here. The table below provides an inadequate overview of a selection of winners of this ‘Nobel’ prize.

Table 1: Selected 'Nobel' Prizes

Year	Economist(s)	Work
1978	Herbert Simon	When making choices all people deviate from the strictly rational. He described companies as adaptable systems, with physical, personal, and social components
2001	George Akerlof, Michael Spence, Joseph Stiglitz	Demonstrated that markets in which agents have asymmetric information can be inefficient.
2002	Daniel Kahneman	Demonstrated experimentally that people do not maximize utility. His research on decision-making under uncertainty resulted in the formulation of a new branch of economics, prospect theory
2013	Robert Shiller	Found that stock prices fluctuate much more than corporate dividends. Shiller’s conclusion was therefore that the market is inefficient.
2017	Richard Thaler	Paid special attention to three psychological factors: the tendency to not behave completely rationally, notions of fairness and reasonableness, and lack of self-control.
2021	David Card	Showed empirically that labor markets are not to be explained by supply and demand. Among other things, increasing the minimum wage does not necessarily lead to fewer jobs, as was previously thought.

I do not claim that these, and other 'Nobel' prizes add up to an alternate paradigm. (I have one.) But those who want to understand capitalism might pay some attention to some of this work.

Live Action Role Playing (LARPing) For Propertarians

Milton Friedman was an illogical advocate of right wing capitalism. C. B. MacPherson, in examining Friedman's Capitalism and Freedom, writes "One almost despairs of logic". Harry Johnson writes about the success of Friedman's monetarist counter-revolution by treating Friedman 'as if' he made up an oral tradition at Chicago. I am finding James Forder's Milton Friedman (2019) very critical of Milton. He writes of other accusations of Milton just making things up or otherwise behaving as a charlaton, including in Great Britain.

But never mind that. This post is about how his descendants engage in LARPing. Do you find them absurd?

Capitalism and Freedom is co-dedicated to Milton's son, David. David continues the silliness with his book, The Machinery of Freedom. His fantasy novel, Salamander, has the system of magic partially taken from LeGuin's Earthsea series and partially built on linear algebra. (This is the only one of his three fantasy novels I have read. I find it amusing.) David is an active participant in the Society of Creative Anachronisms, where he is known as Duke Cariadoc of the Bow. In addition to this LARPing, he writes about saga-period Iceland as a model of how law might work in a capitalist society.

Patri Friedman is the son of Davd Friedman. His confusion about LARPing can be seen in his founding of the Seasteading Institute. He was the executive director at its founding in 2008, with a large donation from Peter Thiel. He continued the LARPing with the founding of the Future Cities Development Corporation. No, Patri, you are not Lycurgus, the legendary author of Sparta's constitution. I am sorry that Paul Romer promotes this anti-democratic idea. Furthermore, Patri promotes the bizarre ideas of trans-humanism.

This LARPing may strike you as a combination of harmless recreation and silliness with no chance of being implemented. But here we are, with rich effs close to political power.