| Richard Wolff Responding To A Question On The Transformation Problem |
The marginal revolution of the 1870s not only changed the answers. It also changed the questions. Neither the classical economists nor Karl Marx were studying the allocation of scarce resources among alternate uses.
The dynamic vision of classical political economy was about the wealth of nations, and the accumulation of capital. The latter concern meant classical political economists cared about distribution. They treated workers as consuming their wages, the landed gentry as spending their income on luxuries, and capitalists as investing their income back into growing their wealth. The classical political economists found they needed to know something about value or prices to pursue their main concerns. The theory of value was an unavoidable complication.
At one point, David Ricardo deplored the need for this complication:
"...After all[,] the great questions of Rent, Wages, and Profits must be explained by the proportions in which the whole produce is divided between landlords, capitalists, and labourers, and which are not essentially connected with the doctrine of value...
...The greater the portion of the result of labour that is given to the labourer, the smaller must be the rate of profits, and vice versa. Now this portion must essentially depend on the facility of producing the necessaries of the labourer - if the facility be great, a small proportion of any commodity, the result of capital and labour, will be sufficient to furnish the labourer with necessaries, and consequently profits will be high." -- David Ricardo, letter to McCulloch, 13 June 1820
Karl Marx took over this problem, to a considerable extent. In 1904, Hilferding tried to explain:
"In striking contrast with Böhm-Bawerk, Marx looks upon the theory of value, not as the means for ascertaining prices, but as the means for discovering the laws of motion of capitalist society." -- Rudolf Hilferding, Böhm-Bawerk's Criticism of Marx, Chapter 1: Value as an economic category
Joan Robinson had a low opinion of Marx's labor theory of value. But she was very clear that Marx's point was not about prices:
"Marshall did something much more effective than changing the answer. He changed the question. For Ricardo the Theory of Value was a means of studying the distribution of total output between wages, rent and profit, each considered as a whole. This is a big question. Marshall turned the meaning of Value into a little question: Why does an egg cost more than a cup of tea? It may be a small question but it is a very difficult and complicated one. It takes a lot of time and algebra to work out the theory of it. So it kept all Marshall's pupils preoccupied for fifty years. They had no time to think about the big question, or even to remember that there was a big question, because they had to keep their noses right down to the grindstone, working out the theory of the price of a cup of tea." -- Joan Robinson, 1953, An open letter from a Keynesian to a Marxist
I conclude with a bit from Richard Wolff, above:
"Marx's labor theory of value... has more to do with this notion of how labor is allocated in a society... Marx was not - let me put it another way. When I teach in the American university system, we begin by assuming all students want to understand the great mystery of economics which is why is the price of something what it is. Why is the price of a hamburger $5 and the price of a Mercedes much more than that? And we begin. That's very nice. It's perfectly good to make an economics built of that question. I'm going to now exaggerate to make my point. Marx wasn't interested in that, and I'm not either. I got many more interesting things I want to understand about this economy than why the prices of things are what they are. I understand if you're a capitalist you're very concerned about prices, but if you’re somebody else, you might have all sorts - you might be interested, but you have much more higher priority subjects... Marx is coming at it with a different agenda. And so he starts in a different place and takes it in a different way." -- Richard Wolff
Marx was interested in how can there be a return to ownership, at all, in a competitive market economy.
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4 comments:
«Marx was interested in how can there be a return to ownership, at all, in a competitive market economy.»
That was more Keynes' point when talking of the "euthanasia of the rentier" and it was a classic "whig" anti-"tory" position. For "whigs" the *entrepreneur* has a claim to as share of the value added, but not the rentier.
As to Marx he effectively postulated that there should be no income from mere ownership: since all his cost accounting is in terms of labor value, *obviously* mere ownership which contributes no labor value to production has no claim on the labor value of produced commodities, so any consumption of commodities by those who have not contributed labor value must be exploitation. This is *by construction*.
«The dynamic vision of classical political economy was about the wealth of nations, and the accumulation of capital. The latter concern meant classical political economists cared about distribution.»
Those were the two big questions but they were in large distinct, and the classicals cared a lot more about the "development" (increasing the "wealth of nations, and the accumulation of capital") than the "distribution" question because they realized that they were in the middle of a "development" era.
The "classicals" were also interest in the question of price and like Marx did they believed that eventually for "economic commodities" (that is excluding the special cases like collectibles) they become proportional to labor values.
«"In striking contrast with Böhm-Bawerk, Marx looks upon the theory of value, not as the means for ascertaining prices, but as the means for discovering the laws of motion of capitalist society." [...] "working out the theory of the price of a cup of tea" ... "understand the great mystery of economics which is why is the price of something what it is. [...] Marx wasn't interested in that, and I'm not either."»
The question is what type of simplified model you have of the economic system and what you lose, accidentally or deliberately, in that simplification:
* The "classicals" were mostly interested in the "development" question which means in why system outputs were increasing, so their simplification was "the economy as a giant factory". Their focus was on people as agents of production prioducing plusvalue (value added).
* Marx was like the classicals using the "the economy as a giant factory" but more interested in the distribution of the plusvalue among those agents of productions (and in particular why rentiers took a part of that plusvalue without having controbuted any labor value).
* The "neoclassicals" (especially after JB Clark) were instead trying to understand not the distribution of production but of consumption which depends primarily on "initial endowments" and on prices arising from demand and supply schedules so their simplification was "the economy as a set of markets". This had the downside of making people purely agents of markets transactions rather than agents of production, and therefore obscured where their income was coming from (production or rentierism), which was a very convenient downside.
«"if you're a capitalist you're very concerned about prices"»
Those matter most if you are a rentier or a trader not as industrial capitalist. Indeed industrial capitalists think of their economy as a big factory and cost accounting is central to their thinking; but they push the model of the economy as a set of markets to obscure how much they take out of the plusvalue of production. In a simplification of the economy as a set of markets plusvalue (value added) is an irrelevant category because all that matters is income from price differentials between the selling and buying prices of an agent's transactions regardless of how those prices happen.
«As to Marx he effectively postulated that there should be no income from mere ownership: since all his cost accounting is in terms of labor value [...] Indeed industrial capitalists think of their economy as a big factory and cost accounting is central to their thinking»
Just discovered that my usual claim that Marx's method was (cost) accounting has been also made by Michael Hudson:
https://michael-hudson.com/2026/09/chinas-property-crisis-who-takes-the-loss/ «There was a long U.S. tradition of deciding at what point does a normal rate of profit become economic rent, over and above the necessary profit, and what element of what is reported as profit become an unnecessary cost of production.
That is why what Marx contributed to economics was largely accounting. He has been called the patron saint of accountants. He developed the accounting format for what’s called EBITDA, earnings before interest, taxes, depreciation and amortization. He developed a broad accounting system to analyze the entire economy, including its rentier financial context.»
"classicals cared a lot more about the 'development' (increasing the 'wealth of nations, and the accumulation of capital')
Yes, and Ricard had to address distribution for this. They postulated that workers consume all their wages, and landlords expend their rents on luxuries. So how much the capitalists obtained mattered for the rate of growth.
Both Ricardo and Marx used the labor theory of value to figure out the rate of profits.
Some day I plan on reading Rob Bryer, who has research into accounting from a Marxist perspective.
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