{Problems with the…}(Law of)Value, (Production) Price(s), and (Average rates of) Profit: Part 2

1.  In Chapters 8 and 9 of  Capital, Volume 3,  Marx (as edited by Engels) is reasoning backwards.  He endeavors to account for the convergence of the rates of profits of the different sectors of capitalism with different ratios of constant capital to variable capital toward a general rate of profit.  Marx never questions the existence of such an average, general rate of profit, and for all the research Marx undertook before and during the writing of Capital, it is striking that in resolving this “predicament,” which calls into question the foundation of Marx’s value theory, he neither cites nor provides any examples from the real capitalism that surrounds him.

That’s a bit unusual, no?  That’s a bit unusual, yes…almost as unusual as Marx’s failure to cite or provide any examples from the actual industries of the time that demonstrate what Marx calls “the most important law” of the capitalist mode of production: the tendency of the rate of profit to decline as a result of the accumulation of capital and the replacement of living labor by machinery.

Yes, empiricism has its limits, but it’s nice to find confirmation of these laws in real life.

Anyway, Marx proposes a “solution,” a mediation, a mode of transition reconciling the differing compositions of capitals among sectors of production to this average of profitability, and that solution is the price of production.  The price of production is the cost-price of producing the commodities, which includes zero surplus-value since surplus-value by its very existence is “cost-free” to the capitalist,  plus an amount that will approach, obtain, clear the average rate of profit.  The average rate of profit established through prices of production involves the transfer of profits among sectors rather than within sectors.

It’s an elegant bit of work on Marx’s part, recognizing that because the capitalists never see the source of profit in surplus value because it is unpaid labor, all their calculations must be based on cost, and all profit is accrued through “cost plus” pricing.   In Chapter 9, Marx writes:

At a given level of exploitation of labour, the mass of surplus-value that is created in a particular sphere of production is now more important for the overall average profit of the social capital, and thus for the capitalist class in general, than it is directly of the capitalist within each particular branch of production.  It is important for him only in so far as the quantity of surplus-value created in his own branch intervenes as a co-determinant in regulating the average profit.  But this process takes place behind his back.  He does not see it, he does not understand it, and it does not in fact interest him.  The actual difference in magnitude between profit and surplus-value in the various spheres of production (and not merely between the rate of profit and rate of surplus-value) now completely conceals the true nature and origin of profit, not only for the capitalist, who has here a particular interest in deceiving himself, but also for the worker.  With the transformation of values into prices of production, the very basis for determining value is now removed from view.   The upshot is this: in the case of a simple transformation from surplus-value into profit, the portion of commodity value that forms this profit confronts the other portion of value as the commodity’s cost price, and the concept of value thus already goes by the board as far as the capitalist is concerned, because he does not have to deal with the total labour that the production of the commodity cost, but only the part of the total labour that he has paid for in the form of the means of production, living or dead, so that profit appears to hims as something standing outside the immanent value of the commodity.  (p.268)

The heavy lifting of allocating the surplus-value is undertaken in the markets, and the capitalists have only his or her costs of production and the already existing market references as guides to determining production prices.

2.  In Chapter 10, Marx, at least Marx as presented by Engels, is back at it– the “it” being the equalization of profit, how the markets accomplish this, and a critical recognition that the capitalist(s) do not realize in exchange the surplus-value appropriated by their particular enterprises, but rather a portion, a ration, a relation to the total surplus-value appropriated throughout the mode of production.

Now that truly is a critical recognition, but it is never made clear by Marx, or at least the Marx presented by Engels, if the same rate of profit actually exists among the sectors of capitalist production, or if the allocation of surplus-value corresponds to the achievement of a general, or average, rate of profit.

When Marx first introduces us to the “averaging” of values in Volume 1, it’s the most basic and direct of circumstances, and the total surplus-value is allocated according to the “strong force” law of capitalist production, the law of value. The producers are producing the same commodities. The average is determined and allocated upon the basis of the average of production times,  or the socially necessary labor time.  Prices correspond to values, and when and if they don’t, the average still smooths out the permutations in accordance with the (almost) omnipresent law.  Competition, price, executes, and enforces, the law.

Here in Volume 3, when Marx introduces the prices of production, we might find ourselves thinking wistfully of those bygone days, and volumes.  And for good reason, as the distribution of surplus-value here is among the sectors of production, which supposedly have already averaged the surplus values extracted by the complete assemblage of producers in the sector, for one.

Can commodities have multiple but coincident, simultaneous, prices when embarking on the process of exchange in the markets?  One price must be the intra-sector average price based on the socially necessary labor-time of production allocating the surplus-value within the sector.  This is dependent on the weighted value, the mass of the commodities produced by each capital of different composition within the sector.

The other price must be the price of production which is not the average of the socially necessary labor-time of production, but is an allocation of surplus-value intended to/derived from the generation of an inter-sector average rate of profit based on composition of all capitals, and the “distance” of each sector from the average composition of all the capitals.

It would be great, wouldn’t it, if these two price-faces were the same?  But that is a practical impossibility.  Exchange can not occur coincidentally according to the socially necessary labor time of reproduction which is determined by the different compositions of capital,  and at the same time, according to the price of production which distributes profit equally to capitals of equal size regardless of composition.

We might, following Marx, claim that the sum of all the prices of production must be equal to the sum of all values, just as the sum of all prices must equal the sum of all values, and think we’ve resolved the issue.  We have not.  We have not demonstrated the existence of the prices of production.  We have not demonstrated the necessity of prices of production. We have not shown the material existence of the general rate of profit.

Perhaps Marx is trying to account for the distortions in prices caused by concentration and centralization of capital?  Perhaps Marx is anticipating the (much abused) effects of “monopoly?”

The ability of price to do the mediating, the grunt work of allocation between and among sectors through competition requires that owners of capitalist production wage a never-ending struggle to gouge, cheat, extort each other; that all sectors exchange extensively and intensively with each other.  Exxon cannot aggrandize profit from Delta Airlines through the medium of jet fuel prices if Delta Airlines is owned by Exxon, required to purchase Exxon products, and produces products only for Exxon.

Marx recognizes this, this extensive and intensive inter-sector exchange, at least obliquely when he states that the establishment of prices of production presupposes a much more developed capitalism than that “required” for commodities to exchange in proportion to their values.  That “development” is precisely the development of competition which is made that much more acute as capital concentrates, centralizes, integrates.

Marx’s recognition of this has the unfortunate result of launching Engels into a made up world where “the law of value” was more than around, but actually regulated production for what?  ten thousand years?   Marx, as edited by Engels,  in Volume 3 contrasts value to prices of production, stating:

The exchange of commodities at their values, or at approximately these values, thus corresponds to a much lower stage of development than the exchange at prices of production, for which a definite degree of capitalist development is needed…

Apart from the way in which the law of value governs prices and their movement, it is also quite apposite to view the values of commodities not only as theoretically prior to the prices of production, but also as historically prior to them.  This applies to those conditions in which the means of production belong to the worker, and this condition is to be found, in both the ancient and the modern world, among peasant proprietors and handicraftsman who work for themselves.  This agrees, moreover, with the opinion we expressed previously, viz. that the development of products into commodities arises from exchange between different communities, and not between the members of one and the same community.  This is true not only for the original condition, but also for later social conditions based on slavery and serfdom, and for the guild organization and handicraft production, as long as the means of production involved in each branch of production can be transferred from one sphere to another only with difficulty, and the different spheres of production therefore relate to one another, within certain limits, like foreign countries or communistic communities. Volume 3, p. 277-278

So the exchange of commodities at their values, or according to the law of value, occurs prior to the exchange of commodities under the capitalist mode of production.  This is indeed remarkable because Marx has posited a condition of labor as regulating production that simply cannot exist under the modes of production prior to capitalism. 

The law of value is nothing but the product of a specific condition of labor, where labor itself is organized as value, as value-producing, and the ability to labor is exchanged as a commodity, in proportion and as a proportion to the value required for its reproduction.  Such conditions can exist in miniature, in camera, in moments, where the wage relation mediates between laborer and owner in other than capitalist societies.  However, prior to the emergence and the expansion of capitalism, that relation cannot and does not dominate, does not constitute the mode of production, and is not the distributor of social labor. 

Marx presents us with conditions, with historical examples, where the law of value does not exist as a law; where value is a tangential, accidental occurrence; where the laborer has not yet been separated, and completely, from the means of his/her own subsistence; where the laborers’ time is not yet divided between time worked for his/her own reproduction and time worked for accumulation by the means of production.  Marx presents us with a law of value that functions when the conditions transforming surplus time  from surplus product and to surplus value have not yet been, and cannot yet be, established.  Abstract labor, labor distilled to its essential social commonality, time; the appropriation of that time, cannot be the law of social reproduction before it is imposed and enforced by the relation between classes.  

Marx in Volume 1 has the material, social, answer, to the speculations of Marx in Volume 3:

Aristotle therefore, himself, tells us what barred the way to his further analysis; it was the absence of any concept of value. What is that equal something, that common substance, which admits of the value of the beds being expressed by a house? Such a thing, in truth, cannot exist, says Aristotle. And why not? Compared with the beds, the house does represent something equal to them, in so far as it represents what is really equal, both in the beds and the house. And that is – human labour.

There was, however, an important fact which prevented Aristotle from seeing that, to attribute value to commodities, is merely a mode of expressing all labour as equal human labour, and consequently as labour of equal quality. Greek society was founded upon slavery, and had, therefore, for its natural basis, the inequality of men and of their labour powers. The secret of the expression of value, namely, that all kinds of labour are equal and equivalent, because, and so far as they are human labour in general, cannot be deciphered, until the notion of human equality has already acquired the fixity of a popular prejudice. This, however, is possible only in a society in which the great mass of the produce of labour takes the form of commodities, in which, consequently, the dominant relation between man and man, is that of owners of commodities. The brilliancy of Aristotle’s genius is shown by this alone, that he discovered, in the expression of the value of commodities, a relation of equality. The peculiar conditions of the society in which he lived, alone prevented him from discovering what, “in truth,” was at the bottom of this equality.  Volume 1, Part 1, Chapter 1, Section 3.

The peculiar conditions of Greek society were such that although value could be imagined, it could not be apprehended. Labor itself was not equal in its subordination to the clock.  Labor was not yet possessed of, and possessed by “free” time; time detached from the means of subsistence.

Marx has supposed a law of value that exists only where it has not been made dominant and a law of value that cannot exist in the society where it has been made dominant.

Marx’s error, his “discounting” of the law of value provides us with insight into the determining reason of his construction of a formulated, and deformable price of production.  The “unspoken”  problem is how capital could continue to expand, to reproduce itself while  the accumulation of capital persistently drove the rate of profit downwards?  How could capitalist society “progress” when its sectors of the highest organic composition persistently generated below average profitability?  The answers are:

a) with increasing difficulty; 

b) cyclically, with increasing devaluation, sequestering, retirement of fixed assets; only to resume the expansion of fixed assets;

c) through some transfers from other sectors.  Equalization exists as  a “weak force” tendency, as opposed to the “strong force” tendency of the overall decline in the rate of profit.  However, the strongest impulse to equalization of profit rates has to be the general application of the same or similar technologies to different sectors of production, thus herding all sectors toward a similar composition of capital;

d) through a “claw back,” a persistent devaluation of  labor, requiring reductions in living standards for employed and unemployed sections of the working class;

More important than the problem of the transformation of values into prices–which problem capital encounters, solves approximately, and renews with each exchange– is always the problem of the reproduction of value; the solution is always found at the point where the critique of  political economy is replaced by the struggle for proletarian power.


August 8, 2020


4 thoughts on “{Problems with the…}(Law of)Value, (Production) Price(s), and (Average rates of) Profit: Part 2”

  1. I’ve been thrown off balance ever since I read “So the exchange of commodities at their values, or according to the law of value, occurs prior to the exchange of commodities under the capitalist mode of production.” and “Marx has supposed a law of value that exists only where it has not been made dominant and a law of value that cannot exist in the society where it has been made dominant.”. Hmm! a law of value that cannot exist where it is dominant!!!!!
    I must have inadvertently skipped chapter 10.

    1. Remember, this is only Engels’ rendition of what Engels refers as Marx’s notes, so there is the possibility of misinterpretation. And remember, this is (part of) what led Engels to create this fantasy world of “simple commodity production”– a world of commodities exchanging according to the law of value prior to industrial capitalism. All that being said, you are not alone in being thrown off balance. Careful reading of Marx exposes numerous self-contradictory statements among various works, sometimes even the same work. And I still can’t reconcile Marx’s implicit and explicit claims that the productivity of labor automatically translates into increased relative surplus value with the law of value itself. In vol 1 of Capital, Marx initially very specific about when and how this translates into increased relative surplus value– only if the workers wage declines. But in other works, no such prerequisite exists.

      Tried to deal with this in my own off-balance way at: http://thewolfatthedoor.blogspot.com/2018/12/problems-of-value-production-2.html

      Makes me believe that sometimes even Marx didn’t realize what a complicated tiger’s tail he had grasped.

  2. That helps a lot. Kinda gaining my balance back. Any chance that MEGA work in progress could clarify if this is Engels’ misrepresentation? One would hope.

    1. There are a couple of books out on the latest MEGA “discoveries.” One of them (I think) is Fred Moseley’s Money and Totality. Haven’t read it yet. Don’t know if he deals with this. Others have told me that Moseley more or less dismisses the “transformation problem.”

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