MARX & MMT, PART 5 – Why a Single System & What Did Marx Say?

The previous post introduced the temporal single-system interpretation (TSSI) of Marx. It was seen that, under this interpretation, Marx’s three aggregate equalities all hold. It was noted that the same can be said for other single-system interpretations. As long as constant capital and variable capital are defined as the amounts paid for the means of production and labor power, the equalities are logically valid. In this post, a possible rationale is offered for defining constant and variable capital in this way. Attention then turns to Marx’s own writings on the matter to consider whether the single-system understanding accords at all with his view.

Note. References to Marx’s work. With so many different editions and translations of Marx’s major works, page numbers for a given passage often vary, and the wording can slightly differ as well. In this post, I reproduce passages that have already been highlighted by various (sometimes many) scholars. Since I consider the textual interpretations of a few of these scholars, I reproduce the passages as quoted by them and provide the page numbers and editions they cite (along with references to the secondary sources). Full references are listed at the end of the post. When multiple authors refer to different editions of the same work of Marx, all dates are given, separated by semicolons, and all publishers are listed, also separated by semicolons.

Emphasis in quoted passages. Unless indicated otherwise, any emphasis in the passages quoted is in the original text, or in Marx’s text when the quote is of him.

 
Why Adopt a Single-System Interpretation?

On encountering the single-system replication of Marx’s aggregate equalities, a reaction might be to wonder, why? Why should it be input prices and not input values that are transferred to the final commodity’s value in Marx’s theory?

Different answers could be offered in response to this question. The following is my own way of looking at the matter, but not necessarily Marx’s or anybody else’s in every respect. Even so, the main ideas are drawn from the existing literature, as will become apparent. This post (particularly this section) is one of the more contestable parts of the series. It is intended more to explain the motivation for my own adoption of a single-system view rather than as anything definitive. Previous parts of the series are essentially indisputable given the initial definitions and assumptions, provided no error of logic has been made. But in this post we are touching on possible reasons for the actual definitions adopted, and such choices are obviously always contestable.

Capitalist commodity production. In my view, an answer to the question posed is implicit in Marx’s definition of value itself, when applied to capitalist commodity production. The value of a commodity in Marx’s theory is equal to the amount of labor time needed to produce it. Since we are here considering capitalism, the value of a commodity will be the amount of labor time needed to produce it under capitalist conditions.

But needed by whom?

Capitalism, as depicted by Marx, is a system with incentives geared first and foremost toward the interests of those who own the means of production. This is true, at least, to the extent that the economy is organized along the lines of capitalist commodity production to which Marx’s theory of value specifically applies. The main driver of behavior under capitalist commodity production is the profit motive.

From the perspective of society as a whole, it may well make sense to argue that the value of labor power – the amount of socially necessary labor needed to reproduce the working class – is the amount of society’s labor time actually embodied in the goods and services that workers consume. Similarly, from the perspective of society as a whole, the value of the means of production could be seen as the amount of labor needed to produce the inputs used in production.

But capitalist commodity production, in Marx’s view, does not directly serve the interests of society as a whole but is rather tailored to the interests of capitalists. From the perspective of capitalists, the amount of labor time that must be devoted to reproduction of the working class – i.e. the value of labor power – is not the labor embodied in workers’ consumption goods but, instead, the labor-time equivalent of the monetary amount capitalists must outlay on wages in the form of variable capital. These wages must be sufficient for workers to be able to pay the prices, not values, of the goods they consume. It is this monetary outlay on wages, equivalent to a definite quantity of society’s labor time, that capitalists need to make in order for commodities to be produced under capitalist conditions. This monetary amount may be greater or less than the labor embodied in workers’ items of consumption.

Likewise, from the perspective of capitalists, the amount of labor time that must be devoted to constant capital is not the amount of labor embodied in the elements of constant capital but the labor-time equivalent of the monetary outlay required of capitalists if they are to obtain the necessary inputs at going prices.

The divergence between value and price means that the amount of labor that, in effect, needs to be “tied up” in monetary form (from the perspective of the capitalist making the outlay) in order for a particular commodity to be produced under capitalism will in general differ from the amount of society’s total labor time that would need to be devoted to the equivalent good or service under some other system. This can be so even if everything about the technical aspects of production under the two different systems are the same. We could imagine, for instance, a socialist society without private profit in which prices of a range of goods and services were set equal to the amounts of labor time embodied in them. In such a system, the prices of inputs would be different than under capitalism (sometimes higher, sometimes lower) and so the amount of labor needed to produce a particular final good or service would also be different. Marx sometimes contrasted capitalism with ‘simple commodity production’. Under simple commodity production, each commodity exchanges at its value and, unlike in capitalist societies, the amount of labor needed to produce each commodity equals the labor embodied in each commodity.

The suggestion that commodities produced under capitalist conditions will require different amounts of socially necessary labor than if they were produced under simple commodity production – and so will have modified values – seems highly reminiscent of an argument provided in two papers by Wolff, Roberts and Callari (1982, 1984) in which they present their own single-system interpretation. I will use the abbreviation WRC for the authors’ names. The interpretation they offer differs from the TSSI in two respects. First, they view value and price determination as simultaneous rather than temporal. Second, they regard the prices of production of inputs and wage goods to be the relevant prices when considering the amount of labor time needed to produce a commodity. (In the TSSI, prices of production are considered to be just a special case.) Despite these differences, the relevant point in the present context is the rationale for defining constant and variable capital as the amounts actually paid for them. It is on this point that WRC’s argument seems reminiscent of the one suggested here.

WRC argue that Marx, having defined value as socially necessary labor time, then proceeded to relate the definition more specifically to capitalism, in which price – the ‘form of value’ – necessarily deviates from value at the level of individual commodities. The way in which the deviations are envisaged to occur is systematic, as we have seen in a previous post, influenced by the sectoral compositions of capital. Because these deviations apply to all commodities, including inputs and wage goods, the specifically capitalist form of value (price, and more specifically price of production for WRC) enters into the determination of value itself.

Price of production is therefore that magnitude of labor-time just exactly large enough (socially necessary) to reproduce the capitals of each industry on an equal profit footing with those in all other industries. As a magnitude, then, price of production, the relevant particular form of value in exchange will in general deviate from the value of the commodity … This new form of value, as a constitutive element of the capitalist economy, enters directly into the determination of commodity value, i.e., into the determination of the abstract labor-time “socially necessary” to reproduce the commodity. This general definition must, we argue, be concretized by constructing its particular meaning within the context of the particular production and circulation processes considered in Volume 3. As Marx stated several times (for example, 1967:175), this requires consideration of the factors socially necessary to reproduce the commodity as a product of capital. Thus, the specifically capitalist conditions of circulation, initially assumed away in Volume 1, will now impact on the social necessity of the labor time involved in production. (Wolff, Callari and Roberts 1984, p. 125)

Since capitalist production is for profit, a good or service will not be produced as a commodity unless doing so promises a return on capital competitive with alternative investments. It is for this reason, above all, that the amount of society’s labor time called upon to make production of a particular commodity worthwhile for the capitalist will in general differ from the amount suggested by purely technical considerations. The amounts of society’s labor time devoted to various commodities will differ, as far as capitalists are concerned, from the actual labor that physically goes into each. The choice of how to allocate society’s available aggregate labor time between its many possible uses will be decided according to what is profitable for capitalists rather than what is desirable to the community as a whole.

The quantity of labor-time physically/technically embodied in the means of production is no longer adequate to express what is socially necessary for the reproduction of output. Given the altered form of exchange equivalence, the quantity of labor-time in money form which each capitalist must actually advance to get his constant capital goods (their production price) becomes a constituent part of the value of the output produced with those constant capital goods. Since production price is “a prerequisite of supply, of the reproduction of commodities in every individual sphere” (Marx 1967:198), the form of value in exchange is then a constituent element in determining the magnitude of commodity value.

In effect, both quantities (value-form and value) are transformed. Where commodity exchange-values are transformed into production prices via market exchange of equivalents, this transformation must include those commodities purchased as elements of constant capital. Their prices of production are then incorporated into the value of newly produced output, since these production prices express the labor-time now socially necessary to produce that output. (Wolff, Callari and Roberts 1984, p. 126)

Capital as a sum of money. The argument presented so far emphasizes the distinction between the value of inputs and the value of the money with which capitalists purchase inputs. In a single-system view, it is the latter – the value of the money – that enters the value of the new commodity. The sum of money used to purchase inputs is functioning as money capital. It is equal in amount to the prices, not values, of the inputs multiplied by their quantities, and is equivalent to a certain amount of socially necessary labor time. This amount of labor time is the value of constant capital in real terms.

Capital, in this view, already exists independently of the particular use values (inputs) purchased with it, as a sum of money. Already in this monetary form, the capital represents an amount of society’s socially necessary labor, which can be deduced through division by the MELT (monetary expression of labor time). Capitalists, as possessors of capital, can command portions of society’s aggregate labor time. They then choose how much money capital – and therefore how much of society’s labor time – to devote to the production of particular commodities.

Kliman and McGlone (1999, p. 38) argue that, for Marx, as in single-system interpretations, it is this sum of money, existing prior to its conversion into inputs at going prices, that defines the amount of capital (and amount of society’s labor time) that must be devoted to the acquisition of the elements of constant and variable capital. They draw attention, for instance, to the following statement by Marx:

The means of production on the one hand, labour-power on the other, are merely different forms of existence which the value of the original capital assumed when it lost its monetary form and was transformed into the various factors of the labour process. (Marx 1977, p. 317; cited in Kliman and McGlone 1999, p. 38)

Kliman and McGlone comment as follows:

The value of capital is therefore not synonymous with the values of inputs purchased with it. Before being tied up in production, the capital value first exists as a sum of money. The capital-value is this sum, the sum of value advanced to acquire inputs, which can clearly differ from the values of the inputs themselves. (Kliman and McGlone 1999, p. 38)

Kliman and McGlone (p. 39) then note Marx’s argument, a page or so on, that if the price of cotton doubles, it transfers double the value to the new commodity into which it enters as an input. The authors also draw attention to chapter 6 of the third volume of Capital in which Marx wrote:

the effect that these price fluctuations have on the profit rate … is just as valid if prices rise or fall not as a result of fluctuations in value, but rather as a result of the intervention of the credit system, competition, etc. (Marx 1981, pp. 201, 208)

And, further:

the same causes that raise or lower the price of the product also raise or lower the value of the capital. (Marx 1981, p. 209; emphasis added by Kliman and McGlone 1999, p. 39)

Whenever input prices differ from values, the amount of socially necessary labor needed to acquire the inputs (represented by a sum of money capital) will differ from the values of the inputs. Nonetheless, this amount of socially necessary labor will remain equal to the value of the capital advanced for the inputs, and it is this value that enters as constant capital into the value of the new commodity. This, at least, is the TSSI reading of Marx.

Did Marx adhere to a labor theory of value? From a single-system perspective, it could be argued that Marx’s theory of value is not a labor theory of value. Actually, it is for this reason that nowhere on this blog do I ever refer to Marx’s theory by this name. It is not, under a single-system interpretation, a theory of embodied labor. Nor, as far as I am aware, did Marx seem to refer to his own approach as a labor theory of value. Even so, labor time is still central to Marx’s explanation of both value and price. Individual prices are connected to values in a systematic way, and value aggregates determine the average rate of profit irrespective of the ultimate configuration of individual prices. It is just that the connection between labor time and value in Marx’s theory is not simply about embodied labor. With all this in mind, I can understand why many refer to Marx’s approach as a labor theory of value, but tend not to use the term myself in connection to his theory.

 
How Did Marx Understand Constant and Variable Capital?

Whatever the merits of single-system interpretations, it may in any case be wondered whether they match what Marx wrote on the matter. We have already considered a few brief snippets of Marx’s writings that appear to be consistent with the single-system view. But, at this stage, we have not encountered statements by Marx specifically explaining his understanding of constant and variable capital.

Quoting passages can never be definitive. This is why Andrew Kliman (2007) places emphasis on replicating the results of Marx’s theory from explicitly stated premises, as was mentioned in the previous post. But there certainly are passages that appear to be highly consistent with a single-system perspective. Here, we can consider a few.

The following passage is quoted by Freeman (1996). In evaluating the passage, note that the term ‘cost-price’ in Theories of Surplus Value, from which the passage is taken, was Marx’s term at the time for ‘price of production’. This differs from his usage in Capital, where price of production refers to the output price that would apply if the sector received the average rate of profit.

The conversion of value into cost-price works in two ways. First, the profit which is added to the capital advanced may be either above or below the surplus-value contained in the commodity itself, that is, it may represent more or less unpaid labour than the commodity itself contains. This applies to the variable part of the capital and its reproduction in the commodity. But apart from this, the cost price of constant capital – or of the commodities that enter into the value of the newly-produced commodity as raw materials and machinery [or] labour conditions – may likewise be above or below its value. Thus the commodity comprises a portion of the price which differs from value, and this portion is independent of the quantity of labour newly added, or the labour whereby these conditions of production with given cost-prices are transformed into a new product. It is clear that what applies to the difference between the cost-price and the value of the commodity as such – as a result of the production process – likewise applies to the commodity insofar as, in the form of constant capital, it becomes an ingredient, a precondition, of the production process. Variable capital, whatever difference between value and cost price it may contain, is replaced by a certain quantity of labor which forms a constituent part of the value of the new commodity, irrespective of whether its price expresses its value correctly or stands above or below the value. On the other hand, the difference between cost-price and value, insofar as it enters the price of the new commodity independently of its own production process, is incorporated into the value of the new commodity as an antecedent element. (Marx 1972, p. 167; cited in Freeman 1996, p. 9, except that I have included an additional sentence: the second-last one referring to variable capital).

Freeman comments on this passage as follows:

This is totally clear. It states that if an input to production is priced above or below its value, it transfers correspondingly more or less value to the output from production. Equally, if wage goods are priced above or below their value, the value of variable capital is correspondingly higher or lower. (Freeman 1996, p. 9)

Marx appears, in the above passage, to be arguing in a way that is consistent with the single-system view. The value of constant capital equals the monetary outlay on inputs, which depends on their prices, not values. Any difference between the price and value of an input enters the value of the new commodity “as an antecedent element”. Likewise, the value of variable capital equals the monetary outlay on wages, which purchases for workers an amount that depends on the prices, not values, of wage goods.

On this latter point, Wolff, Callari and Roberts (1984, p. 130) draw attention to an even more explicit statement by Marx regarding the value of labor power:

the value of labor power … is determined by the production price of the means of subsistence. (Marx 1967, p. 868.)

Note, though, as Marx does in the passage from the Theories of Surplus Value, and as we did in the previous post, that the value of variable capital is replaced in the value of the new commodity by the actual amount of living labor performed in production. Therefore, the value of variable capital does not affect the value of the new commodity in the same way that constant capital does.

In light of this textual evidence, the meaning of another passage sometimes cited as an indication that Marx was aware of an internal inconsistency in his theory for which he had no solution can, to the contrary, be seen as consistent with a single-system perspective. It should be noted that this next passage comes from the third volume of Capital, in which, as already mentioned, Marx uses the term ‘price of production’ for the output price that would yield the average rate of profit whereas ‘cost-price’ here refers to c + v (that is, the outlay on constant and variable capital necessary to produce the final commodity):

As the price of production of a commodity can diverge from its value, so [can] the cost price of a commodity, in which the price of production of other commodities is involved … . It is necessary to bear in mind this modified significance of the cost price … if the cost price of a commodity is equated with the value of the means of production used up in producing it, it is always possible to go wrong. (Marx 1981, p. 265; cited in Kliman and McGlone 1999, p. 39)

Read from a single-system perspective, Marx here is telling us not to mistake cost price for the value of the means of production used up in the production process. Doing so causes error. Once we are taking account of key characteristics of capitalism, such as production for profit, the tendency under competitive conditions for profit rates to converge, or the existence of monopolies or economic rents, the significance of cost price is “modified”. The situation is no longer akin to simple commodity production.

Here is one more relevant passage from volume III of Capital:

We have already seen that the divergence of price of production from value arises for the following reasons: (1) because the average profit is added to the cost price of a commodity, rather than the surplus-value contained in it; (2) because the price of production of a commodity that diverges in this way from its value enters as an element into the cost-price of other commodities, which means that a divergence from the value of the means of production consumed may already be contained in the cost price, quite apart from the divergence that may arise for the commodity itself from the difference between average profit and surplus-value … Let us assume that the average composition is 80c + 20v. It is possible now that, for the actual individual capitals that are composed in this way, the 80c may be greater or less than the value of c, the constant capital, since this c is composed of commodities whose prices of production are different from their values. The workers must work for a greater or lesser amount of time in order to buy back these commodities (to replace them) and must therefore perform more or less necessary labour than would be needed if the prices of production of their necessary means of subsistence did coincide with their values. (Marx 1981, pp. 308-309; cited in Freeman 1996, p. 10).

In this passage, Marx notes that a commodity of the average composition can still have a cost price that differs from the value of its inputs and labor power. In his example, this is because “the 80c may be greater or less than the value of c”. In other words, the monetary sum advanced for inputs, which depends on input prices, can differ from the value of the inputs purchased.

Since, in the single-system view, cost price enters into both the price and value of the new commodity, the passage seems to indicate that the difference between the value of constant capital and the value of the inputs purchased with that constant capital will, by affecting the cost price, also affect the value of the new commodity. If so, this is consistent with Marx’s statement, quoted earlier, that differences between input prices and input values are “incorporated into the value of the new commodity as an antecedent element”.

Regarding the single-system position that cost price enters both the value and price of a commodity, Kliman writes:

There is no separate cost price that depends upon the values of means of production and subsistence. Indeed, Marx seems invariably to have referred to “the” cost price (see, e.g., the passage about the “modified significance of the cost price” quoted above), never to two separate cost prices. Moreover, Alejandro Ramos (1998-1999) has called attention to a passage left out of Capital, volume III by Frederick Engels, its editor, which expresses the value of the commodity as K + s (cost price + surplus-value) and the price of the commodity as K + p (cost price + profit). Marx’s use of the same symbol, K, in both expressions makes it especially clear that values and prices share the same cost price. Basically the same symbol (k) appears throughout volume III as edited by Engels. That k does not represent a “value” magnitude in some places and a “price” magnitude in others is clear from two passages that use k in connection with both the price and the value of the commodity (Marx 1991a: 309, 897). (Kliman 2007, p. 107)

On the basis of the passages considered above, it seems at least plausible to suggest that the single-system view is consistent with Marx’s understanding of the determinants of constant and variable capital. Considering the single-system understanding appears not to be obviously out of line with the textual evidence and is able to replicate Marx’s three aggregate equalities, it seems to hold up reasonably well as an interpretation of his theory.

 
Looking Ahead

There are a couple of issues that, though raised, have been left up in the air at this stage of the series.

One issue concerns the implications of temporality. So far, the emphasis has been on the single-system aspect of the TSSI, since this is responsible for the replication of Marx’s aggregate equalities. There is still a need to consider the consequences of explicitly introducing time into the determination of values and prices. In view of the fact that Marx’s theory of value centers on labor time, this introduction of time might be expected to have significant effects.

The second issue concerns the basis of value itself. Why might it make sense to consider labor the sole creator of value? It will not be possible (at least for me) to provide a proof of this proposition, but we can at least consider a possible rationale for it. Much like the present post, the argument presented will be contestable.

Once the issues of temporality and labor as source of value have been considered, the way will be clear for an exploration of Marx in relation to MMT.

 
References

Freeman, A. (1996), ‘The Psychopathology of Walrasian Marxism’, in A. Freeman and G. Carchedi (eds.) (1996), Marx and Non-Equilibrium Economics, Cheltenham: Edward Elgar, pp. 1-29.

Kliman, A. (2007), Reclaiming Marx’s “Capital”: A Refutation of the Myth of Inconsistency, Lanham: Lexington.

Kliman, A. and McGlone, T. (1999), ‘A Temporal Single-system Interpretation of Marx’s Value Theory’, Review of Political Economy, Vol. 11, No. 1, pp. 33-59.

Marx, K. (1972), Theories of Surplus Value, Volume III, London: Lawrence and Wishart.

Marx, K. (1977), Capital, Vol. I, New York: Vintage Books.

Marx, K. (1967; 1981; 1991a), Capital, Vol. III, New York: International Publishers; New York: Vintage Books; London: Penguin.

Ramos-Martinez, A. (1998-1999), ‘Value and Price of Production: New evidence on Marx’s transformation procedure’, International Journal of Political Economy, Vol. 28, No. 4, pp. 55-81.

Wolff, R., Roberts, B. and Callari, A. (1982), ‘Marx’s (Not Ricardo’s) “Transformation Problem”: A Radical Reconceptualization’, History of Political Economy, Vol. 14, No. 4, pp. 564-582.

Wolff, R., Callari, A. and Roberts, B. (1984), ‘A Marxian Alternative to the Traditional “Transformation Problem”‘, Review of Radical Political Economics, Vol. 16, Nos. 2/3, pp. 115-135.

12 thoughts on “MARX & MMT, PART 5 – Why a Single System & What Did Marx Say?

  1. Hello Peter:

    This is a thoughtful and provocative series, and I’ve been following it with interest. I have a long-standing interest in Marx (I was a co-author of the Wolff-Roberts-Callari articles in the 1980s, where the general argument later described as a single-system interpretation was first presented) and a more recent interest in MMT, and I share your sense that exploring them together is a worthwhile project.

    This comment may be premature, since you say you will be focusing on the issues specifically involving temporality in posts to come, but I offer it now in hopes that it will sharpen the discussion. My sense is that you are very aware of the differences between alternative “single-system” (SS) approaches, but some readers may not be.

    You write: “…the value of labor power – is not the labor embodied in workers’ consumption goods but, instead, the labor-time equivalent of the monetary amount capitalists must outlay on wages in the form of variable capital. These wages must be sufficient for workers to be able to pay the prices, not values, of the goods they consume. It is this monetary outlay on wages, equivalent to a definite quantity of society’s labor time, that capitalists need to make in order for commodities to be produced under capitalist conditions.” This is indeed quite similar to the WRC argument you subsequently quote, right down to the reference to an “equivalent” for the capital outlay (this is why both are “single-system” interpretations). But there is a major difference in the conception of the role of “equivalence” when it comes to quantifying value.

    The version of SS that you share with TSSI says that the market prices of purchased inputs (particularly for constant capital goods), *whatever* they happen to be, are equivalent to a certain amount of labor-time, and that amount (rather than labor-embodied) is relevant for the determination of the value of output produced with them. The WRC version of SS says instead that the *particular* prices that fulfill the relevant criterion of exchange equivalence express the amount of labor-time that counts in the determination of output value.

    As you say, it’s quite true that our version of SS theory uses simultaneous rather than temporal valuation, but this is not some sort of a priori premise we impose on Marx. I note that most of the quotations from Marx that you offer above, particularly the crucial longer passages, are explicit in their reference to prices of production, the particular theoretically-constructed prices that fulfill the equivalence criterion (a competitively equalized rate of profit) that Marx introduces early on in Capital 3. Freeman, as you quote him, generalizes from production prices to simply “prices,” without noting any difference, but there is a difference.

    These production prices are a “special case” only in the sense that they must be superseded when more complex social circumstances enter the discussion: the “value equivalence” assumed in volumes 1 and 2 gives way first to the general equal-profit-on-advanced-capital criterion of early volume 3, but that in turn must be modified when exchange equivalence incorporates effects from further factors like unproductive capital outlays (merchanting, finance), monopoly power, rent extraction, government-administered pricing, international trade, and so on.

    IMO, Marx never gives any great *theoretical* significance to market prices, the ever-changing prices that happen to emerge from period-to-period fluctuations in supply and demand. On the other hand, though, he has an ongoing and unavoidable theoretical interest in establishing the grounds for commodity equivalence in exchange. Why? Because “[i]t is only the expression of equivalence between different sorts of commodities which brings to view the specific character of value-creating labour, by actually reducing the different kinds of labour embedded in the different kinds of commodity to their common quality of being human labour in general” (Marx, Capital 1 1976, 142).

    This is not a point that is easily and briefly summarized, but I think the link between exchange equivalence and labor-time accounting is crucial, and I have tried to develop that argument in several articles over recent years.

    I am looking forward to the further installments in your series, which, notwithstanding my somewhat different view, is making what I think are some real contributions to an evolving discussion. But I hope readers will keep in mind that there are serious and complicated issues at stake in the TSSI choice to use *market* prices to specify that which “is incorporated into the value of the new commodity as an antecedent element.”

  2. Hi Bruce. Thanks for taking the time to comment. WRC (1982) and WCR (1984) are among my favorite economics papers.

    I agree that not much of theoretical interest can be said about the determination of market output prices. My thinking is that, at the time inputs enter production, whatever the input prices happen to be, these will be the ones that currently have to be paid (and so are socially necessary) for production to occur. The possibility of market prices diverging from prices of production is inherent to the price form, just like price-value differences.

    But this is an area of contention as you point out. My intention in the series is not to establish the superiority of one interpretation over others. It will be more a situation of some arguments requiring the TSSI for them to be valid, other arguments holding provided at least one of the single-system interpretations is valid, and still other arguments holding so long as variable capital is defined in terms of the amount paid for labor power.

  3. Peter

    Very good post, as usual. But I am afraid it is a bit above my pay grade. I suppose I’ll have to go through it again. 🙂

    I did, however, find this revealing:

    “From a single-system perspective, it could be argued that Marx’s theory of value is not a labor theory of value. Actually, it is for this reason that nowhere on this blog do I ever refer to Marx’s theory by this name. It is not, under a single-system interpretation, a theory of embodied labor.”

    I myself was puzzled by the negative, among TSSIers, to use the “LTV” label and their insistence on using the “Law of Value” label. To be perfectly honest, not knowing better, I thought it was just a little pedantic. Now I finally see there was a reason. Thanks for that.

    ———-

    “Whatever the merits of single-system interpretations, it may in any case be wondered whether they match what Marx wrote on the matter.”

    This may sound like a strange question, but I wonder, is it really important whether one can match what Marx wrote to the TSSI? What do you think?

    ———-

    “The second issue concerns the basis of value itself. Why might it make sense to consider labor the sole creator of value? It will not be possible (at least for me) to provide a proof of this proposition, but we can at least consider a possible rationale for it. Much like the present post, the argument presented will be contestable.”

    I’m looking forward towards this!

  4. This may sound like a strange question, but I wonder, is it really important whether one can match what Marx wrote to the TSSI? What do you think?

    I would say “yes and no”. It depends on the purposes of the researcher.

    As a matter of developing theory, I would say no. It ultimately doesn’t matter from that perspective. If the TSSI helps to inform a better theory, that is good irrespective of how the theoretical improvement is arrived at.

    As a matter of interpretation, and history of economic thought, I would obviously say yes. The TSSIers themselves have stressed in the past (e.g. in the introduction of Kliman and McGlone 1999) that their intention is not to provide a new theory but to interpret Marx’s theory correctly.

    Your question is a highly relevant one for me. At this stage – speaking from the interpretative vantage point – I am not completely convinced that the TSSI necessarily holds up best as a reflection of Marx’s own thought *on all contentious points*. I do currently think that it holds up best overall.

    We can break this down into (1) replication of Marx’s results from explicitly stated premises and (2) plausible reading of Marx’s texts.

    On (1), I think the TSSI is exemplary. I am not aware of any significant theoretical result of Marx that the interpretation fails to replicate.

    On (2), I think the TSSI holds up very well on almost all points, but there are a few issues where I think other interpreters may be on firmer ground.

    Now, I do agree with the principle, emphasized by Andrew Kliman, that where there is ambiguity that makes it hard to choose between alternative readings, replication should trump all else. Even so, on some issues there might come a point where one reading appears to be sufficiently more plausible than others, even though it might fail to replicate one or more of Marx’s results.

    An example that bothers me is the issue of whether Marx thought inputs should be revalued at their current replacement cost. The TSSI says no, inputs should be valued at the prices that prevail when they enter production. I agree with the TSSI that this *should* be the choice *if* we are in a temporal setting (though many would disagree with this theoretical judgment). And I do think Marx’s theory is temporal. Nevertheless, on balance, my subjective reading of Marx’s words on the matter makes me think that *he* may have thought that inputs should be revalued at their current replacement cost. Most other interpreters appear to adopt this understanding of Marx’s texts as well.

    There is certainly ambiguity. Marx keeps referring to constant capital as a “preposited” or “given” value that is independent of the production process into which it enters as an input. This makes it seem as if the value of constant capital is literally constant for this particular production cycle once the inputs enter production. But then – sometimes in the very next sentence – Marx can appear to say that if the price of the input changes, as a result of what occurs in the production process from which it originates, then the given value of constant capital will change. There seems to be a sense in which the value of constant capital is “given” but this given amount can change as a result of stuff that happens independently of the production process the input has entered.

    TSSIers read these passages with an emphasis on the “given” and “preposited” aspect of constant capital. Others – for example, Fred Moseley – read the passages with an emphasis on the fact that the change in the input’s price has occurred *independently* of the new commodity’s production process so that the input price is still “given” for the production process it has entered.

    As already indicated, my own subjective reading leads me to think that Moseley (and others) may be more correct than TSSIers in their interpretation of Marx’s intended meaning on this point.

    Having said this, though, there are two important considerations IMO that lend support to the TSSI reading on this issue. One is a numerical example, brought to light by Andrew Kliman, in which Marx criticizes Torrens’ understanding of profit. Torrens had apparently written (presumably in relation to a single-commodity corn model) that if 100 quarters of corn are used to produce 120 quarters, then profit will be 20 quarters, implying a rate of profit of 20%. Marx disputed this, arguing that the *value* of the input might be greater than the *value* of the output. Now, if Marx had been valuing inputs at their current prices, he would not have made this argument. With valuation at current replacement cost – at least as conventionally understood (see below for more on this point) – the value of the120 quarters must be greater than the value of the 100 quarters. This strongly suggests that Marx did not think constant capital should be valued at its current replacement cost, at least as that revaluation procedure is commonly understood today.

    This numerical example is very striking and unambiguous. Perhaps, for this reason, the TSSI reading should still be preferred despite the ambiguities in the passages that solely involve words.

    A second consideration is not something I have seen mentioned, but perhaps it has been mentioned somewhere in the literature. The consideration is this:

    In a *temporal* setting, what should be understood as the current cost of reproducing the commodity?

    Production takes time. A commodity that takes from time t to time t+1 to produce can not be reproduced in less that (t+1) – t = 1 unit of time. With this in mind, perhaps what should be relevant to the value of this particular commodity – to be completed at time t+1 – is the current cost of reproducing the commodity by time t+1. (?)

    Suppose, for instance, that half way through the period, at time t+0.5, the price of an input falls. This makes it possible to reproduce the commodity more cheaply. Even so, if the input has already entered production at time t, it won’t be possible to produce the commodity with the cheaper input any earlier than by time t+1.5.

    It is not clear that the ability to produce the commodity more cheaply by time t+1.5 should affect the *value* of the same commodity produced by time t+1. In the case of markets for raw materials, speculation could cause a drop in the *price* of the commodity prior to time t+1.5, but this does not relate to the cost of reproducing (i.e the *value* of) the commodity. In the dominant manufacturing and services sectors where administered pricing is prevalent, it is not even clear that competition would exert downward pressure on prices. In any case, we are talking about the *value* of the commodity here.

    Or here is another way of thinking about the issue. Perhaps the input in question enters a production process that commences at time t, but the input itself does not enter production until part way through the period. Suppose it enters at time t+0.5. In that case, it would make sense (in the TSSI) that a change in the input’s price at or before time t+0.5 would indeed affect the value of the new commodity because the price change has occurred in time for it to benefit the production process commenced at time t. Marx might implicitly be thinking of a situation where the input enters production at the time of, or just after, the change in input price.

    Perhaps this temporal consideration could help to resolve the apparent contradiction in Marx’s texts on the replacement cost issue. (?) That is, perhaps Marx could argue against Torrens that the output value of the 120 quarters could be less than the input value of the 100 quarters because, even though the input values should (in Marx’s view) be revalued to the lower output values, this procedure should be applied only to corn that will be produced by a date that is later than the date at which the current output’s production has been completed. (?)

    Maybe. But it still seems difficult to square such an interpretation with passages like the following one from volume 3 of Capital, p. 208 (Penguin 1991 edition):

    The reverse is the case with a fall in the price of raw material which would otherwise increase the rate of profit, if all other circumstances were the same. The commodities on the market, articles still in preparation and stocks of raw material are all devalued, and this counteracts the simultaneous rise in the rate of profit. (emphasis added)

    Are “articles still in preparation” those that are already in the process of production? It seems like it. Even if not, why should the revaluation of inputs affect the value of “commodities on the market” (already) but not commodities that are still in production? Notice also the reference to a “simultaneous” effect on the rate of profit. Even so, as considered above, maybe the input price has changed before or at the time the input is to enter a production process commenced at an earlier time. This could conceivably explain the reference to “in preparation” rather than “in production”. And if Marx is thinking of the output value at time of completion, the impact on commodities already on the market might also only take effect at that time, as well as the effect on the rate of profit “simultaneous” with that. (?)

    Either way, it seems difficult to resolve the issue. Interpreted in light of the way replacement cost is widely understood today, passages such as the above suggest, at least as a plausible reading, that Marx adopted instantaneous revaluation and that this applied immediately to commodities in all phases of the circuit of capital (M-C-P-C’-M’). Against this, the numerical example in relation to Torrens seems directly to contradict such a reading.

    —-

    Thanks for the heads up on the level of difficulty of the post. My aim is to write the series in an accessible manner. There is no point writing it otherwise. I will try to keep the exposition clearer in future parts.

    I’m looking forward towards this! [source of value]

    Don’t expect too much, though. It won’t be any more exciting than the basic point about human effort that I expressed in an earlier comment – just explained at greater length.

    —-

    I mentioned Fred Moseley in the above discussion. He has an interesting book out just this year, Money in Totality. He has now embraced a temporal understanding of Marx’s theory. There remain differences between his perspective and the TSSI. One of these differences relates, as the above suggests, to the replacement-cost issue. Because, for Moseley, inputs should be revalued as soon as their prices change, input prices in his framework will always equal output prices. However, the process is still temporal, in Moseley’s view, because the most recent changes in input prices will in many cases have already occurred prior to the completion of output. So, whereas in the TSSI input prices generally differ from output prices (though, as a special case, they could conceivably coincide), in Moseley’s interpretation input prices are known prior to output prices, and so are given, but will equal output prices because the most recent input prices are taken to enter the value of constant capital.

    Like Kliman (2007), which provides an accessible summary of the debate from the TSSI standpoint, Moseley (2015) provides an accessible summary of the debate from his perspective. The book is also very interesting on the macro aspect of Marx’s theory. If you haven’t already, I recommend checking it out.

  5. Thanks, Pete.

    “I would say ‘yes and no’. It depends on the purposes of the researcher.”

    I agree with you on everything you say, but — from my own point of view — there is something you left out. From the point of view of HET and elemental justice, you are right: whether one can trace things back to Marx is vital.

    On the other hand, there is another point of view: it’s undeniable that for a researcher intent on studying the economy, the attribution should be rather secondary (I suspect this is more a theoretical point, though). You are right on this, too.

    I, however, tend to place more importance in the political aspect of the problem. I am thinking not only of Marxism as a theoretical, academic, object, but as a guide for political action.

    But perhaps we should leave that for another opportunity.

    ———-

    Regarding the problem of how to revalue inputs: at beginning-of-the-period prices, at end-of-the-period prices, or at mid-period prices. I suspect this problem arises because one is thinking in terms of a discrete time scale. Time, however, is not discrete. Or, more precisely, time as experienced by human beings, is continuous; statistical data, however, are compiled in discrete time.

    Maybe there is a heuristic way, a rule-of-thumb, to get an average? I should imagine one could determine that empirically. This could be useful to a researcher, even if it does not answer the question (i.e. what did Marx think about this?) for a historian of economic thought.

    ———-

    “Thanks for the heads up on the level of difficulty of the post. My aim is to write the series in an accessible manner. There is no point writing it otherwise. I will try to keep the exposition clearer in future parts.”

    It’s a balancing act, I suppose. At one hand, you don’t want to dumb it down. At the other, there is no point in making it too difficult.

    The risk of taking my reaction as guide is that maybe I’m rather dumb? 🙂

    ———-

    “Like Kliman (2007), which provides an accessible summary of the debate from the TSSI standpoint, Moseley (2015) provides an accessible summary of the debate from his perspective. The book is also very interesting on the macro aspect of Marx’s theory. If you haven’t already, I recommend checking it out.”

    Thanks for the recommendation!

  6. Good thoughts, as always, Magpie.

    In general, there are many commodities, often with multiple competitors running overlapping production processes and so on. Whatever is the particular situation for a given commodity, my thinking is this. If it takes an amount of time θ from introduction of input to completion of output in a production process operating at the socially average (necessary) level of efficiency, then a change in input price at time t could not affect the production of commodities completed prior to time t+θ. So IMO there should be a time lag of θ from change in input price to impact on output value.

    This is in fact the case in the TSSI. When we assume for simplicity that all inputs enter production at time t and output is produced at time t+1, this just means that the lag between a change in input price and its effect on output value will be 1 (i.e. θ = 1).

    I should mention that the TSSI has been expressed in continuous time as well as in discrete.time. For example, Freeman (1996):

    Price, value and profit – a continuous, general, treatment

  7. I, however, tend to place more importance in the political aspect of the problem. I am thinking not only of Marxism as a theoretical, academic, object, but as a guide for political action.

    I am guessing that you have more practical issues in mind here, but I thought I would add something about the political aspects of the theoretical issue currently under discussion.

    The distinction between temporal and simultaneous valuation, as I think you are aware, does have very big political implications. I don’t mean that these political implications necessarily guide economists’ preferences on the matter (although, further below, I will qualify this opinion). The political implications are not immediately transparent when simply thinking about the formal question of whether value and price determination should be understood as temporal or simultaneous. If one or other approach is thought to do a better job, for example, of explaining prices, this theoretical evaluation in itself may not seem to imply anything much about politics. And, in some cases, explaining prices may be the primary aim of an economic theorist.

    Even so, the political implications of this theoretical choice are immense. In the case of Marx’s theory, above all it has decisive consequences for his ‘law of the tendential fall in the rate of profit’. With simultaneous valuation – which might be preferred by a theorist out of no political motive whatsoever – Marx’s law fails to hold. His law only has logical coherence under temporal valuation. This implication may not have been widely understood among modern day economists prior to TSSIers uncovering it.

    But a legitimate theorist will not switch theoretical positions simply to suit a political perspective. As a consequence, there are Marxists who have a preference for simultaneous analyses and others, perhaps antagonistic to Marx, who might be more inclined to view matters in a temporal way. For instance, in other contexts, Post Keynesians are typically highly disposed to temporal rather than simultaneist reasoning. Of course, they eschew value theory.

    —-

    As an aside, I find it interesting in this respect that Kalecki’s theory implies a tendency for the rate of profit to fall over an expansionary phase.of capitalist accumulation. The reasoning is somewhat different to the reasoning of Marx and Marxists. But if we think about Kalecki’s overall approach, it seems similar to Marx in many respects, other than on value, which is foundational in Marx’s theory.

    For instance, Kalecki views macro as logically prior to micro (the latter needs to conform to, and be consistent with, various macro-level realities), rather than being micro-founded macro. This seems clearly to have been a result of the influence of Marx.

    Also, Kalecki’s approach is temporal. For example, there are lags between project evaluation, the placement of investment orders and the delivery of investment goods.

    With similarities such as these in mind, it is perhaps not surprising that Kalecki came to a (loosely) similar view of the effects of capitalist accumulation on the rate of profit.

    —-

    But back to the political ramifications. If a theorist takes the view that capital accumulation tends to lower the rate of profit, and that crises (and all the hardship that these entail for the general population) are socially necessary for the revival of profitability, then the case for saving capitalism from itself will be weak, to say the least. Doing away with the system (social revolution) will make more sense.

    Even if the state, as currency issuer, has the capacity to preserve capitalism and avert or at least minimize crises (and, technically, I think it does have this capacity until grassroots opposition grows sufficiently strong to end the system), it becomes obvious to the theorist that the class purpose of state policy is above all to serve the interests of capitalists at the expense of the general population. That will be the default tendency unless the general population puts its collective foot down. Crises can be exploited to consolidate the power of the capitalist class, as we are currently witnessing. Just enough can be done to keep the economy pottering along above the level that might incite a revolutionary response from below. To the extent the state is unimpeded by the general population, the intent of its policy will be to ensure not only the survival of capitalists as a class but a greater dominance for that class.

    As I’ve argued previously, I think an understanding of currency sovereignty suggests that there is a potential path to socialism or communism through mass, grassroots opposition to for-profit activity and a demand that the state uses its currency-issuing capacity for not-for-profit purposes. Space can be created for reformulating both the sphere of production and opening up opportunities for human development in its fullest sense. But this would still essentially require social revolution because the general population needs to take control of – and in the process transform – the state (put an end to the capitalist state). It is a path in which, strategically, the general population would, at least in part, identify the fiscal capacity of a currency-issuing state as a target for action. The strategy would involve peaceful but organized and sustained industrial and political action to compel a more democratically accountable use of that fiscal capacity in an attempt to transform the capitalist state into a truly democratic and democratically accountable government.

    —-

    I wrote above that a theoretical preference for temporal or simultaneous valuation may, in the case of many theorists, have little or nothing to do with political considerations. Having said that, if we think specifically about the initial opponents of Marx, who set the basic line of attack, or the opponents of Keynes, who set about dismantling anything in his theoretical approach that threatened the orthodoxy, my guess is that political implications were very much at the forefront of their minds.

    If somebody wants to attack a theory at its core, the obvious way is to deny the legitimacy of the most fundamental idea(s) upon which that theory is built. (I alluded to this strategy in the silly post about the Lost Book of Noah’s Wife.) When I say “obvious”, it will be much more obvious at the time than it will be later, once everyone is accustomed to thinking within the frames of reference that have been set earlier. What might have been obvious to the early opponents of Marx or Keynes will not necessarily appear obvious a century or so later.

    Marx’s argument was built upon the idea that value is TIME. Socially necessary labor time, to be specific.

    So, the obvious way to attack his theory is to deny any place for time on the issues that Marx’s theory seeks to explain. The opponent can assert that valuation should be simultaneous. It is then impossible for time – socially necessary labor time – to have any importance for the determination of value. It is redundant at best, in such a context, as Steedman emphasized.

  8. Peter,

    My brain is about to explode (and I say this in a good, albeit evidently painful and potentially messy, way). 🙂

    Plenty food for thought!

    It may be silly, but for a long time I have felt that the saying “time is money” — as trivial and commonplace as it may seem — did involve a fundamental truth of capitalism. I cannot but feel a kind of genuine shock after reading your summation here:

    “Marx’s argument was built upon the idea that value is TIME. Socially necessary labor time, to be specific.”

    If one ever had to apply for a job, for instance, one knows from personal experience how important it is to emphasise one’s ability to cut our employer’s costs, by “doing more with less”: essentially, given constant revenues, one’s ability to increase profits by being more productive (which is what “doing more with less” boils down to).

    I understand that I’m thinking from a micro perspective and all the problems that this may entail (although perhaps I am less convinced of the strength of this objection in general, and particularly in cases like this) and I also understand that whatever gain is achieved this way, may be only temporary.

    With all those qualifications in place and accepting — as I am the first to do — that my observation is not by any means a conclusive demonstration of anything, I still find it a striking coincidence.

    ———-

    “But a legitimate theorist will not switch theoretical positions simply to suit a political perspective. As a consequence, there are Marxists who have a preference for simultaneous analyses and others, perhaps antagonistic to Marx, who might be more inclined to view matters in a temporal way.”

    Absolutely.

    “For instance, in other contexts, Post Keynesians are typically highly disposed to temporal rather than simultaneist reasoning. Of course, they eschew value theory.”

    You know my opinion of much — but not all — of Keynesianism (and Keynes) couldn’t be any lower, so there’s no point about going much further on that here. I will only say two things:

    (1) The practice of picking and choosing one’s assumptions (even those “extremely implausible” ones, that “do not seem analytically or empirically defensible”, to quote myself in a recent post) to justify one’s politically preferred conclusions is not unknown to mainstream economists (and I include most Keynesians here, regardless of prefixes).
    (2) It is up to Keynesians (given that Keynes is dead) to explain how temporal reasoning is all-important while denying that value is time.

    ———-

    “I wrote above that a theoretical preference for temporal or simultaneist valuation may, in the case of many theorists, have little or nothing to do with political considerations. Having said that, if we think specifically about the initial opponents of Marx, who set the basic line of attack, or the opponents of Keynes, who set about dismantling anything in his theoretical approach that threatened the orthodoxy, my guess is that political implications were very much at the forefront of their minds.

    Well, as you’ll imagine, I wouldn’t put Marx and Keynes in the same paragraph on that subject (particularly when one considers that Kalecki may have reached Keynes’ same general conclusions, without siding with the initial opponents of Marx).

    At any rate, this matches the spirit of what Prof. Ruccio — whose face by now must be blue — has always repeated, when writing about the obstinate resistance mainstream economists to even consider certain economic problems :

    “In the end, it all comes down to the theory of value.”
    Lawyer’s fees, red beets, and music. 13 August 2015.
    https://anticap.wordpress.com/2015/08/13/lawyers-fees-red-beets-and-music/

    ———-

    “If somebody wants to attack a theory at its core, the obvious way is to deny the legitimacy of the most fundamental idea(s) upon which that theory is built. (I alluded to this strategy in the silly post about the Lost Book of Noah’s Wife.)”

    No worries. I knew that. My comment about “scatology” instead of “eschatology” was a tribute to those somebodies. 🙂

    Example:

    The Paradox of Value that Never Was. 27 January 2015.
    http://aussiemagpie.blogspot.com.au/2015/01/the-paradox-of-value-that-never-was.html

    ———-

    “As I’ve argued previously, I think an understanding of currency sovereignty suggests that there is a potential path to socialism or communism through mass, grassroots opposition to for-profit activity and a demand that the state uses its currency-issuing capacity for not-for-profit purposes.”

    I know you hold those views. Honestly, I’m not sure I share them, although I have not made up my mind. Perhaps we can go into this sometime later.

    ———-

    Have a nice weekend, Pete. I myself I’m going to take a few days’ rest, watching the Star Wars movies, before going to watch The Force Awakens!

    Like Big Kev (the old bloke from the TV ads) used to say: “I’m excited!”

    I warned you: I am silly. 🙂

  9. Magpie, I’m pretty sure you are already aware of what follows in this comment, but I thought the point might be worth mentioning in case it is of benefit to some other readers.

    To be clear, I don’t want to give the impression that I am against micro analysis. That is not the case. My position – influenced by Kalecki, and I would say Marx – is simply that there are some binding *logical* constraints at the macro level that need to be adhered to in micro reasoning for the latter to be valid.

    An example sometimes given is that of a theater audience. As a micro question, we can consider ways in which individual audience members might try to improve their view of the stage. A member of the audience might consider standing up to get a clearer view. This could work, holding other factors equal. However, it might induce others to stand up, too. For example, the audience member behind the one who just stood up might feel the need to stand up as well. Then others might stand. Before long, everyone might be standing and nobody has a better view.

    We can say here that there is a macro consideration that needs to be borne in mind when reasoning at the micro level. It is not a perfect example, because it is not as hard-and-fast as a true macro identity or logical constraint. For example, someone in the back row could stand up without bothering anybody. But the basic observation is relevant. An interdependency between one person’s behavior and the theater experience of others means that we need to be skeptical of the effectiveness of any individual strategy that involves standing.

    But this does not mean that we can’t reason at the micro level. There are many other possible strategies that might be employed that are within the limits set by our “macro rule”. For instance, someone could bring binoculars. This would help them see better without provoking unintended consequences from others. A short person (say, a child) sitting behind a tall person could improve his or her situation without impacting negatively on the tall person by negotiating (asking) for a reconfiguration of seating arrangements within their small “sector” of the audience. Maybe the tall person could be asked to swap seats with his or her own child, so that one child sits behind the other child, and one parent sits behind the other parent. And so on.

    Macro constraints on the range of logical possibilities are not necessarily an analytical hindrance. In fact, they can be of tremendous assistance.

    Take Marx’s argument that an hour of socially necessary labor always creates the same amount of value. This is a macro result. It is also a very useful result when thinking about his theory of value. For example, consider the relationship s = L – v. These are labor-time magnitudes, so the division between v and s is not immediately clear from observation. But if we note that v equals the monetary outlay of constant capital $v divided by the start-of-period MELT mt, we can calculate v. That is, v = $v/mt. (The handling of the MELT in a temporal setting will be explained in the next part of the series.) Moreover, we know that, according to Marx, there is a macro rule specifying that an hour of socially necessary labor will always create the same new value v + s. So, if we know the value of L last period, we can calculate this period’s new value through comparison of last period’s employment with this period’s employment. For example, if L is unchanged, new value added will be the same this period as last period. Therefore, we know both v and L and so can deduce s.

    This macro rule governing new value creation does not mean that we can’t reason at the micro level. It is entirely valid to say that, at the micro level of an individual industry, an intensification of the labor process will increase the amount of value created per hour in that sector, other factors remaining equal.

    Further, even if other factors are not equal (in this case, the average level of productivity may have increased so that the bar has risen on what counts as socially necessary labor time), the micro reasoning will still apply in a relative sense. That is, if the intensity of labor in the sector in question rises relative to the social average, there will be an increase in the value created per hour in the sector.

    In other words, there is nothing wrong with micro reasoning. In fact, it is frequently useful. It is just that we need to make sure that it conforms with certain things that we know must hold true, as a point of logic, at the macro level.

  10. “Macro constraints on the range of logical possibilities are not necessarily an analytical hindrance. In fact, they can be of tremendous assistance.”

    Absolutely. I’m nor arguing otherwise, Pete.

    In fact, few people — including those often accused of falling into the fallacy — would argue that one should ignore the fallacy of composition or any other fallacy. That would be a really hard case to make in general and one few — if any — would be foolish enough to take on.

    The problem — and that’s my perception, which may be biased — is that, in the hand of some Keynesians “you are falling into the fallacy of composition” has become a kind of ready-made, multi-purpose cudgel against arguments they are not ready, capable, or willing to engage. One doesn’t even have to think whether it’s true or not: one just hits someone else’s head with that.

    Think of it as a kind of “get out of jail free” card.

    In that, it’s the same as the “circular argument”, “you are assuming your conclusion”, or the “animal spirits” thing. This is the RBA governor last year explaining why private investment remains unresponsive, in spite of the RBA’s low interest rates:

    “But the thing that is most needed now is something monetary policy can’t directly cause: more of the sort of ‘animal spirits’ needed to support an expansion of the stock of existing assets.”
    (http://www.rba.gov.au/speeches/2014/sp-gov-200814.html)

    So, it’s not the RBA’s fault: they are doing all they can. It has nothing to do with fiscal spending cuts: that’s good policy. So, by default, it’s the “animal spirits”.

    ———-

    Mind you, Keynesians are not the only ones employing similar tricks. Tom Walker (from Econospeak) has identified another similar trick. He calls it the “Lump of Labour Fallacy” Fallacy.

  11. I should add something: “animal spirits”, in the quote above, is used to defend monetary policy (and to justify the RBA). Although monetary policy is not working and hasn’t worked for about two years now, monetary policy is stimulative, the problem is… yes, you guessed, “animal spirits”.

    If you think about it, any adverse result can be explained away on the basis of “animal spirits” (the only time one will not find “animal spirits” as ready-made underlying explanation of everything, is when things turn out well: then the economist will forget everything about “animal spirits” and claim full credits).

    This renders Keynesianism unfalsifiable.

Leave a Reply

Your email address will not be published. Required fields are marked *