MARXIAN ECONOMICS: A REAPPRAISAL

ESSAYS ON VOLUME IIIOF CAPITAL

Volume 2: Profits, Prices and Dynamics

Marxian Economics:A ReappraisalEssays on Volume III of Capital

Volume 2: Profits, Prices and Dynamics

Edited by

Riccardo BellofioreDepartment 0/EconomicsUniversity ofBergamoItaly

First published in Great Britain 1998 by

MACMILLAN PRESS LTDHoundmills, Basingstoke, Hampshire RG21 6XS and LondonCompanies and representatives throughout the world

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First published in the United States of America 1998 by

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ISBN 978-0-312-17665-5

Library of Congress Cataloging-in-Publication DataMarxian economics : a reappraisal/edited by Riccardo Bellofiore.p. cm.Includes bibliographical references and indexes.Contents: v. I. Essays on volume III of "Capital" : method, value.and money - v. 2. Essays on volume III of "Capital" : profits,prices. and dynamics .ISBN 978-0-312-17664-8 (vol. I). -ISBN 978-0-312-17665-5 (vol. 2)I. Marxian economics. 2. Marx. Karl. 1818-1883. Kapital.English. I. Bellofiore, R. (Riccardo)HB97.5.M33426 1997335.4'I---dc21 97-17608

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DOI 10.1007/978-1-349-26121-5

Contents

Notes on the Contributors

Introduction by Riccardo Bellofiore

Acknowledgements

Part I Prices and Values

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1 Profitability, Prices and Values 3Meghnad Desai

2 Marx's Logic in Capital and the 'Transformation Problem' 14Fred Moseley

3 Value, Exchange Value and the Internal -Consistency ofVolume III of Capital: A Refutation of Refutations 29Andrew J. Kliman

4 The Transformation Trinity: Value, Value Form and Price 43Antonio Callari, Bruce Roberts and Richard Wolff

5 Socially Contingent Value 57Carole Biewener

6 Does Marx Need to Transform? 70Paul Cockshott and Allin Cottrell

7 The Distinction between Social Value, Individual Value,Market Value and Market Price in Volume III of Capital 86Chai-on Lee

8 Time and Equilibrium in Neoclassical Price Theory andVolume III of Capital 101Guglielmo Carchedi

Part II Dynamics

9 Marx on Technological Change : The Ricardian Heritage 119Heinz D. Kurz

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10 A General Refutation of Okishio's Theorem and aProof of the Falling Rate of Profit 139Alan Freeman

11 Decentring the Marxian Debate over the Falling Rateof Profit: A New Approach 163Stephen Cullenberg

12 Destructive Creativity: Institutional Arrangements ofBanking and the Logic of Capitalist Technical Changein the Perspective of Marx's 1894 Law of Profit 177Geert Reuten

13 Marx or Hicks? Structural Proportions and Crisis: TheTransition from the First to the Third Volume of Capital 194Joseph Halevi and Peter Kriesler

PartID Empirical Approaches

14 The Dynamics of Historical Tendencies in Volume IIIof Capital: An Application to the US Economy sincethe Civil War 209Gerard Dumenil and Dominique Levy

15 The Empirical Strength of the Labour Theory of Value 225Anwar M. Shaikh

16 Unproductive Labour and the Rate of Profit in Australia,1966/67-1991/92 252Simon Mohun

The Transformation of Prices into Values: Comment onthe Chapters by Simon Mohun and Anwar M. Shaikh 270Alan Freeman

17 Burning Questions of an Old Book: Commodity Fetishismand Class Relations in Volume III of Capital 276Massimo De Angelis

18 Profitability and the Persistence of Capitalism 291M eghnad Desai

Index 305

Notes on the Contributors

Carole Biewener is an Associate Professor of Economics at SimmonsCollege. She is the REMARX editor for the journal Rethinking Marx­ism and has published work on the French Socialist government's creditpolicy in the early 1980s. Her current research focuses on financinginitiatives to further progressive community development in the UnitedStates and Canada.

Riccardo Bellofiore is Professor at Bergamo Univers ity where theteaches monetary economics and macroeconomics. He has contribu­ted to John Maynard Keynes: Language and Method, Elgar, Aldershot,1994 and has written essays in academic journals about Marxian valuetheory, Schumpeterian theory of economic development, Wicksell'sand Keynes' circuit of theory of money, and Sraffa's theory of prices.He has also published a biography of the Marxist scholar ClaudioNapoleoni in Italian.

Antonio Callari is Professor of Economics at Franklin and MarshallCollege, Lancaster PA, USA. He has edited (with David Ruccio) ,Postmodern Materialism and the Future of Marxian Theory (1996).

Ginglielmo Carcbedi teaches at the University of Amsterdam, Facultyof Economics and Econometrics. He is the author of several booksincluding Frontiers ofPolitical Economy (1996) and (with A. Freeman,eds) Marx and non-Equilibrium Economics (1996).

Paul Cocksbott is a Senior Lecturer in Computer Science at the Uni­versity of Strathclyde. He specialises in machine architecture, datacompression and the application of computers to economic planning.

Allin Cottrell is Associate Professor of Economics at Wake ForestUniversity, North Carolina. He is the author (with Paul Cockshott) ofTowards A New Socialism (Spokesman, 1993). He works mostly onthe history of macroeconomic thought, socialist slanning, and philo­sophical issues in economics.

Stephen Cullenberg is an Associate Professor of Economics at theUniversity of California, Riverside and co-editor of Rethinking

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MARXISM. He is the author of The Falling Rate of Profit andEconomics and the Historian (co-author), and is co-editor of Marxismin the Postmodern Age, Whither Marxismi, and the forthcoming Post­modernism, Economics and Knowledge .

Massimo De Angelis is a Lecturer in Political Economy at theUniversity of East London. His published work includes essays oncommodity-fetishism, value theory, the political economy ofglobalization and the critique of mainstream economics.

Megbnad Desai is Professor of Economics at the London School ofEconomics and Director of the Centre for the Study of Global Gov­ernance. His recent books include Macroeconomics and MonetaryTheory. The Selected Essays ofMeghnad Desai, Volume I and Poverty,Famine and Economic Development, Volume II.

Gerard Dumenil is an Economist and Research Director at the CentreNational de la Recherche Scientifique, MODEM, University of ParisX-Nanterre. He is the author (with Dominique Levy) of The Econom­ics of the Profit Rate: Competition, Crises and Historical Tendencies inCapitalism and (also with Dominique Levy) La dynamique du capital:Un steele d'economie americaine.

Joseph Halevi teaches economics at the Universities Pierre MendesFrance and Stendhal in Grenoble (France), as well as the Universityof Sydney. He is a member of the Centre d'Etudes sur la PenseeEconomique at the University Pierre Mendes France. His writingsdeal mostly with Marxian and Post Keynesian themes and with thepolitical economy of Europe and East Asia.

Alan Freeman lectures in economics at the University of Greenwich.He co-edited Marx, Ricardo and Sraffa with Ernst Mandel and Marxand Non-Equilibrium Economics with Guglielmo Carchedi. He is jointorganiser with Andrew Kliman of the International Working Groupon Value Theory, an annual conference on value theory.

Andrew J. Kliman teaches economics in the Department of SocialSciences, Pace University, Pleasantville, New York. His publishedworks on Marx's value theory and theory of the falling rate of profitinclude chapters in Marx and Non-equilibrium Economics and articlesin such Journals as Capital and Class and the Review of RadicalPolitical Economics.

Notes on the Contributors ix

Peter Kriesler is with the Department of Economics of the Universityof New South Wales in Sydney. He has written extens ively on pricingtheory from a Post-Keynesian perspective as well as on issues relatedto the history of economic thought and to macroeconomic policies inAsia and Australia. He is the author of Kalecki's Microanalysis: TheDevelopment of Kalecki's Analysis of Pricing and Distribution (Cam­bridge University Press, 1987) and has contributed to the volumes TheSecond Edition of the General Theory (Routledge, 1997).

Heinz D. Kmz is Professor of Economics at the University of Graz,Austria. Previously he held positions at the Universities of Kiel andBremen, Germany. He has published in economic theory, includingproduction, growth and distribution, technical change and employ­ment, and the history of economic thought. He is a managing editorof The European Journal ofthe History ofEconomic Thought . His recentbooks include Capital. Distribution and Effective Demand (1980) and(in collaboration with Neri Salvadori) Theory ofProduction.

Chai-on Lee is Associate Professor ofEconomics at Chonnam NationalUniversity, South Korea. He was educated at Seoul National University(BA & MSc) and at the University ofLondon (Birkbeck: PhD). He has apaper published in Cambridge Journal ofEconomics, December 1993.

Dominique Uvy is an economist and Research Director at the CentreNational de la Recherche Scientifique, CEPREMAP, Paris. He is theauthor (with Gerard Dumenil) of The Economics of the Profit Rate:Competition. Crises and Historical Tendencies in Capitalism and (alsowith Gerard Dumenil) La dynamique du capital: Un siecle d'economieamericaine.

Simon Mohun is a Senior Lecturer in Economics at Queen Mary andWestfield College, University of London. He has published widely onMarxian value theory and is currently engaged on a project to oper­ationalise its categories in a quantitative manner.

Fred Moseley is Professor of Economics at Mount Holyoke College,Massachusetts, USA. He is author of The Falling Rate ofProfit in thePostwar United States Economy (1992) and editor of Marx 's Methodin Capitals: A Reexamination (1993), New Investigations of Marx 'sMethod (1997) and Heterodox Economic Theories: True or False?(1995).

x Notes on the Contributors

Geert Reuten is Associate Professor of Economics at the University ofAmsterdam working in the fields of history and methodologyof economics and of Marxian 'value-form theory' and 'systematic­dialectics'. H~ has written over forty books and articles includingValue-Form and the State : the Tendencies of Accumulation and theDetermination of Economic Policy in Capitalist Society (1989, withMichael Williams) and The Circulation of Capital: Essays on VolumeII of Marx 's 'Capital' (1997, co-edited with Christopher Arthur).

Bruce Roberts teaches economics and is on the faculties of the Uni­versity of Southern Maine, Portland, ME, USA, and the College ofWilliam and Mary, Williamsburg, VA USA.

Anwar M. Shaikh is Professor in the Department of Economics at theGraduate Faculty of Political and Social Science of the New Schoolfor Social Research. His most recent book (co-authored with E.Ahmet Tonak) was The Political Economy of National Accounts: AnAlternate Approach to the Measurement ofthe Wealth ofNations. He iscurrently working on the long-term determinants of the exchangerates of OECD countries, and on the dynamics of money and credit,and of the stock market in the United States.

Richard Wolff is Professor of Economics at the University of Massa­chusetts, USA. His teaching and research focus chiefly on Marxiantheory. With his frequent co-author, Stephen Resnick, he is nowcompleting a full-length class analysis of the rise and fall of the USSR.

IntroductionRiccardo Bellofiore

As we approach the end of the century, if not the end of history, areappraisal of Marx's critique of political economy may seem a ratherodd topic for a group of social scientists, especially if, like the con­tributors to this volume, they are mostly economists. Nevertheless inearly 1994, taking advantage of the centenary of the publication byEngels of the third volume of Capital, Marco Guidi and I decided totake the risk of proposing two conferences on Marx: the first, inTeramo, to be devoted to the past and present position of the Italiandebates; the second, in Bergamo, to provide a forward-looking assess­ment of the more lively international research programmes. The Ber­gamo conference, whose participants were partly guest speakersand partly selected through a call for papers, met with unexpectedsuccess and a timely interest by Macmillan. The proceedings are nowcollected in this and a companion volume, with the papers arrangedthematically.

As in all human intercourse, a conference is rife with questions andanswers, the latter very often outnumbering the former, I know forsure that the motives that urged me to undertake this endeavour weresurpassed by the enriching contributions of all the participants. Theresult is always up to a point unintended, and has a life of its ownwhich only the reader may test and judge. In the following I confinemyself first to a personal note, a short description of the theoreticalbias behind the preliminary design of the conference, and then providea more neutral summing up of the papers included in this volume.

MARX IN QUESTION

Volume III of Capital is a good starting point to check the state ofhealth of Marx's theory. Most of the controversies about (and theendless history of the alleged final refutations of) Marx began justafter its publication. The two most famous instances are the discus­sions about the so-called 'contradiction' between the labour theory ofvalue and the determination of prices of production, and about the

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xii Introduction

meaning and validity of the law of tendential fall in the rate of profit.The old and new debates on Marx invariably seem to have two centresof gravity - price theory and crisis theory - the monetary aspects ofvolume III (Marx's analysis of bank money and fictitious capital) aregenerally neglected. The renewal of interest in Marx during the 1960sand the 1970s again followed these well-trodden paths, both of whichended in blind alleys.

Take the 'transformation problem'. After volume IIIwas published,the race was on, starting with Dmitriev and Bortkiewicz, throughSweezy, Dobb and Meek, to Seton's simultaneous 'solution' which isformally identical to Sraffa's model in Production of Commodities byMeans of Commodities. With Marxian value theory reduced to atheory of the determination of relative prices, as both Marx's fol­lowers and critics maintained for almost a century, the solution thatwas eventually reached looks rather like a dissolution. Once the con­ditions of production are known and the real wage quantified, relativeprices and the equal rate of profit may be fixed without the need tostart from exchange values, and hence collapses any possibility of aprior determination of the rate of profit in value terms. If, as aconsequence, Marx's value theory is rejected, then the notion ofexploitation runs into trouble. Having glanced at Marx in the 1950sand 1960s,in the mid-1970s mainstream economists found unexpectedallies among some of Sraffa's followers, who declared that 'afterSraffa' not very much of Marx's original building stood up - andthey soon passed to other themes.

The tale is not very different with crisis theory. Here again the basiswas established at the tum of the century in the German-Russiandebate. The discussion about the law of tendential fall in the rate ofprofit became muddled up with the controversy over volume II'sschemes of reproduction, and became just one of several instances ofthe alleged presence in Marx of a Zusammenbruchtheorie (collapsetheory), to be either defended or rejected. Hence there were thosewho stressed the law itself and those who stressed 'the counteractingfactors', just as there were those who saw in the schemes of reproduc­tion the analytic tool with which to build an underconsumption ver­sion of the collapse theory and those who made the first steps towardsa balanced growth theory. Up to a point Marx again became fashion­able for the mainstream as a forerunner of Harrod and Domar's'knife-edge' model; the turmoil in capitalist economies in the late1960s and early 1970s breathed new life into crisis theory. However,as capitalist restructuring went on, and as the consequent remaking of

Introduction xiii

the working class on a world-wide scale began to meet one successafter the other, Marx was once more relegated to the attic by most ofthe academic world.

If Marx's record as an economist was deemed low in the 1980s, thebreakdown of the Soviet Union and its Eastern satellites apparentlycame as the final blow - sanctioning the idea that there are noalternatives to the capitalist model, and that the few remaining excep­tions are on their way to being assimilated into the world market. Butafter the initial enthusiasm that followed the fall of communism it hasbecome clear that capitalist contradictions are far from resolved.Capitalism's victory, it is claimed by some, signals the danger of auniversal 'commodification' and that there is a need to return toMarx as the most powerful moral critic of capitalism. The collapseof state communism in Europe, others add, has helped rather thanhindered a new appraisal of Marx's legacy. Freed from spuriouscorrelation with political realities and passions, Marx's work may atlast be approached as one of the great 'classics', and can now bestudied with the cool distance reserved, say, for Aristotle, Machiavellior Smith.

My aim with the conference was quite different. I intended to gathertogether those - whether Marxian or not - who were interested inMarx as a scientific analyst of capitalism, as an author whose lessonsfor doing social science (and political economy) are still relevanttoday. My impression - most likely a minority view, as I am aware- was that traditional debates on Marx have misrepresented the 'core'of his approach - value theory - because it has been disconnectedfrom the essential link with money and reduced to an equilibriumnotion - a slide that has been eased by a restricted knowledge of hismethod and philosophical background. Marx's method was not oneof successive approximations, but of moving gradually from theabstract to the concrete in the presentation of capital as the totalitywhose interior driving power is the dynamics of the valorizationprocess. Rather than being the first, imperfect, approximation to thedetermination of normal relative prices (with prices of production seenas the centre of gravity of market prices) the notion of value, asintroduced by Marx in the first chapters of Capital, accurately cap­tures the essence of the capitalist mode of production which is hiddenbehind the exchange ratios set in circulation. Hence it is somethingwhich does not need any further, more precise, determination.

The notion of value requires, from the start, the notion of money asthe general equivalent: value is the eventual social validation of

xiv Introduction

private labour in general exchange. Since the production of value forgeneral exchange is at the same time the production of surplus value,and since exchange is generalised only in capitalism, the capitalistprocess is depicted by Marx as a money 'cycle' or 'circuit ', a sequenceof concatenated acts starting from the advance of money finance toindustrial capital, going through production as the valorization pro­cess where (potential) abstract labour - that is (potential) value - isformed, and ending with the coming into being, the actual isation, ofvalue on the market. It is easy to see that money is at the beginningand at the end of the capitalist cycle, and that the capital-labourconfrontation over the pumping out of abstract labour is at the centreof the picture, whatever the determination of individual prices. Thenotion of labour as substance and the notion of money as the expres­sion of value, as well as the laws of capitalist motion , are modified byMarx in the course of his presentation of capital's totality. Labour assubstance is the living labour of wage workers commanded by moneycapital, and hence is subject to a process of commensuration byindustrial capital prior to exchange. In Marx, money must be seen asa dual and inherently dynamic, and sequential notion (though Marx'spresentation is the reverse of this sequence): first, money as capital ­the buying of labour power by money capital, which gives way toindustrial capital command over living labour - which allows a pre­validation of private labours within capitalist firms; then, money asthe universal equivalent, which eventually sanctions in the finalexchange of commodities the indirect sociality of those same dis­sociated labours.

The theory of value then, is at once a theory of money and a theory ofthe origin of surplus value - a theory of exploitation in a monetaryeconomy - before being a theory of prices. Value theory encompasses,on the one hand, the 'formation' of economic magnitudes, that is theprocess that lies behind the formation of capitalist 'equilibria' and/orthe explosion of crises, and on the other hand the essentiality ofmoneyeven in equilibrium. Thus what have been taken as the data in the'transformation debate' are dependent from the path marked by thepowerful forces and struggles surrounding money, production properand competition. The basic categories are inherently dynamic in theSchumpeterian sense. As Schumpeter himself emphasized, Marx's the­ory was in a sense the first genuinely evolutionary economic theory,where the capitalist process incessantly brings about states that will bythemselves generate the next ones - a structural morphogenesis that islost in the unilinearity of balanced growth or of collapse theories.

Introduction xv

This is not the place to go into the details of this view about Marx ­the view behind the questions that prompted me to organise theconference . What matters here is rather if and how the process ofcapital as a whole, which is the object of Volume III of Capital may beread without .the straitjacket imposed by interpretations that omit themonetary and sequential aspects of the Marxian system, and thatunderplay the weight of the philosophical foundations of Marx'scritique of the political economy. This volume and its companionare a tentative step in this direction . It is my hope that the contribu­tions, each in its own way, may help provide a deeper understandingof Marx, as well as of present-day capitalism.

PRICES AND VALUES

Part I of this volume begins with the first of two contributions byMeghnad Desai. Chapter I deals with the transformation problemand it provided the theoretical ground for the paper that Desai sub­mitted at Bergamo, which is more concerned with the morphology ofcontemporary capitalism. (The latter is reproduced as the final chap­ter of this volume.) In Chapter I Desai tackles the first two parts ofvolume III of Capital on the conversion of surplus value into profitand the conversion of profit into average profit, He does not interpretthe 'problem' as mainly one of transforming values into prices, butrather as the problem of providing a theory of profits - namely how,in a world of voluntary contracts and free labour, exploitation can betranslated into profits without invoking any kind of 'imperfection' .Desai insists that it is not very clear whether the notion of the rate ofprofit in chapter 9 of volume III refers to the unobservable 'value' rateof profit. Similarly, when Marx spoke of price of production he meantthe price per unit of time contained in the commodity, not the dollarprice per unit of physical output. Desai carefully specifies the units ofaccount - labour time and money - so as to make them commensu­rate, and then defines a unit of account (unit price) for labour time sothat Marx's identity of value and price is satisfied. This unit price for(direct and indirect) labour time exceeds the money wage. The rate ofexploitation may now be expressed in a meaningful way, with onlyobserved magnitudes involved. Desai is then able to account for themoney-form deviation of surplus labour from profit, while at the sametime answering the question of why Marx did not extend the deviationto labour power.

xvi Introduction

According to Fred Moseley (Chapter 2), the long and continuingcontroversy over Marx's theory of prices of production in volume Inhas not paid sufficient attention to Marx's overall logical method inCapital. The currently dominant neo-Ricardian interpretation ofMarx's theory likens it to Sraffa's logical method of linear productiontheory. Moseley argues that this theory differs in two fundamentalrespects from Marx's own logical method: in the order of determina­tion between aggregate magnitudes and individual magnitudes; and inthe nature of the fundamental givens, whether physical quantities orquantities of money. In Marx, the total magnitudes (total price andtotal surplus value) are determined prior to the individual magnitudes,and hence the same is true for the general rate of profit. Moreover, inthe transition from volume I to volume III the money quantities ofconstant and variable capital are held invariant and this gives rise tochanges to the physical quantities of means of production and wagegoods that the given constant and variable capital will purchase. Asa consequence, both of Marx's aggregate equalities (between pricesand values, and between profits and surplus value) are simultaneouslytrue, and the determination of individual prices does not alter thegeneral rate of profit. If Marx's logical method is correctly inter­preted, then the long-standing neo-Ricardian criticisms of Marx'stheory of prices of production can not in fact be applied to Marx'stheory, but rather are a result of the misguided attempt to interpretMarx's theory in terms of linear production theory.

For Andrew Kliman too (Chapter 3), Marx's critics are wrong. AsKliman reminds us, the logic of Marx's accounts of the transforma­tion of values into production prices and the tendency of the rate ofprofit to fall has been challenged for nearly a century, and hiscritics' refutations are almost universally accepted. It is shown here,however, that in both cases the critics' refutations rest on a conceptionof value as relative price (exchange value), where the magnitude ofvalue is of no importance. After documenting Marx 's break withthis conception, Kliman shows that, once the notion of value assubstance is reinstated (and, relatedly, time is reintroduced) into theanalytical picture, Marx's approach to the falling rate of profitand the value-price transformation is vindicated. The chapterconcludes with a methodological contention: for Kliman, his reinter­pretation of Marx 's value theory has a prima facie claim to beregarded as superior to traditional formalizations, precisely becauseit is able to make sense of key aspects of Marx's work while the other'scan not.

Introduction xvii

Still on the same topic, in Chapter 4 Antonio Callari, Bruce Robertsand Richard Wolff offer a unique Marxian formulation of the trans­formation of values into prices of production. The authors adhere toan Althusserian 'overdetenninistic' perspective and to a postmoderniststance. It is not production as such that determines the shape ofcapitalist relations and fixes the determination of value as a code forthose relations. On the contrary, value should be read as the 'con­densation' of production, distribution and circulation processes, andis a code for a multifaceted class determination of economic processes.Based on a new notion of value, their formulation permits a concep­tion of the transformation problem that is radically different fromconceptions that depend on the notion of value as labour embodied.Their contribution thus emphasizes a difference not only with theRicardian approach to prices and reading of Marx, but also with themore traditional, and still operative, Marxian formulations, Theidea is formalised that capitalist commodity circulation is partiallyconstitutive, and is not a simple reflection of the value of the com­modity as a product of capital . Once again, the resultant solution tothe transformation problem restores the simultaneous equality ofprices and values and of profits and surplus value. It also functionsas an analytical expression of a non-essentialist Marxism and, inopposition to empiricist concepts of price, of the operation of theentry point of class in the construction of economic concepts.

Carole Biewener (Chapter 5) also contributes to the 'overdetenni­nist' understanding of value and value forms by considering the con­stitution of money prices when non-eommodity money predominatesas the medium of exchange in domestic economy. According to Biew­ener, value and value forms are 'socially contingent', both quantita­tively and qualitatively. With value defined in terms of sociallynecessary abstract labour time, she emphasises that the determinationof what is 'socially necessary' depends on the particular set of socialcircumstances under consideration. Therefore, from this perspective,the value of a commodity in exchange is not reducible to the physi­cally embodied labour time expended to produce it, nor to the tech­nological requirements of commodity production. Rather the labourtime expended in production is but one element of a commodity'svalue in exchange and other economic, political and cultural processesshould be included in the value and exchange value of a commodity.Such 'socially contingent' value holds true for the money commodityas well as for non-money commodities, and therefore for money pricesas well as for exchange values. In considering non-eommodity money,

xviii Introduction

money is still seen as giving command over some amount of sociallynecessary abstract labour time, thereby maintaining the link betweenmoney prices and labour. But the amount of labour time the moneyexchanges for is 'arbitrary' or socially contingent. The chapter con­cludes by showing the implications of this understanding of non­commodity money on monetary and financial processes.

A very different point of view on the issue is put forward in Chapter6 by Paul Cockshott and Allin Cottrell . They examine the argumentby Farjoun and Machover that the 'transformation problem' is a falseproblem, because of the empirical falsity of the assumption that therate of profit tends towards equality across industries. The chapter ispartly theoretical (concerning the concept of equilibrium and its rela­tion to the formation or non-formation of an equalized rate of profit)and partly empirical (offering a comparison of 'simple' labour valuesand prices of production as predictors ofmarket prices). The results ofthe empirical investigation confirm that the simple labour theory ofvalue correspond to the facts. The labour theory of value, thoughdeveloped at a higher level of abstraction than the theory of prices ofproduction, gives predictions that are just as close, if not closer, toobserved reality.

In Chapter 7 Chai-on Lee addresses the link between value andmarket price, accounting for all the intermediary categories: indivi­dual value, market value, social value, individual price of production,market price of production and so on. The discussion of value andprice is undertaken in three steps. First, value and price are interpretedas 'substantive' categories in the context of a totality where supply anddemand are irrelevant to determining them. Second, the 'relational'categories of individual value, market value and market price areindeed determined by supply and demand as they are given in thecontext of individual entities. Finally, a distinction is made betweensocial value as a 'substantive' category and price as a 'relational'category in the context of value transfers, which allows us to detectthe source of sectoral surplus profits in the unilateral transfer of value.

Part I ends with Chapter 8, in which Guglielmo Carchedi criticises aspecific version of neoclassical price theory, that which is taught toundergraduate students in standard textbooks. Carchedi shows thatpartial equilibrium theory is internally inconsistent, and that generalequilibrium theory unrealistically bans time from the model. Thedefects of neoclassical price theory are then traced back to its hiddensocial content. For Carchedi, the assumption of equilibrium, which isthe ground of mainstream theory, is just a myth. The market cannot

Introduction xix

have the function ascribed to it, namely that of bringing about theoptimal utilization of resources. But if the market cannot bring aboutequilibrium, it also cannot perform another function attributed to itby neoliberalism, that of ensuring the reproduction of the capitalisteconomy and social system. In contrast Marx's production pricescannot be theorised as equilibrium prices to be computed on thebasis of a system of simultaneous equations. Mirroring the actualprocesses going on in reality, prices of production are determined byMarx with a method based on chronological time, rather than onlogical time. Thus price formation is explained through a realsequence of production and distribution periods. According to thisalternative view, society is kept together by social relations - that is,relations among people that reproduce themselves independently ofwhich specific individuals become bearers of those relations. In Marxthe notion of equilibrium has a much more limited role than it has inneoclassical economics, and does not stand in the way of an inquiryinto the law of movements of the capitalist mode of production.

DYNAMICS

Part II opens with Heinz Kurz's appraisal of Marx's views on tech­nological change and his law of the falling rate of profit. For Kurz,Marx singled out from Ricardo's chapter 'On Machinery' in the thirdedition of Principles the situation where the introduction of newmachinery lowers 'gross produce'. Here technological change entailsan increase in labour productivity, raises the organic composition ofcapital and brings into existence, as well as constantly renewing, theindustrial reserve army of the unemployed. For Marx this peculiarform of technological change dominates the long-term development ofthe capitalist economy and marks its fate. Marx wanted to show anecessary eventual vanishing of the maximum rate of profit withoutresorting to diminishing returns in primary production. According toKurz, Marx's argument is wrong. As Bortkiewicz proved, the intro­duction and generalisation of a new method of production can neverreduce the rate of profit, given the real wage, and will raise it when­ever the new method contributes directly or indirectly to a cheapeningof wage goods.

A very different judgement on the law is passed by Alan Freeman(Chapter 10). As Freeman reminds us, Okishio's celebrated theorem,published in 1961, rigorously establishes that, if the real wage stays

xx Introduction

constant, the rate of profit will rise as a result of productivity-enhan­cing technical change, contrary to what Marx believed. Okishio deter­mines prices and profits from a system of simultaneous linearinequalities and assumes that each individual capitalist will adopt anew technique if it will lead to a fall in his or her unit costs at the pricesprevailing before the new technique is introduced. All attemptedrefutations of this theorem work only if capitalists invest accordingto special rules that are less general than Okishio's, or on the basis ofspecial assumptions concerning the real wage. However, in agreementwith Kliman and Carchedi in this volume, Freeman shows that simul­taneous equation systems represent neither Marx nor the actualobserved formation of values or prices. Using a differential equationformalism, he aims to prove fully generally that under Okishio'sassumptions the rate of profit must fall continuously. It is furthersuggested that this can be offset only when capitalist consumptionreplaces investment, as occurs in a slump. Freeman contends that thismore accurately reflects observed reality, and hence concludes thatsimultaneous equation systems cannot provide the basis for represent­ing a capitalist economy.

The law of the tendency for the rate of profit to fall is also at issuein Chapter 11, by Stephen Cullenberg. The objective of this chapter isto disentangle the long-standing Marxist debate over this 'law' byexamining the way in which its various participants conceptualizethe relationship between the social totality and its constituent parts.It is argued that the debate has been between two distinct Marxisttheories of totality and methodology. Each theory can be distin­guished by whether it reduces the social totality to the sum of a setof preexisting parts (the Cartesian totality), or whether the parts areunderstood simply as expressions of the inner nature of the pregiventotality (the Hegelian totality). The former approach is associatedwith those currently advocating a microfoundation or 'analytical'approach to Marxist social theory. The latter is associated with thebroadly defined Hegelian tradition in Marxist theory. These socialtheories impart irreducibly different meanings and significance tothe various individual concepts that constitute each theory. Thisirreducibility occurs even though the individual concepts are oftencalled by the same name. Against this background Cullenberg - inmethodological continuity with Callari, Roberts, Wolff and Biewe­ner's postmodern standpoint and stress on Althusserian 'overdetermi­nation' - presents an alternative reading based on a decentredtotality, wherein neither the part nor the whole is reduced to a mere

Introduction xxi

effect of the other but are instead understood as mutually constitutingeach other.

A fresh view on the law of the tendency for the rate of profit to fallcomes from Geert Reuten (Chapter 12). Marx 's 1894 Law of Profitwas the apotheosis of his exposition of the internal logic of thecapitalist system: the valorization-devalorization contradiction. Reu­ten takes the theory of the falling rate of profit in Capital (part 3 ofvolume III) as the starting point from which to articulate its exposi­tion at a less abstract level, taking into account the technologicalstratification of capital in various branches of production (part 2 ofvolume III) as well as finance capital (part 5 of volume III). Becauseof accounting practices, devalorization is expressed either by a fall inthe profit rate or by the devaluation of capital. Two important man­ifestations of this are the destruction of means of production and theunemployment oflabour. While the law is manifest in cycles, its actualexhibition - via economic crises or continued inflationary reproduc­tion - is determined by the institutional make-up of the bankingsystem.

In Chapter 13 Joseph Halevi and Peter Kriesler conduct a compar­ison between volume III and the other two volumes. They argue thatin volume I there is a basically different dynamic theory than the oneput forward in volume III . The former falls within the framework ofwhat Hicks in Capital and Growth called 'primitive growth models'. Asa consequence, Marx's most innovative dynamic intuition, that is, thetransformation of the naturalistic approach adopted by classical eco­nomics into a functional relation between accumulation and thereserve army of unemployed, is obtained at the price of ruling outrealisation crises as well as crises due to structural disproportional­ities. The latter appear as mere accidents in volume II. Halevi andKriesler maintain that structural disproportionalities have a muchmore systemic character than Marx thought. In this way, the positionof the German and Russian Social Democratic Parties is vindicated,since Russian-German Marxism gave virtually no importance tocyclical process based on the volume I reserve army mechanism in aone-sector framework . In volume II Marx showed the unlikely condi­tions under which capitalist economies could grow, without crises,along a balanced path. From some hints in volume III, a sequencemay be suggested that goes from an initial crisis caused by structuraldisproportionality to a general underconsumption crisis. However inthe bulk of volume III Marx abandoned the sectoral approach of thereproduction schemes, and stuck to the assumption of competition

xxii Introduction

(uniform rate of profit), which - according to Halevi and Kriesler - ina multisectoral approach is only consistent with balanced growth. Thechapter concludes by arguing that the work of Lowe and Hicks on thestructural traverse must be seen as a necessary supplement to Marx'sinsights .

EMPIRICAL APPROACHES

The topics in Part III are of a more empirical and less abstract nature.In chapter 14 Gerard Dumenil and Dominique Levy inquire into thetheoretical and factual relevance of the dynamic historical tendenciesdescribed by Marx in volume III . In particular, the law of the ten­dency of the rate of profit to fall is approached as one component of asystem of reciprocal relationships among several economic variables:labour cost, labour productivity and the composition of capital . Thissystem is interpreted as a crucial element in the understanding of thehistory of capitalism. Two historical trajectories of the kind suggestedby Marx are apparent in the late nineteenth century and second halfof the twentieth century. In between, however, the progressive shift tothe new stage, 'managerial capitalism', a major metamorphosis of therelations of production, is manifested by an upward trend of the profitrate during the first half of the twentieth century. The decline of theprofit rate in the first and third periods was followed by two 'largecrises', with unusual clusters of recession, unemployment, sluggishtechnological progress and, in particular, labour productivity.

In Chapter 15 Anwar Shaikh deals with the empirical relevance ofSmith and Ricardo's natural prices and Marx's prices of production.According to Shaikh, classical Marxian theories interpret these pricesas centres of gravity of actual market prices, which are themselvesdominated by the underlying structure of production, as expressed inthe total (direct and indirect) labour time embodied in the productionof the commodities. After formalising a Marxian model of prices ofproduction normalised by means of a Marxian standard commodity,Shaikh shows that in principle there may be a reversal in the directionof deviations between prices and labour values, but that this is unli­kely to be of any practical importance. Of greater significance is thelinear approximation to normalised prices of production given by avertically integrated version of Marx's own transformation procedure,where all the structural parameters depend only on labour valuemagnitudes. Actual market prices are then compared with labour

Introduction xxiii

values, prices of production, and this latter linear approximation. Theempirical backing for Marx's propositions appears to be strongenough, and has to be connected to the inner determination ofobserved relative prices by the structure of production.

Next Simon Mohun (Chapter 16)considers how the Marxian dividebetween productive and unproductive labour can be used in empiricalwork. Among the unproductive activities that consume value aresupervisory labour and the intervention of productive and financialcapital. It is often said that there is a rising trend of employment inunproductive labour, and that this is related to movements in the rateof profit. Mohun investigates this relation with the help of data drawnfrom the Australian economy. The effect exerted by a rising trend ofunproductive labour upon the rate of profit seems to be different inthe various periods considered, with a positive effect on productivityand hence on profitability in the 1980s.

The chapters by Shaikh and Mohun are followed by a comment byAlan Freeman, who also tackles the position taken by Cockshott andCottrell (whose chapter could equally have been grouped here ratherthan in Part I).

Massimo De Angelis (Chapter 17) rejects an economistic interpreta­tion of Marx's categories and provides a cursory political reading ofvolume III . He discusses some of the major categories (cost price,profit and competition) used in Capital, and shows how they are anexpression of the capitalist relation of work, which is a relation ofstruggle, and how they are linked to the 'everyday consciousness ofthe agents of production themselves' and allow the reproduction andperpetuation of the class relation itself. He then assesses the greatimportance of Marx's theory of commodity fetishism as a theory ofclass perspective.

The book closes with the second contribution by Meghnad Desai,referred to above. Desai faces squarely the great theoretical andpolitical question of the day. Following the collapse of socialism inEastern Europe, capitalism seems to be flowering. Hence the question:are the methods and tools of Capital helpful in explaining what isgoing on? The point - Desai argues - is that we must look anew atMarx's theory of profit and see if it can accommodate recent deve­lopments. He deals with the globalisation of capital, the changingimportance of mental versus manual labour and the revolution inthe financial markets - issues that can all be incorporated into the'good starting point' on profitability we have in the three volumes ofCapital (the 'process of accumulation of capital' in part 7 of volume I,

xxiv Introduction

the three cycles of capital and the schemes of reproduction in volumeII and parts 1-3 of volume III) . It is now time to reinterpret a worldthat has changed.

AcknowledgementsThe contributions collected in this volume were all originally pre­sented at the meeting on 'Marxian Economics: A Centenary Apprai­sal. International Conference on Karl Marx's Third Volume ofCapital: 1894-1994', held in Bergamo, from 15-17 December 1994.The papers have been subjected to a refereeing process, which wasaimed not at excluding any of them but merely to improve theiralready high quality. The conference was sponsored by the Diparti­mento di Scienze Economiche, Universita degli Studi di Bergamo, incollaboration with the Dipartimento di Scienza e Critica della Politica,Universita di Teramo, and The European Journal of the History ofEconomic Thought. I wish to thank the Rector of the University ofBergamo, Piero Ferri, and the former Dean of the Department ofEconomics, Riccardo Leoni, for their support, as well as the presentDean of the department, Andrea Salanti, for further help; GilbertFaccarello, Marco Guidi and Heinz Kurz, who were part of thescientific committee; Hyman P. Minsky and LuigiL. Pasinetti, whoacted as chairmen ; the secretary of the department, Laura Capelli, forher invaluable assistance before and during the conference; RichardDavies for his help in revising the English of some of the papers; andlast but not least, Mr T. M. Farmiloe of Macmillan for his encour­agement of and patience with this project and Keith Povey for verycareful editorial assistance.

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