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Submitted by Barry Finger on Mon, 18/03/2013 - 18:58

Hi Bruce,

Let me sidestep your invitation to answer specific statements of Martin's, with some generalizations which, I think, offer a suggestive framework of why what you call the "monetary theory of value" is crucial. I hope you don't take this as an evasion. I offer this approach because Martin's points as they are listed are decontextualized. I can't tell whether I agree with them or not, devoid of the broader arguments they were meant to uphold.

I would suggest that neo-Ricardianism is an approach that examines critical issues of political economy from conclusions that are thought to be derived from the physical structure of capitalist production. Most neo-Ricardian Marxists do not believe that their approach is in contrast to Marx’s for one simple reason. And that is that they believe that a formal proof, if you will, of the labor theory of value can be established – and only established – by the examination of a predetermined set of material conditions of production and real wages. From these it can be mathematically demonstrated that the rate of profit is positive if and only if the rate of exploitation is positive.

But this formal proof of the validity of the labor theory of value, a proof incidentally that Marx – in a familiar letter to Kugelmann – persuasively argued is unnecessary, comes at a theoretical cost. Money in this neo-Ricardian theoretical system is simply a means of exchange normalization: of transforming trading ratios into absolute magnitudes. Money in this system is a numeraire, but it is not a measure of abstract labor.

Let me give you an example from the first prominent neo-Ricardian, Borkiewicz. Transformed “exchange ratios” are normalized by his method in terms of the labor time units “embodied” in the gold producing sector (department III), whose value/price ratio is set by assumption to 1. Under these circumstances the output prices of department I and II are normalized in terms of the average concrete labor time embodied in the physical units of gold against which the products of the other departments are exchanged. For very good reasons, Marx held that the value/price ratio of any commodity could only equal 1 if its organic composition of capital is equal to the social composition of capital. If Bortkiewicz had fashioned the gold sector in his illustration along this basis, then the most important of Marx’s consistency identities (total values = total prices, total profits = total surplus value) would have held. But there is no theoretical reason for gold production to conform to this and therefore Bortkiewicz was well within reason not to do so.

So what we are left with is a monetary unit in the neo-Ricardian system that standardizes price, but which, in the general case, cannot perform the function of measuring value. What is critical, at least for what you – Bruce – I think are asking of me, is this. In the neo-Ricardian system, price cannot be established as value in the form of money, because money is no longer a measure of abstract labor time. It is only a measure of the average labor time concretized in a particular use-value against which all other commodities are exchanged. (As are all such efforts, even those efforts, such as Alfredo Medio’s which affects similar changes within a stylized Sraffan framework.) Marx, on the other hand, sees any particular commodity as a given sum of values – and therefore of capital in the form of money – in any state of its continuous metamorphoses through the various phases of production, exchange and realization.

How so? An hour of simple, average labor – labor of average skill and intensity -- is the basic unit of measure of abstract labor in the Marxian system. Marx captures this relationship by equating the sum total of annual productive labor time expended to the yearly value product expressed in money in which that labor is “embodied”. He therefore establishes an implicit link between the monetary unit and its labor-time content. It is the capitalistically generated exchange process that necessarily forges this link. Through this identity any economic activity evaluated in price terms is theoretically convertible into labor-time units. It is the comparability of this simple, average – undifferentiated – labor in terms of the price form of value that permits qualitatively different use-values to be marketed in set proportions at any moment within an ever changing production-structure.

Of course, Bruce, you are right to insist that price is a regulator of economic activity. But price in its neo-Ricardian form, disembodied from any connection to social labor (and therefore to value), plays no such parametric function. Or to put it specifically, neo Ricardians see a static economic structure and ask how trading ratios and profits would fluctuate in response to changes in distributional norms. Money, remember, plays no role other than the normalization of exchange ratios and this entire exercise so-conceived can be affected without the slightest reference to it.

One of the principle consequences of this is that the general rate of profit is determinable within the neo-Ricardian framework without any reference to labor time, value or price. (I believe that this method cannot determine a general rate of profit and that the entire method is riddled with internal contradictions in logic, but that discussion is far beyond what I can develop here.)

Marx, I think, correctly approached this from a more acute perspective, asking how the system of allocated labor is regulated under capitalism by means of prices; or alternatively, how the division of labor among the various spheres of production is assigned, disturbed and reshaped in response to changes in technique/productivity, investment and inter and intra class distributions of output through changes in the pricing structure. Exchange value is intimately connected to how the totality of social labor is addressed. It is the incessant adjustment of the social division of labor in response to demand, and therefore profitability, that both modifies prices and redistributes surplus-values. Value in the Marxian system first exists in monetary form as exchange value. What Marx did was to demystify that form by establishing the relationship between the labor process which is the bedrock of any given society, with the exchange process typical of capitalism, wherein the accumulation of capital is the means for the appropriation of surplus labor. It is the monetary unit that crystallizes value, profit and capital as socially derived expressions of homogeneous quantities of abstract labor time.

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