The Postone-Kurz synthetic model of value and the transformation problem versus SKYNET

An explanation of capitalist prices or an explication of capitalist trajectory

I spent a sleepless night this week because it suddenly occurred to me that a synthesis of Postone’s and Kurz models of value is actually predicted by Marx’s transformation equation. If I had any competence in math, I could show why Marx is correctly accused of being “inconsistent” about the transformation of values into prices in the same way quantum mechanics is “inconsistent” in its description of the electron or photon.

Briefly stated when Postone’s definition of value is identical with Kurz’s definition of value; the sum of prices equals the sum of values and the sum of profits equal the sum of surplus value — and the condition for these three is the same: the rate of profit = 0.

Which is to say, Capitalism is an inherently unstable mode of production that is hurtling toward a final and irreversible fall in the rate of profit. The mathematical proof of capitalism’s inevitable demise is the transformation equation, which as David Bieri notes, appears to be over-determined:

“…the transformation problem is overdetermined since there are five equations but only four unknowns (r, p1, p2 and p3). This means that a general solution of the transformation problem is only possible by retaining one of the invariance conditions, but not both. In other words, it is only possible under very restrictive assumptions to solve Marx’s original challenge of applying the LVT to both relative prices and profits.”

The overdetermined character of the transformation of values into capitalist prices is further explained this way by Al Campbell:

“There are two conditions that have been discussed over the years under which [Marx’s solution] will hold: the case when the profit rate goes to zero and the case of ‘equal organic compositions of capitals’. Neither case represents a general condition of capitalism, and hence neither can be considered a solution to the transformation problem.”

However, this is at all the case if we drop Campbell’s requirement that Marx’s argument represent a “general condition of capitalism”. In this case, both of these conditions would be true when v = 0. If v = 0, s = 0, and, therefore, s/c+v = 0.

Which is to say, if the wages of the working class were reduced to zero, capitalism would cease to exist.

It is an odd, even bizarre, circumstance that bourgeois economics has accused Marx of failure by pointing out his transformation equation implies conditions that are incompatible with capitalism, while Marxists have actually been trying to prove Marx wrong on this point, by showing how the equation can be made compatible with capitalism.

One problem with this transformation thingy is that people keep arguing Marx is trying to explain how prices emerge from values; I am sure I would not put it that way — instead, I think Marx is trying to demonstrate the historical trajectory of the mode of production.

(Whatever he is doing this shit is pretty fucking dense. Sam Williams of Critique of Crisis Theory blog — whose solution to this problem is wrong — has one of the better presentations of the transformation problem, although it is unnecessarily long and involved.)

Two definitions of socially necessary labor time under capitalism?

The problem with the transformation of values into prices is that value is socially necessary labor time and Marx gives this labor time two, apparently contradictory, definitions.

The first definition of socially necessary labor time (value) is the labor time socially necessary to produce a commodity. This definition is the prerequisite of capital and, like use value, money, labor, and the commodity itself,  all logically appear before capital. However, these same forms reappear under the capitalist mode of production as value, money capital, commodity capital, and labor power. In this mode of production, Marx defines  “socially necessary labor time” as the portion of the social working day during which the worker reproduces the value of her wages.

So we have two definitions of socially necessary labor time, and, therefore, two conditions for this socially necessary labor time  to meet — which is to say, capitalism is a form of commodity production under which the aim of production is not the production of values, but surplus values. Socially necessary labor time in its commodity form must be satisfied in such a way that socially necessary labor time in its capitalistic form is also satisfied. Each commodity must take no more time than is socially necessary to be produced, and the value of the mass of commodities produced and consumed by society must be replaced in the process of capitalist production by a fresh and expanded quantity of living labor.

When the mass of socially necessary labor time in the form of commodities produced by the capitalist production process equals the mass of socially necessary labor time required to produce the subsistence of the working class, all the conditions of  transformation are met. At that point the sum of values equals the sum of prices and the sum of surplus values equals the sum of profits.

The value and the price rates of profit

The concept is easier to understand, therefore, if we begin with the idea that there are two definitions of socially necessary labor time in Capital, as the Postone-Kurz synthetic model suggests. One, captured by Kurz’s definition, can directly be called “value” proper — the value of the commodity itself as defined in chapter one. But beginning with chapter four we encounter this other definition of socially necessary labor time captured in Postone’s argument:  the portion of the total social labor day required for the reproduction of the labor power of the working class. Of course, this labor power is also a commodity, but a special capitalistic one — it can produce surplus value.

The reason why Marx’s transformation works when the profit rate is set to zero is now obvious: when the profit rate is set to zero, the workers have no exploiter,  the social laborers are just feeding, clothing and satisfying their other needs through their combined social activity. There is no contradiction between the aim of material activity and the duration of its labor time.

At any point where the profit rate is greater than zero, however, now socially necessary labor time in the two forms are at odds. It is only at this point that we get a distinction between Postone’s and Kurz’s notion of socially necessary labor time where the substance and form of value assume two different durations. This difference, however, becomes an antithesis — absolutely antagonistic and irreconcilable — when the rate of profit becomes negative as it is now.

The rate of profit, as Marx defines it, probably has been negative since at least the Great Depression. This rate of profit we could call the “value rate”, as opposed to the “price rate” of profit that most Marxists employ in their analyses.

The key to the relation between the value rate of profit and the price rate of profit can be found, I think in Department III. This department has been labeled “luxuries”, but I would argue for a broader definition to include luxuries, the state and economic waste in general. It consists, in other words of the values produced in Department I and II that cannot reenter the process of capitalist expansion — they are consumed unproductively and are not replaced in the process by a fresh amount of living labor. The value rate of profit only covers departments I and II, while the price rate of profit covers departments I, II, and III.

How capitalism kills itself

Just for shits and giggle try this sometime: Tell a Marxist that capitalism kills itself irrespective of what the proletariat does and watch the look of horror, disbelief and incomprehension on her/his face. It is weird but true that no one believes in the long survival of capitalism more than its harshest critic, the Marxist.

For all those Marxists who swear capitalism can exist in some zombie state for all of eternity, here is an interesting way to interpret Marx’s argument: the only stable rate of profit in the mode of production is rate of profit = 0; but this is also the exact condition for the collapse of capitalism, it produces crises. Thus, capitalism is always trying to move away from this equilibrium state that is identical with its collapse; which is to say, capitalism is always trying to restore the rate of profit.

But, how does it do this? By increasing the organic composition of capital, i.e. the ratio of constant capital to variable capital. This works for a while, but it again leads to a fall in the rate of profit. Most Marxists assume this cycle can loop endlessly unless there is a proletarian political revolution, but this is not correct. The loops themselves suggests a process bringing capitalism toward its ultimate collapse be cause each fall in the rate of profit results in action that further reduces the quantity of living labor necessary to set a given quantity of constant capital in motion.

Remember the original conditions of Marx’s transformation: the sum of values equals the sum of prices and the sum of surplus value equals the sum of profits, when the rate of profit = 0, or the organic composition of capital is uniform across departments. Well, the hilarious thing is both of these conditions are fulfilled when v = 0. The cycles of the falling rate of profit inevitably moves the organic composition of capital to the point where both these conditions coincide — and then it is bye bye, capitalism. This is precisely what Marx is stating in his famous quote from volume three, chapter 15:

“What worries Ricardo is the fact that the rate of profit, the stimulating principle of capitalist production, the fundamental premise and driving force of accumulation, should be endangered by the development of production itself. And here the quantitative proportion means everything. (my emphasis) There is, indeed, something deeper behind it, of which he is only vaguely aware. It comes to the surface here in a purely economic way — i.e., from the bourgeois point of view, within the limitations of capitalist understanding, from the standpoint of capitalist production itself — that it has its barrier, that it is relative, that it is not an absolute, but only a historical mode of production corresponding to a definite limited epoch in the development of the material requirements of production.”

As I have argued before, it is not the falling rate of profit that kills capitalism — the profit rate is just the stimulant that drives capitalism to kill itself. This is why when Marxists academics look at the problem of the rate of profit they find nothing in it that of itself causes the demise of capitalism.

Why Bohm-Bawerk was right

Why is it helpful to understand that Bohm-Bawerk’s “argument” against Marx was “correct” in the first place?

Bohm-Bawerk accused Marx of going back on his initial assumption that the price of a commodity was determined by the socially necessary labor time required for its production. However, as Bohm-Bawerk explains, in volume three, Marx “admits” this price is also determined by the law of the average rate of profit. Bohm-Bawerk concludes that in the end Marx conceded to bourgeois economics that his own position was untenable. He states:

“I cannot help myself; I see here no explanation and reconciliation of a contradiction, but the bare contradiction itself. Marx’s third volume contradicts the first. The theory of the average rate of profit and of the prices of production cannot be reconciled with the theory of value.”

Had Bohm-Bawerk given it more than a moment’s thought, he would have realized the implications of his statement: If indeed the law of the average rate of profit could not be reconciled with the law of value this had implications for the mode itself. What Bohm-Bawerk assumed was a contradiction within Marx’s theory turned out to be a contradiction at the heart of the mode of production itself — it is a system of commodity production that aims at the production of surplus values, not values.

Marxists, who have spent most of the last 116 years denying there is a contradiction at the heart of Marx’s theory, have been stupidly tried to prove Marx’s “consistency” by suggesting there is no contradiction at the heart of the mode of production. This is the entire point of the “new interpretation” and the “temporal single-system interpretation” of the transformation problem. Both of these “interpretations” of Marx’s theory seeks to demonstrate that there is no contradiction in the way prices form in simple commodity production and the way prices form in the capitalist mode of production. This is because each interpretation is trying to rescue Marx from his critics, but in a way that “rescues” Marx from himself.

However, contradictions within a theory, Marx argues, is not in itself a problem if the theory reflects a material contradiction in society. If, in fact, there is a contradiction between the way prices form in simple commodity production and within the capitalist mode, this contradiction must be expressed in a theory describing that mode of production. Ricardo, Marx argued, wasn’t stupid or tilting at windmills, he saw this contradiction and realized, “in a purely economic way — i.e., from the bourgeois point of view, within the limitations of capitalist understanding, from the standpoint of capitalist production itself“, the implications this contradiction had for the capitalist mode of production.

The contradiction implied the capitalist mode of production was hurtling toward an inevitable demise — its collapse and supersession was locked in by the actual development of the mode of production itself and was not external to it. The very methods the capitalist employed to overcome a fall in the rate of profit, only accelerated the collapse of capitalism itself.

SKYNET versus the Social Revolution

It is not as though Marx’s conclusion is written in invisible ink in volume three of Capital, he takes time to explain it all in chapter 15. Frankly, Marxists just never agreed with it — pure and simple. And they don’t agree with Marx now — instead they spend an inordinate amount of time trying to show why Marx doesn’t agree with Marx.

And when these bullshit artists can’t make their argument fit Marx’s theory, they start blabbering about “barbarism” or some dumb shit. The reason for this is simple: Marx’s theory not only suggests capitalism is doomed, but also the state and the entire superstructure of existing society — including politics. But Marxism itself is only a political critique of capitalism — the critique of the mode of production within politics. It is only able to understand criticism of the mode of production as a political criticism, and therefore, cannot critique politics itself.

It flatters itself that it is more than a political critique when it takes up criticism within culture, or morality, philosophy or exchange. But even here its critique is only a critique of the “politics of culture”, the “politics of philosophy”, etc. Let this criticism extend even for an instant to existing relations — to the category of money, for instance — and the Marxist reflexively dashes off to his computer to check the performance of his 401k, his miserable state college pension or his book sales.

The Marxist clings to the category of money as if it is a log in an otherwise violent ocean, and, therefore, accepts a worthless slip of scrip as money because the fascist state says it is money. He moves within this category and his analysis never moves beyond it. The slogan raised by the most ardent proponents of value criticism, “Socialism or Barbarism” is nothing more than the idea that politics is not determined either by capitalist relations of production, nor by the demise of these relations. Politics is SKYNET, the self-acting automaton capable of outliving its material basis in the relation and forces of production.