Headnote
Abstract: This article shows that Sinha's (2009) review of Kliman's Reclaiming Marx's "Capital": A Refutation of the Myth of Inconsistency (2007) constitutes an unscientific and unacceptable intervention whose purpose is to stifle, instead of furthering, a long-overdue discussion of the Temporal Single System Interpretation (TSSI) of Marx's theory of value. It is unscientific because its case rests on conscious and transparent misrepresentation; it is unacceptable because it seeks to delegitimize, i.e., rule out of discussion, the work that it purports to review. Sinha's piece is ostensibly a review of Kliman (2007) which sets out to prove that, if Marx is interpreted by employing the TSSI, all charges of inconsistency so far leveled against this theory turn out to be false. To contextualize the review, this article first explains this interpretation by means of a numerical example from Kliman (2007). Then, this article establishes the unscientific character of Sinha's criticisms. These are based first on a simple misrepresentation of the argument, and second, on the charge that Kliman does not follow Sinha's own simultaneist method. Disagreements in science are of course normal; what is completely unscientific is to discount a valid, coherent alternative theory on the grounds that the reviewer disagrees with it.
Key words: Marx; value theory; misrepresentation; TSSI
1. Introduction1
When I first studied Marxist economics at the London School of Economics and Political Science (LSE) in 1988, I learnt from Meghnad Desai that Marx's value theory was internally inconsistent and must be "corrected" to be of any use (Desai 1979). The corrections were mathematically complex, like the rest of the economics the LSE expected us to master in a purely technical way. In contrast, Keynes General Theory engaged with actual events, with its arguments expressed in words rather than complex maths. So I read Keynes, not Marx-why trouble with Marx if he was inconsistent anyway? It was not until 1998 that I came across the Temporal Single System Interpretation (TSSI) of Marx. Since the 1980s, the TSSI of Marx had provided a logically consistent interpretation of Marx's theory of the determination of commodities' value by labor-time (summarized in Freeman and Carchedi 1996). With Marx apparently not broken, it made sense to investigate, so I read Capital (Marx 1976; 1978; 1981) and was amazed by the scope and depth of Marx's analysis. Subsequently, I have attempted to understand our world through trying to apply Marx's theory of value to it, e.g., considering knowledge (Potts 2007), the environment (Potts 2011b), and our current crisis (Potts 2009a; 2009b; 2010a; 2010b; 2011a; 2013).
The reader may be inclined to dismiss this personal history as just another Zombie Marxist trying to revive the unrevivable corpse of Marx's theory. The reader would then miss the point: if I knew a consistent Marx existed, I would have chosen to research in this area 10 years before I did. This is my right as a student and a researcher, and it is also the right of science to allow such research to take place. This right was taken away by "Marxist" economists; who knows how many radical young economists have been (and continue to be) misled in this way?
Of course, if the TSSI of Marx is in fact an inconsistent interpretation or incoherent reading of Marx, then all the well-known charges of inconsistency against Marx stand, and the Marxists would be right to dissuade young people from simply wasting their time on Marx-although why, in these circumstances, they wish to continue calling themselves Marxists is another issue. The issue of whether it is valid research, or a waste of time, to study Marx's ideas thus stands or falls on whether there is, in fact, a consistent interpretation of these ideas. This is hence not a diversionary or secondary question, but the primary question facing Marxist economic research, and indeed, economic research of any kind.
This is why Kliman (2007) wrote Reclaiming Marx's "Capital": A Refutation of the Myth of Inconsistency-to fully answer this question. So far, this work has received no satisfactory rebuttal, and all attempted rebuttals have been fairly convincingly demonstrated to be unfounded. Until and unless Kliman's argument is refuted, therefore, Marxists economists have no scientific right to claim that Marx has been proven inconsistent, or to castigate or frustrate those, such as myself when young, who want to investigate his ideas. This is not to say that other theories of value should not be taught and researched; economics in general is a discipline that desperately needs more pluralism. The point is simple: don't tell students that Marx is inconsistent when it is possible to interpret him consistently-that's just not science.
This is the reason for responding to Sinha (2009). This is not a review: it is a warning to Marxist economists and students to avoid the TSSI completely as not worthy of consideration. It is simply not worth the trouble to consider this ridiculous economics that any good economics student would obviously understand to be nonsense.
Sinha's case is not that Kliman is wrong but that he is so lacking in rigor that his work should not be published and, if published, it should not be taught and, if taught, it should not be listened to. The same then applies to the TSSI and, for the reasons given above, to Marx. It is first and foremost an attempt to delegitimize Kliman, that is to rule him out of court; by this token, it is a call to continue and to defend the completely unjustified delegitimation of Marx's own theory, which the economics profession currently practices.
2. Briefly, the TSSI of Marx
Three principal interpretations of Marx are to be found in the literature today. The dominant interpretation, the Simultaneous Dual-System Interpretation, on which all proofs of Marx's inconsistency are based, assumes that Marx's theory is correctly interpreted by Von Bortkiewicz (1952; 1984) who supposes two things which the TSSI of Marx rejects. First, he proposes that the value and price of any output from any period are the same as the value and price of the same commodity at the beginning of the period, thus re-interpreting Marx as a general equilibrium theorist. Von Bortkiewicz's approach is also dualistic, supposing that prices and values are each determined in two completely separate systems of simultaneous equations (Kliman 2007, Chapter 9). The TSSI differs in two respects. It is temporal, or sequential: recognizing that production takes time, it supposes that the value and price of newly produced commodities at the end of production are the same as their value and price at the start of the next period of production. For this reason, they may (but will not in all cases) differ from those commodities' unit values as inputs at the start of production.2 Second, the TSSI of Marx has a single, sequential, system of value, with value being expressible either in units of money or units of labor-time. There is only one set of equations, being what engineers, mathematicians, and physicists will readily recognize as a system of difference equations.
The third possible approach, in which we subsume the "New Interpretation" is termed the "Simultaneous Single System Interpretation" or SSSI. This supposes only one system of equations, which are, however, simultaneous rather than temporal.
Turning back to the TSSI of Marx: inputs of constant capital for the current production period are bought in the preceding period of circulation at prices, their appropriated values (Kliman [2007, 25] calls this "value received"), determined at the end of the previous period of production. It is this appropriated value, expressible in money or labor-time, not the inputs' produced value, also expressible in money or labor-time, which transfers its value, as the inputs are productively consumed in production, to this production period's output. To move between expressing value in money to expressing value in labor-time (or between expressing value in labor-time to expressing value in money), we must know the monetary expression of labor-time (MELT) holding at the time we are considering.3 As inputs are purchased in circulation prior to this period's production, the relevant MELT to convert these inputs from monetary expression to labour-time is determined at the end of the previous period of production when the inputs' prices are determined.
The total produced value of this period's output equals the value of the constant capital consumed plus the total living labor worked in production. Again, this produced value can be expressed in money or labor-time through the MELT (established with price formation at the end of this period's production). Commodities' prices, their appropriated values, will deviate from their produced values (to tend to equalize profitability between sectors, and potentially for other reasons) within the overall constraint that total appropriated value equals total produced value. Kliman (2007) defines MELT as the "economy-wide ratio of the total money price of output to the total labor-time value of output" (39).4
Total price is determined by total value, while the values of outputs depend partly on the cost of inputs, and thus prices in the past. Marx makes this point (see Kliman 2007, 106) when considering the "transformation problem":
It was originally assumed that the cost price of a commodity equalled the value of the commodities consumed in its production. But for the buyer of a commodity, it is the price of production that constitutes its cost price and can thus enter into forming the price of another commodity. As the price of production of a commodity can diverge from its value, so the cost price of a commodity, in which the price of production of other commodities is involved, can also stand above or below the portion of its total value that is formed by the value of the means of production going into it. It is necessary to bear in mind this modified significance of the cost price, and therefore to bear in mind too that 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. Our present investigation does not require us to go into further detail on this point. It still remains correct that the cost price of commodities is always smaller than their value. For even if a commodity's cost price may diverge from the value of the means of production consumed in it, this error in the past is a matter of indifference to the capitalist. (Marx 1981, 264-65)
To further illustrate the TSSI of Marx, let us consider an example from Kliman (2007), which, as we will see, Sinha (2009) criticizes.
Kliman supposes a pure circulating capital example (with no fixed capital or unsold stocks) (see Table 1).5 These are the same assumptions as Von Bortkiewicz and the dominant, existing interpretation of Marx, and in this way, the clear differences in results which emerge can only be the result of choosing the TSSI or the simultaneist approach, and not of any additional extraneous assumptions. For this reason, the assumptions allow us to compare the results of three interpreta- tions of Marx: the TSSI, the Simultaneous Dual-System Interpretation, and the SSSI of Marx. Kliman initially sets the unit value of inputs equal to the unit value of outputs and then varies this to show how the TSSI of Marx diverges also from the SSSI.
Branch I combines in production 96 units of means of production with 8 hours of living labor (paying those workers 10 units of means of consumption) to make 120 units of means of production. Branch II combines 12 units of means of production with 16 hours of living labor (paid 20 units of means of consumption) to make 60 units of means of consumption. Kliman does not explain how this abstract scenario (recorded in Kliman 2007, 158) has come to pass precisely because it doesn't matter. It is a simple example that abstracts from anything not needed in order to focus on the question in hand-the difference between different theories of value.
Following the TSSI of Marx, the unit value of inputs is determined by their appropriated value at the end of the previous period of production (the price, established at the end of production last period, they are purchased at in circulation between the periods of production). Input prices are for a unit of Commodity I $2, and for a unit of Commodity II $0.8. To convert this value in units of money into units of labor-time, we divide price by the MELT that was established at the end of production last period. At the end of the previous period of production, the MELT was equal to the total appropriated value of output in money divided by the total produced value of that output in labor-time. This information is not included in the example. MELT at the end of production last period, which still holds at the start of production this period, is simply set exogenously at $3 per hour; $3 represents 1 hour of labor-time at these times. This MELT allows us to express the value of inputs in terms of money or in terms of labor-time. The 96 units of means of production applied in Branch I have a unit price of $2, so their total price equals $192, with their value in labor-time equaling this total price divided by the MELT established at the end of production last period, $192/3 = 64 hours. In Branch I, 8 hours of living labor are worked, with wages/variable capital being $8, 10 physical units of means of consumption multiplied by their price of $0.8, or 22/3 hours of labor-time ($8 divided by the MELT established at the end of production last period, $8/3). Knowing v and L allows us to know what surplus-value has been extracted in production, L - v = s = 51/3 hours. To express s in money, now that we are at the end of production this period, we must multiply by the MELT established at the end of production this period, not the MELT established at the end of production last period.
Branch II applies 12 units of means of production with unit price of $2 and total price of $24, with value in labor-time equaling this total price divided by the MELT established at the end of production last period, $24/3 = 8 hours. In Branch II, L = 16 hours, with v = $16 or 51/3 hours, ensuring L - v = s = 102/3 hours. The total produced value of output in Branch I equals c + L or c + v + s = 72 hours or 72 × MELT units of money, and in Branch II, 24 hours, ensuring a total produced value of output of 96 hours. The unit produced value of Commodity I is 72 hours divided by 120 physical units, which equals 0.6 hours, and for Commodity II, 24/60 = 0.4 hours. Again to express these produced values in money, we must multiply by the MELT determined at the end of production this period. To calculate the produced value profit rate, we divide each branch's surplus-value by the value of its inputs in terms of labor-time (their price divided by last period's MELT).
To know the MELT at the end of production this period, and all appropriated values, we need to set prices for the two commodities. In this simplified scenario, we set prices exogenously (again at a less abstract level, we could examine how price is determined, but this is not the question in hand). In this particular example, as I noted above, Kliman sets the price of Commodity I at $2 and Commodity II at $0.8, the same prices that held at the end of the last period, which became the input prices for this period. Total appropriated value in Branch I equals $240 and in Branch II $48, so the total price of output at the end of production in money is $288. Given the total produced value of this output is 96 hours, MELT = $288/96 = $3 per hour of labor-time, again. To simplify Kliman has held the MELT constant, through his exogenous choice of prices. Let us be clear, the MELT does not determine price; rather, the MELT follows from price determination. Knowing the MELT, we can determine the monetary expression of produced values, s and w, and the labor-time expression of appropriated values, ppu, p, and p.
The total profit appropriated in terms of labor-time for each branch is equal to their total revenue divided by this period's MELT minus the capital they advanced (the total cost of their inputs) divided by last period's MELT. The appropriated value profit rate in terms of labor-time for each branch is equal to their total profit appropriated in terms of labor-time divided by the capital they advanced in terms of labor-time (the total cost of their inputs divided by last period's MELT).
We can see in Table 1 for each branch how their produced value profit rate differs from their, equalized between branches, appropriated value profit rate. The equality between the aggregate appropriated rate of profit and the aggregate produced value profit rate-a key feature of Marx's (1981, Chapter 9) account of the "Transformation of Commodity Values into Prices of Production"-is preserved. Indeed, this abstract example of the transformation process satisfies all three of Marx's equalities. Total profit is equal to total surplus-value, the price of total output is equal to the produced value of total output, and the overall price/ appropriated rate of profit is equal to the overall produced value rate of profit. Furthermore, we can see how this can be expressed in terms of money or labor-time by adjusting by the appropriate MELT.
Kliman's simplified scenario thus achieves its purpose: it illustrates the transformation process in a way that satisfies all three of Marx's equalities. Now to illustrate how the TSSI of Marx continues to do this, when the SSSI of Marx fails because of its simultaneous (retroactive) valuation of input unit values to output unit values, Kliman modifies his example. As we are explaining the TSSI of Marx, we will not record how the SSSI of Marx now diverges, see Kliman (2007, 166) for the SSSI solution. Kliman assumes a simple case of purely labor-saving technological progress. He keeps inputs of constant capital and outputs identical in physical terms and cuts living labor to 4 and 8 hours in Branches I and II, respectively. Keeping the same wage rate of means of consumption per hour, Kliman cuts total wages to 5 units of means of consumption in Branch I and 10 units in Branch II. Input prices continue to equal $2 per unit of means of production and $0.8 per unit of means of consumption. The new scenario is illustrated in Table 2.
The overall rate of profit falls from 20 to 10.526 percent as productivity rises. The produced unit value of Commodity I falls from 0.6 hours in our first example to 0.5667 hours (68/120), and the produced unit value of Commodity II falls from 0.4 to 0.2667 hours (16/60). This should be no surprise, as we are using a concept of value based on human labor-time, its central feature is that it identifies total profit as equaling the total surplus-value extracted from living labor, which is halved in this example. Kliman points out how this result is not shared by the SSSI of Marx, for which the rate of profit rises from 20 to 23 percent through retroactively/simultaneously re-valuing inputs to the now-lower unit value of outputs (Kliman 2007, 165).
Total produced value now equals 84 hours with surplus-value equaling 8 hours, and total capital advanced equaling 72 hours of Commodity I and 4 hours of Commodity II, a total of 76 hours, ensuring that the overall produced value profit rate equals 8/76 = 10.526 percent. Prices for commodities I and II need to be set such as to ensure that both branches share this profit rate. We know that the total capital advanced for Commodity I in terms of labor-time is c = 64 plus v = 11/3, a total of 651/3, and for Commodity II, 102/3 (8 + 22/3). For Branch I to appropriate a 10.526 percent rate of profit, it must appropriate 651/3 × (1 + 8/76) = 72.21053 hours of value in terms of labor-time, so the unit price is 72.21053/120 = 0.60175 hours. Branch II must appropriate 102/3 × (1 + 8/76) = 11.78947 hours, so the unit price in labor-time equals 11.78947/60 = 0.19649 hours. So, to equalize profitability in terms of labor-time, Commodity I must be priced at 0.602/0.196 = 3.0625 (exactly) times Commodity II (working on the exact and not rounded up prices of I and II in labor-time). Any set of prices in money that maintain this proportion will equalize profitability across the two branches.
Furthermore, Kliman keeps the MELT constant at $3 per hour of labor-time so that input values and output values can be clearly compared in monetary terms without the distortion of a changing value of money. Given that the total produced value of output falls to 84 hours, the total price of output must be 3 × 84 = $252. Pricing Commodity I at 3 × 0.60175 = $1.805 ensures that Branch I appropriates 120 × $1.805 = $216.63, while Branch II appropriates $35.37 (3 × 0.19649 × 60), a total of $252.
Clearly, this is not the sequence of determination that we would imagine to occur in practice, rather it is the way we find appropriate prices, in order to clearly illustrate behavior in an abstract model focused on illuminating the TSSI of Marx's concept of value.
To further explore the concept of the MELT, I provide an appendix in which, first, I re-work the example in Table 2 with a variable MELT, while maintaining equalized profit rates. Second, to illustrate how robust (not dependent on assuming a state of equilibrium) the TSSI of Marx is, I re-work the example with a variable MELT and not perfectly equalized profit rates.
3. Sinha's Criticisms
Sinha's review begins with the following paragraph:
In the preface to this book, Andrew Kliman claims that his aim is "to reclaim Marx's Capital from the century-old myth of internal inconsistency." Then the reader is told that there exists a group of scholars who claim that no such internal inconsistency exists. And therefore, according to Kliman, "The very existence of the TSSI [such an interpretation, generally called the Temporal Single System Interpretation] carries with it two important consequences. First, the allegations of inconsistency are unproved. Second, they are implausible." Following such reasoning, one could then also argue that the existence of a group of scholars who argue that the theory of evolution is false and that creationism is consistent with empirical evidence, must lead us to reject the claims of evolutionism as unproved and implausible. The same must follow from the existence of a group of scientists who question greenhouse effects and global warming. This foreshadows the major weakness of this book: a lack of rigor in reasoning. (Sinha 2009, 422)
Sinha thus argues that Kliman's argument is not merely wrong but totally ridiculous-it ascribes to him the view that the TSSI of Marx is right because it exists, like creationist bible-bashers. However, this claim is based on a falsehood as can be seen from the full quote from Kliman (2007, viii), which Sinha has omitted (Sinha's own choice of quote is marked in italics):
As this book shows, Marx's theories need not be interpreted in a way that renders them internally inconsistent. An alternative interpretation developed during the last quarter-century-the temporal single-system interpretation (TSSI)-eliminates all of the apparent inconsistencies. The very existence of the TSSI carries with it two important consequences. First, the allegations of inconsistency are unproved. Second, they are implausible. When one interpretation makes the text make sense, while others fail to do so because they create avoidable inconsistencies within the text, it is not plausible that the latter interpretations are correct. Thus the charges of inconsistency, founded on these interpretations, are implausible as well. (Kliman 2007, viii)
We can now see how serious the misrepresentation of Kliman's actual position is. In the full quote, he argues that claims of inconsistency are unproved and implausible because the TSSI has demonstrated that if Marx is interpreted differently, the alleged inconsistencies disappear. This is not only a perfectly valid statement, it is almost self-evidently true. It is also established practice in the well-developed discipline of hermeneutics, as Kliman shows by several references to authoritative writings on textual interpretation. Hermeneutically, it is simply wrong to attribute a method to an author if it makes that author inconsistent, when a different method exists that does make that author consistent (Kliman 2007, Chapter 4). This is not at all a statement "lacking in rigor" but a highly rigorous deduction based on the highest known standards of judgment.
What is unacceptable is that Sinha makes his case by a distortion. He cherry picks Kliman's paragraph to deliberately make him appear to say something that anyone who reads the whole paragraph will see Kliman simply does not say. Moreover, this is not a casual mistake. Kliman had precisely commented on this point in a response to a draft of Sinha's review.6 Sinha's continued use of this quote cannot be read as other than an intentional attempt to mislead. It is unacceptable for two reasons. First, it is unscientific since it presents an argument based on a known and simple falsehood, and second, it is academically scurrilous because it is directly damaging to Kliman's professional reputation.7
Sinha then proceeds, after a discussion of Dmitriev's fully automated one-good model, to make the next false claim: that the point of Kliman (2007) is not, as Kliman claims, to reclaim Marx, but to reject simultaneous interpretations of Marx in favor of the TSSI of Marx:
The purpose of this book is not to "reclaim" Capital in all its aspects but rather to argue that the dominant interpretation of Marx's theory of value, which Kliman calls "simultaneist," is a misinterpretation and the so-called TSSI is the correct one. (Sinha 2009, 423)
But, the TSSI of Marx makes Marx's value theory consistent, whereas a simultaneous interpretation makes it inconsistent. Hence, the rejection of simultaneity in favor of the TSSI of Marx is precisely the same thing as the reclamation of the consistency of Marx's value theory.
Furthermore, as Steedman (1977) explained, when Marx's value theory is made simultaneous, it also becomes redundant. Value terms become perfectly proxied by real (physical) terms. To interpret Marx in such a way that value is an irreducible and independent variable (is not perfectly proxied by real/physical terms) is precisely, therefore, to reclaim the status of value in Marx's system and therefore to reclaim Marx. As Kliman notes,
I use the term physicalism as shorthand for Steedman's (1977: 72, 216-17) "physical quantities approach," a term he coined to designate his approach to questions of value, price, and profit. Steedman is a prominent Sraffian, but Sraffianism and physicalism are not synonymous. The latter term refers to any approach that draws conclusions about the workings of capitalist economies from models in which the sole proximate determinants of values, relative prices, profits, and the rate of profit are "physical quantities" or, more precisely, technology and real wages . . . Since input and output prices are constrained to be equal, they are solved for together (i.e., simultaneously) . . . Such models are also simultaneist in the sense that they determine prices and the rate of profit simultaneously, but this is simply a consequence of the simultaneous determination of input and output prices. Thus, although proponents of simultaneism (e.g. Sraffa 1960: 6) frequently claim that prices and the rate of profit must be determined simultaneously, they need not and cannot be so determined if input and output prices are permitted to differ. (Kliman 2007, 76-77)
Sinha then proceeds to ridicule the idea that Kliman has disproved the Okishio (1961) theorem, Sinha (2009) says, "Kliman . . . has no theory of prices. He simply takes arbitrary prices at two different periods and concludes: Voilà! I have proved Okishio wrong!" (424).
Incidentally, Sinha omits from referring to the several other disproofs of that theorem such as Freeman (1996). Needless to say, none of these disproofs have ever been refuted despite several claims that this will be done. So, if refuting the TSSI's disproof of Okishio is really as straightforward as Sinha asserts, one might have expected him to draw some attention to the lamentable failure of the rest of the Marxists to provide this simple refutation. But in fact in common with the remainder of the review, Sinha offers no successful refutation of the TSSI's disproof of Okishio at all. His "refutation" rests on a persistent theme of the review: that Kliman is wrong because he does not adopt the simultaneous method.
Let us recall the origins of the discussion. Okishio supposedly "proved" that labor-saving technological change increases the profit rate, invalidating Marx's (1981, Part 3) argument that there is a tendency for the rate of profit to fall. This critical issue is understated in Sinha (2009), but the most important consequence of reclaiming the consistency of Marx's value theory is the rediscovery that labor-saving technological change does indeed tend to reduce the profit rate. In the previous section, the examples from Kliman (2007) that I explored show this crucial result and thus disprove the Okishio theorem. In Table 2, which assumes that a labor-saving technology is introduced, the profit rate is lower than in Table 1. This is a completely unsurprising result given that we are employing a theory of value which bases its notion of profit on the surplus-value extracted from living labor-fewer workers, each working the same quantity of unpaid labor each period, implies that there is less total unpaid labor/profit.
"Physical" profit rates are not reported in Tables 1 and 2 precisely because outside of a one-good model, "real" terms depend on the relative price of goods (their physical exchange rates with each other). Hence, physicalist economists search for determinacy through creating "stable" simultaneous solutions to the transformation "problem" with equalized profit rates and outputs equal in unit value to inputs. To avoid these complexities, it is simplest to disprove the Okisho theorem in a one-commodity model (Potts 2009c). In the potentially identically repeating world of Table 1, with outputs equal in unit value to inputs, the "physical" profit rate equals the value profit rate at 20 percent. Once the unit value of outputs falls below the unit value of inputs in Table 2, due to labor-saving technological change, the value profit rate falls to 10.5 percent as "the" physical profit rate rises to 23.6 percent. Note that to calculate "this" physical profit rate, I use the end-of-period relative price of the two commodities to aggregate inputs of both commodities to a total physical level of inputs, and likewise aggregate outputs of both commodities to a total physical level of output. If I used the start-of-period relative price of the two commodities to aggregate both inputs and outputs, the rate would be different (26.3%), and different again if the start-of-period relative price was used to aggregate inputs and the end-of-period relative price was used to aggregate outputs (22.4%).
As Kliman (2007, Chapter 7) fully explores, a simultaneous approach simply ensures a physicalist approach to profit, so that, if technological change increases the physical surplus per unit of physical input, the profit rate in physical terms must rise. Sinha's desire to defend the Okishio theorem is again nothing more than a desire to defend a physical concept of value that Kliman (2007) precisely argues that Marx did not hold at all.
Sinha (2009, 424-25) now states he is turning to the question of the internal inconsistency of Marx's value theory, the precise issue of Kliman (2007) that Sinha (2009) in fact never addresses. More precisely, Sinha turns to creating confusion over the TSSI's concept, and use of, the MELT, so as to make the TSSI look trivial and inconsistent. Rather than acknowledging the ample explanation of different approaches to the transformation problem in Kliman (2007, Chapters 8 and 9), Sinha simply states that Marx's solution is incorrect. He writes,
The problem with Marx's solution is that it is predicated on the assumption that prices are determined by the labor theory of value. If this hypothesis is incorrect, as Marx agrees that it generally is, then his rate of profits would in general be an incorrect rate of profits and his solution for prices of production would also be incorrect. (Sinha 2009, 425)
Sinha's approach to the transformation problem simply follows Von Bortkiewicz's approach. The point of Kliman (2007) is to precisely escape this simultaneous and dualistic method that makes "Marx"s' value theory inconsistent. As Kliman (2007) explains, to reclaim the consistency of Marx's value theory, we must understand what sequentialism and non-dualism actually imply about how value is expressible in money or labor-time, with the appropriate MELT at that point in the sequence allowing conversion between monetary and labor-time expressions of value.
Instead of explaining what the sequential and non-dualistic nature of the TSSI actually is, Sinha just focuses on trying to show that the MELT is an arbitrary conversion factor. He says, "Let us leave the problem with MELT behind and go along with Kliman in assuming any arbitrary conversion factor he chooses" (Sinha 2009, 426).
However, in building up to this conclusion on MELT, Sinha gets the TSSI's sequence wrong; he writes,
Suppose that constant capital investment was $100 and the direct labor-time was 10 hours which produced an output that sold for $150; from this data we can compute that 10 hours of labor adds $50 of "new value" and therefore $1 must represent 0.2 hours of labor. From here we go back to the $100 capital investment, counted as 20 hours of labor and add 10 direct hours to it to arrive at 30 hours of labor: Kliman's measure of the value of the commodity produced. (Sinha 2009, 425)
The appropriate MELT to convert inputs' values from their monetary expression into labor-time is the MELT established at the end of the previous period, not the MELT established at the end of the current period. The process is simply not one in which "From here we go back" (Sinha 2009, 425). Furthermore, for the TSSI, MELT is not calculated by dividing the monetary expression of "new value" by total living labor worked in labor-time. As we pointed out earlier in this article, Kliman (2007) defines MELT as the "economy-wide ratio of the total money price of output to the total labor-time value of output" (39).
If you fail to explain what produced and appropriated values are, and do not understand how they and the MELT work sequentially together, then you do not understand the TSSI of Marx. Distorting the TSSI in order to "prove" that it is not what it claims to be is not valid criticism, nor is it serious engagement with the TSSI. But Sinha's incorrect application of the MELT and assertion that the MELT must just be assumed makes the TSSI seem arbitrary and trivial. Sinha (2009, 427) states that Kliman utterly fails to reclaim the consistency of Marx's theory of value, but here, we see that this conclusion is based on a completely inaccurate presentation of what he is supposedly criticizing. As I have explained, Kliman (2007) does lay out how the TSSI works and how the MELT is established. The magnitude of the MELT is not something that is merely assumed. The reason why Kliman usually holds the MELT constant in his examples is to simplify them, i.e., to help the reader actually understand what he is explaining.
Sinha (2009, 426-27) now considers the example from Kliman (2007, 163) that I fully explain and detail in Table 1. Sinha first considers the two commodities' produced values at the end of production. But he does not explain that the value that inputs transfer to these produced values is their appropriated values at the end of the previous period of production, or that the right MELT to convert these monetary expressions into labor-time is the MELT established at that time. Sinha actually miscalculates the produced value of the two commodities by double counting variable capital (the produced values should be 72 and 24 hours, respectively, not 74.66 and 29.33 hours). Although Sinha gets the overall profit rate right at 20 percent, he miscalculates the price of production of Commodity I (it should be 80 hours = 1.2 × 66.66, not 89.592 = 1.2 × 74.66). This is double double counting. He should be multiplying cost price, c + v, not the produced value c + v + s, which he has calculated as c + v + v + s anyway. After miscalculating the price of production of Commodity I in labor-time terms, when he now uses the end period MELT (not that this is explained) to convert this price of production to its monetary expression, this is wrong too (its $240 = 3 × 80, not $269.776, and 3 × 89.592 = $268.776 anyway).
Sinha does not explain how calculating prices of production in this way follows from the nature of the example, i.e., to equalize profitability while keeping the MELT constant for simplicity. Nor does he explain that for Kliman end-of-period MELT equals the total appropriated value of output in money terms, as revealed by price formation at the end of production, divided by the total produced value of that output in labor-time. Instead, Sinha criticizes Kliman for not specifying production techniques for the two commodities, leaving the reader to have to work out an input-output system, and to find that input prices are likely to be different to output prices; he writes,
Since Kliman does not specify the techniques in use for producing the two goods, the reader will have to work out an input-output system of her own to confirm that in this procedure, in all likelihood, input prices would be different from output prices if we start with any arbitrary input prices. (Sinha 2009, 426)
But as we have explained, the example is from Kliman (2007, Chapter 9), which uses a common scenario in physical terms to focus on how different concepts of value produce different results despite sharing the same physical scenario. Furthermore, when this scenario is changed to introduce technical change, Kliman (2007, 164-65) precisely says what these changes are.
Sinha now sets off on a very strange line of argument based on his idea that output prices must be different from input prices in this example, he says, "Since Kliman's output prices are different from the input prices" (Sinha 2009, 426).
But, as Table 1 shows, input and output prices are in fact equal. In any case, Sinha concludes that there must be something wrong with this example because of the (actually non-existent) difference in input and output prices that his own simple miscalculation has convinced him must exist, and recommends that we find an iterative solution to this (non-existent) problem. He thinks that the fact that a simultaneous solution to this problem would be the same as a TSSI solution in this special case is some sort of result; Sinha (2009) writes, "Interestingly those prices and rate of profits would be exactly the same if the two production equations were simultaneously solved for relative prices and the rate of profits" (426-27).
But Kliman (2007, 164) has constructed this example precisely so that the two solutions happen to be the same, i.e., in order to illustrate the SSSI as well as the TSSI. Kliman (2007, 164-65) then modifies his example to illustrate labor-saving technological change, as we explored and reported in Table 2. Following the TSSI, output prices now drop below input prices and the rate of profit in terms of value falls as profitability in physical terms rises. Kliman (2007, 166) presents the SSSI solution to this problem alongside the TSSI solution. The SSSI's simultaneous method of calculation produces different, but equal to each other, values for inputs and outputs than the TSSI solution, with the value profit rate rising with the physical profit rate (because it is always tied to the physical profit rate by this method of calculation). As soon as there is technological change, a simultaneous (or iterative) solution will not be the same as a TSSI solution. The TSSI produces a different result, not through mathematical error or failure to understand more "sophisticated" (simultaneous) methods, but simply because it is a different approach. Again, it appears that Sinha does not understand what he is attempting to criticize.
4. Conclusion
Personally, I don't think there is room for the far-too-often insulting tone of Sinha (2009) in academic debate. But leaving this aside, if Sinha had politely made the same points they would be just as baseless. Indeed, they would be more dangerous because they would sound more reasonable. Misrepresenting an economic approach in order to dismiss it is unscientific-no matter how politely you do it. Marx employed his concept of value to explain why the capitalist system is inherently unstable/self-defeating. The tendencies toward concentration of capital and, growing inequality, and the tendency for the profit rate to decline (and to be restored through crisis) are not "accidents" to be managed away by governments listening to wise simultaneous economists. Of course, Marx and the TSSI may be wrong about how capitalism works, but the point of Kliman (2007) is to move the argument forward from attributing false inconsistency to Marx to considering whether and how Marx's value theory may help us to understand capitalism.
As early as 1999, Kliman (2003) argued that governments' acceptance of escalating debt to try to hold up demand had maintained an unstable situation of inflationary stagnation/persistently low profitability since the 1970s (Kliman 2010; 2011). The economy failed to experience a crisis decisive enough to restore the profit rate. I have argued that Grossmann's ([1929] 1992) use of Marx's value theory to predict the Great Depression, identifying how low profitability in the late 1920s caused increasing speculative use of surplus capital, fits our current situation (Potts 2009a; 2009b; 2010a; 2010b; 2011a). Simultaneous Marxists (economists in general) should engage with the TSSI of Marx by attempting to prove that their own theories represent empirically superior explanations of events. Choosing misrepresentation over academic debate is unacceptable, especially in a time of crisis.
Appendix: Variable MELT
Table A1 illustrates the scenario we reported in Table 2, but through setting different prices at the end of production, $3.0625 for Commodity I and $1 for Commodity II, causes the MELT to rise. As we price Commodity I at 3.0625 times the price of Commodity II, profitability is still equalized, but appropriated and produced values in nominal money expression rise as prices rise, causing the MELT to rise from $3 to $5.089 per hour of labor-time. To compare inputs and outputs meaningfully, we must now focus on labor-time rather than the monetary expressions of value, through adjustment by the appropriate MELT (the MELT established at the end of production last period for inputs, and the MELT established at the end of production this period for outputs). We can now clearly see how Kliman's decision to hold the MELT constant did not drive the result of the scenario, rather it just made it more simple to record and read.
Finally, to illustrate how robust (not dependent on assuming a state of equilibrium) the TSSI of Marx is, let us set prices such that the MELT varies and profitability is not perfectly equalized, see Table A2. All values, which do not depend on the setting of price at the end of production, are unchanged from Tables 2 and A1. The value of inputs depends on the prices and the MELT established at the end of production last period. Produced values s, w, rp%, and the commodities' produced unit values are unchanged in labor-time terms as they are not determined by the formation of price at the end of production, whereas their monetary expressions do change as they depend on the formation of prices and thus the MELT at the end of production. All appropriated values (ppu, p, p, and rap%) in terms of money are revealed through and depend on price formation. Price formation determines the MELT at the end of production, and the determination of MELT allows appropriated values also to be expressed in terms of labor-time.
The prices we set do not equalize profitability. All appropriated values for each branch in Table A2 differ from those in Tables 2 and A1 in both monetary expression and labor-time terms. What is constant, however, is precisely Marx's three equalities, i.e., the aggregate situation.
Total profit is determined by total surplus-value extracted from labor in production. In terms of labor-time both equal 8 hours, with a monetary expression of MELT times these 8 hours, equal to $37.1. This is not the same as total appropriated profit in purely nominal terms, recorded under p in Table A2 (this is also true in Table A1 when MELT is again changing), which is $162, so given the total nominal value of advanced capital is $228, delivering an overall nominal appropriated rate of profit of 71.05 percent. But when we move from purely nominal terms through adjusting by the appropriate MELT (end last period for inputs and end this period for outputs), we uncover the "real" situation in terms of labor-time, which we can express in money at the end of the period by multiplying by the end period MELT.
The total price of output/capital continues to be determined by the total produced value of output/capital. In terms of money both equal $390, in labor-time both equal 84 hours.
The overall profit rate for the economy is determined in production, such that deviations of prices from produced values redistribute profit, but do not change the overall profit rate. The overall produced value and appropriated value profit rates equal 10.526 percent in labor-time terms or 71.05 percent in money terms. But what of the profit rate in real terms? The rate of 71.05 percent in nominal money terms is high because the value of money/MELT has changed, and to account for this "nominal inflation," we must appropriately adjust by the MELT to reveal value in terms of labor-time. For the value of money in terms of labor-time to remain constant, as produced values fall through technological progress, prices/appropriated values in terms of money must fall in pace with the rate of technological change.
Price formation transfers $14.3, or in labor-time 3.1 hours, of value from Branch II to Branch I. This brings the branches appropriated value profit rates (Branch I: 8.8% in labor-time and 68.4% in monetary expression, and Branch II: 21.2% in labor-time and 87.5% in monetary expression) closer together than their produced value profit rates (Branch I: 4.1% and 61.1%, and Branch II: 50% and 132.1%) but does not fully equalize them.
The consistency/usefulness of Marx's concept of value is not confined to balanced equilibrium situations. Yes, price determination at the end of production does determine appropriated values at the end of production, defining the value of inputs for the next period, but this does not make value indeterminate or redundant in any way. Profit rate equalization depends on dynamic processes that tend to occur in the capitalist economy, and as our concept of value must be able to function in such a dynamic situation-it can't rely on or work only for the abstract world of equilibrium.
Footnote
Notes
1. I am very grateful for the help I have received from both Andrew Kliman and Alan Freeman in writing this article. All errors remain my own.
2. The Temporal Single System Interpretation (TSSI) of Marx usually imagines for simplicity that production takes time while circulation between periods of production is instantaneous.
3. Note that Ramos-Martínez (2004) first introduced the concept of the monetary expression of labor-time (MELT).
4. Note that how we calculate the MELT depends on how we interpret Marx's theory of how commodities' values are determined. Potts (2011c) explains how Kliman's (1999, 105; 2007, 21) and Freeman's (1996, 255-56) interpretations differ. Kliman argues that the produced value of a commodity equals the total value of newly produced units of that commodity divided by the number of newly produced units. In contrast, Freeman argues the produced value of a commodity should also be influenced by existing unsold stocks of that commodity carried forward from previous periods (and thus for newly produced units of fixed capital by remaining units of fixed capital at the end of production). The produced value of a commodity equals the total value of newly produced output and other stocks of the commodity, divided by the total number of units of that commodity acting as capital. Kliman's interpretation ensures that the MELT equals the total monetary expression/price of output divided by the total produced value of this newly produced output. Freeman's interpretation ensures that the MELT equals the total monetary expression/price of capital divided by the total produced value of this capital. Since Kliman's interpretation implies that we need to re-value stocks to the unit value of newly produced output, the total price of capital divided by the total produced value of capital still equals his "output" calculation of the MELT. As Potts (2011c) argues, this difference does not represent a "problem," it rather indicates that the TSSI of Marx is an open and under-explored area of research. If we assume an absence of stocks or fixed capital, the numerical conclusions flowing from Freeman and Kliman's interpretations converge.
5. We should note that in this example, and all of the examples in Kliman (2007, Chapter 9), and for that matter Marx's (1981, Chapter 9) illustrations of the transformation process, the focus is on production, not circulation before or after production.
6. See the Review of Radical Political Economics letter website, http://iwgvt.org/rrpe/Extracts%20 from%20OPE.pdf.
7. Please see http://iwgvt.org/rrpe/Extracts%20from%20OPE.pdf, for the correspondence between Kliman and Sinha (sent by Paul Cockshott) on the draft review, in which Kliman informed Sinha of the misleading nature of and libelous charges contained in his review prior to the publication of the final review. In response to the deliberately misrepresentative nature of Sinha's review, I was one of 15 academics who sent a letter to the Review of Radical Political Economics asking for the review to be retracted in October 2010, see http://www.valuetheory.org/rrpe/index.html. In total, more than 40 people have publicly called for the retraction of Sinha's review. See additional statements at the bottom of the website: http://www.marxisthumanistinitiative.org/philosophy-organization/ condemn-libelous-attack-on-marx-scholar.html.
References
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AuthorAffiliation
Nick Potts is considered an international expert on Marx's value theory, acting as the specialist on value theory on the Capital & Class Editorial Board. He is interested in how to apply Marx's analysis of the inner workings of capitalism to the economic issues of today, which includes globalization, the environment, knowledge-based production, and understanding the current crisis. Nick was given the title of Professor of Economics, Southampton Solent University, UK, in April 2013. Email: Nick.Potts@Solent.ac.uk
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Copyright Pluto Journals Spring 2014
