Sraffa after Stone

Marx@200: Value, Competition and Exploitation. Marx's Legacy Reconsidered. Joint work with Roberto Veneziani, Jonathon Cogliano, Reiner Franke and Nils Fröhlich. Edward Elgar, 2018 

As Heuss Professor at the New School University, NY, I used in the discussion of my Heuss lecture the sentence:"I am not interested in what Marx really meant, but only interested  in what we can use him for today" (with very limited applause, if I remember correctly). The book is therefore not a contribution to the Histöry of Economic Thought as such, but reconsiders Classical Economics from a model  building and empirical perspective.  It then builds Marx's Labor Theory of Value (LTV) directly on Nobel Laureate Richard Stone's United Nations  SNA (1968, not its deformation in its revision in 1990) and its very general measure of total labor costs, based of his "industry technology assumption" (the sales value method in business administration for disentangling proper  joint products). We demonstrate in the book the empirical validity of the Theory of Exploitation of Marx's Capital Vol. I, if a minor -- or at least invisible -- and for Marx's purposes irrelevant "Marxian" Uncertainty Relation” between his and the general actual price rate of profit is taken into account (where an abstract mathematical proof  should be an easy task for any reasonable deviation between labor values and actual prices). We prove among others as basis for Marx's sources of exploitation in production, the "Law of Falling Labor Content" under capital-using, labor-saving profitable technical change, and this in the general framework once attacked in Steedman's book: "Marx after Sraffa". "Steedman after Stone", the implicit message of our book, shows that his critique of Marx was completely beside the point and that the so-called "Transformation Problem" between the average value and actual price rate of profit resembles the "squaring of the circle" and should be wrenched from the hands of various Marx interpreters and brought into the British Museum now (there  are no "invariance principles" in the social sciences). More than 100 years of its defense were therefore by and large just a waste of time by so-called Marxists -- Marx denied in a letter to Engels to be of this type -- as well as by many Marxian Economists, John Roemer being one of the rare exceptions, due to his significant contributions to "Analytical Marxian Economics", though he considered these  topics as outdated the last time I had the pleasure to meet him in NY in 2006  -- but can a proven theorem become  outdated, unless it becomes dominated by a more general approach? A System of National Accounts is a theoretical construction of "real concepts", definitions in fact (leaving Marx's abstract labor motivation of LVs  to the philosophers), behind the nominal magnitudes we actually observe; a System we more or less accurately teach in any undergraduate course, for which a transformation back into the sphere of actual prices is a meaningless task. The only alternative to the need for an SNA is the statement: There is nothing "real" behind the nominal, certainly a view not shared by too many empirically  working economists! The second part of the book therefore shows that the labor value accounting results of Marx's Capital, Volume I are of relevance for the surface of actual price-quantity movements, in particular as far as the understanding of exploitation, the implications of technical change and the dynamics  of profitability are concerned, where no tendency to a uniform rate of profit is needed or actually observed. 


Research Proposal: Considering general price theories in more depth,

It is my experience that most top researches with a broader view will agree that Walrasian general equilibrium is clearly out of this world. Moreover, the discussion  of prices of production in Ricardo  (the best general price theory existing at Marx's time) is from today's perspective (though globally asymptotically stable under cross-dual Walrasian tatonnement if derivative control is added to the proportional one, see this book) of a completely academic nature, where the empiricism of our book indicates its blindness and earlier theoretical work of mine its emptiness -- when compared to the many market forms we have in reality, with several stages in the manufacturing sectors, various types of service sectors, including social services,  and now also the digital sectors. There is no general price theory whatsoever, but only a chaotic mixture of market forms,  with no tendency for equalizing profit rates -- between for example Microsoft and the production of bananas. Despite all this we also will formulate a price theory for a whole economy by making use of Kalecki’s markup pricing on the level of input-output tables, a price theory only applicable in its specific formulation if supported by empirical analysis. Note that IOT never can provide technological data – due to their limited size – but are based on real coefficients only and constant price aggregates as in Stone’s SNA. Accordingly we only search for the dominant pricing approach among the firms of each sector behind the columns of the IOT. We assume that the price leaders of each IO-sector prefer a simple method for determining their baseline supply prices and start here in a very simple way. Assume that they only use as cost basis circulatng capital, materials (and capital consumed) and wage labor, and put their markup on unit- wage costs solely. This is a nice case to start with, since it implies that 1+the markup can be directly applied to Marxian labor values in order to get the prices here under consideration. The question then is how good this pricing approach is when measured empirically. Do these markups move prociclically or-anticyclical , do they to some extent measure the degree of monopoly of the corresponding sector and more? If they show empirically strange behavior then the markup basis must be changed in order to get a better match. But in any case this price theory is based on differing markups or degrees of monopoly – to be estimated and not on a unique principle, be it price-taking firms or a uniform profit for all sectors observed. If the matrix of intermediate inputs is indecomposable then decreases in labor values, in reciprocal form Stone’s measure of labor productivity, will decrease all prices for given markups, due to increases in labor productivity. A more detailed approach to markup pricing is given in Kalecki’s essay, “Cost and prices”, there however on the level of firms and not for the highly aggregated sectoral representations of IOTs. Kalecki also distinguishes manufacturing from agriculture and uses markups on prime cost only in the first case. The type of price theory we are proposing – with differing fairly persistent markups across industries – also shows that actual price indices suffice to measure the Marxian Uncertainty Relation (MUR), instead of measuring markups first. Having no longer a uniform rate of profit assumed, removes the Classical illusion of any easy mathematical reallocation of Marxian LV profits into the ones of such a price system by postulating an arbitrary invariance principle. Price theory is determining from the theoretical as well as the empirical perspective how its total profits (including the MUR) are distributed between capitalists, and this is to be considered after the basic principles of the generation of profits in the sphere of production are determined as in our book -- by way of Marx’s and Stone’s investigation in terms of total labor costs and its inverse: labor productivity.  


Peter Flaschel 

(not necessarily of course the opinion of my very valued and truly independently thinking rigorous co-researchers in this Marx@200 book -- which therefore is the result of various reflections on the usefulness of the LTV).  

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