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The Third Forum of the World Association for Political Economy (WAPE) Marxism and Sustainable Development May 24-25, 2008 at Langfang City, China Hosted by the Academy of Marxism, Chinese Academy of Social Sciences (CASS) The School of Economics and Management, Tsinghua University, and

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New aspects of the labor theory of value peter karl fleissner vienna austria http transform or at

The Third Forum of the World Association for Political Economy (WAPE)

Marxism and Sustainable Development

May 24-25, 2008 at Langfang City, China

Hosted by

the Academy of Marxism, Chinese Academy of Social Sciences (CASS) The School of Economics and Management, Tsinghua University, and

The U.S. journal Nature, Society, and Thought

New aspects of the labor theory of valuePeter Karl Fleissner, Vienna, Austriahttp://transform.or.at


Setting the stage basic terms in marxian political economics
Setting the stage: Economy (WAPE)Basic terms in Marxian Political Economics

  • commodity

  • value in use

  • value in exchange

  • (labor)value

  • constant capital

  • variable capital

  • surplus value

  • rate of surplus value/rate of exploitaiton

  • organic composition of capital

  • rate of profit


Two aspects of a commodity
two aspects of a commodity Economy (WAPE)

Aristotle (“De Rep.” l. i. c. 9, ~ 350 BC):

“The one is peculiar to the object as such, the other is not, as a sandal which may be worn, and is also exchangeable. Both are uses of the sandal, for even he who exchanges the sandal for the money or food he is in want of, makes use of the sandal as a sandal. But not in its natural way. For it has not been made for the sake of being exchanged”

Adam Smith (The Wealth of Nations, 1776):

“The word value, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called ‘value in use’; the other, ‘value in exchange.’”

Karl Marx (Das Kapital, Volume One, 1867)

The wealth of those societies in which the capitalist mode of production prevails, presents itself as ‘an immense accumulation of commodities,’ its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity.”


On commodities and markets
on commodities and markets Economy (WAPE)

  • A commodity is a product of human labour

    Since Aristotle we know that it has two essential properties (also Adam Smith and Karl Marx)

  • It has value in use

    Things or activities/services are useful for somebody for some reason

  • and value in exchange

    Things or activities have a value for others. They pay a price for it in the market.

  • In the market individual values are compared to each other -> market value is based on social necessary labor

  • If there is competition the market creates a tendency towards more efficiency


The composition of labor value w
the composition of labor value w Economy (WAPE)

new labor

(live

labor)

n

w =

c + n

pre-done labor

c


Labor value w and its composition
labor value w and its composition Economy (WAPE)

m

surplus value

(profit)

new labor

(live

labor)

n

w =

c + n =

c + v + m

variable

capital

(wages)

v

c

c

constant

capital

(fix and circulating

capital)

pre-done labor


New aspects
New aspects Economy (WAPE)

  • treating services as value consuming

  • joint geometric interpretation of prices, values and volumes

  • visualisations of the transformation of values into prices


Treating services as value consuming
treating services as value consuming Economy (WAPE)

  • there is an essential difference between goods (= material products) and services

  • nota bene: many environmentally relevant activities are services

  • services do not contribute to surplus product, nor to surplus value, they as such cannot be resold nor accumulated, because they disappear when they are produced and at the same time consumed

  • In „Das Kapital“, Vol I, Marx dealt only with material products where according to his labor theory of value (LTV) theprinciple of equivalenceholds.

  • principle of equivalence: goods are exchanged according to their total content of social labor

  • if service sectors are allowed to make profits(as it is the case under capitalism),the principle of equivalence is violated and LTV is no longer valid


How to determine labor values in a leontief economy mathematically
How to determine labor values Economy (WAPE)in a Leontief economy mathematically?

A... partitioned matrix of technical coefficients

C... partitioned matrix of unit consumption

n... partitioned row vector of unit live labor = { n1, n2 }

p... partitioned row vector of observed prices = { p1, p2 }

w... partitioned row vector of labor values = { w1, w2 }

pp... row vector of prices of production

I.... Identity matrix

A11, A12 C11, C12

A = {}, C = {}

A21, A22 C21, C22

all industries (classic) are value producers

w = n (I – A)-1

onlymaterial production is value producing (services at reproduction cost)

w* = { n1(I – A11)-1 , n1(I – A11)-1 (A12+C12) [I-(A22+C22)]-1}


The third forum of the world association for political economy wape
Empirical test: Economy (WAPE)Gross-output (P), labor values (W0) and prices of production (PP)Austria 2003: 57 industries (Mio EUR)

gross output P (observed)

labour values W0

prices of production PP


The third forum of the world association for political economy wape
Stucture of gross output (observed) Economy (WAPE)c - constant capital, v - variable capital, m - surplus valueAustria 2003: 57 industries (percent)

m

v

c


The third forum of the world association for political economy wape
Stucture of gross output (observed) Economy (WAPE) c - constant capital, v - variable capital, m - surplus valueAustria 2003: 57 industries (percent)

m

v

c


Three central marxian indicators
three central Marxian indicators Economy (WAPE)

rate of surplus value

= m / v

organic

composition

of capital

= v / (c + v)

profit rate

= m / (c + v)

profit rate

= rate of surplus value* organic

composition

= m / v * v / (c + v)

m

surplus value

(profit)

new labor

(live

labor)

n

variable

capital

(wages)

v

c

c

constant

capital

(fix and circulating

capital)

pre-done labor


The third forum of the world association for political economy wape
Marxian indicators Economy (WAPE)rate of surplus value, organic composition of capital, rate of profitAustria 2003: 57 industries (percent)

rate of profit

rate of surplus value

organic composition


The third forum of the world association for political economy wape

Stucture of labor values Economy (WAPE)no surplus for services, variable exploitation rates c - constant capital, v - variable capital, m - surplus valueAustria 2003: 57 industries (percent)

m

m

v

v

c

c


The third forum of the world association for political economy wape

Structure of labor values Economy (WAPE)no surplus for services, equal exploitation rates c - constant capital, v - variable capital, m - surplus valueAustria 2003: 57 industries (percent)

m

v

c


The third forum of the world association for political economy wape
Marxian indicators Economy (WAPE)exploitation rates (equal), organic composition of capital, rate of profitAustria 2003: 57 industries (in percent)

rate of profit

rate of surplus value

organic composition


The third forum of the world association for political economy wape

Structure of labor values Economy (WAPE)all industries are value producers c - constant capital, v - variable capital, m - surplus valueAustria 2003: 57 industries (percent)

m

v

c


Joint geometric interpretation of prices values and volumes
joint geometric interpretation of prices, values and volumes Economy (WAPE)

More variables

S... partitioned matrix of surplus product

R... partitioned reproduction matrix, R = A + C

x... column vector of physical output

r... rate of profit

g... rate of growth

pp... row vector of prices of production

i...... index of iteration (i=1,2,...)

S11, S12

S = {}

S21, S22


The third forum of the world association for political economy wape

x Economy (WAPE)

pS

Sx

p

pC

Cx

pR

Ax

Rx

pA

O

O

Dual decomposition of output x (left) and unit prices p (right)Ax + Cx + Sx = x = pA + pC + pS = p == Rx + Sx = x = pR + pS = p


The third forum of the world association for political economy wape

Dual decomposition of Economy (WAPE)output x (left) for equilibrium growth and for unit prices of production p (right)x = Rx (1 + g) = p = pR (1 + r) = = Rx + g Rx = Rx + SxpR + r pR = pR + pS

x

p

Sx

pS

Cx

Ax

Rx

pR

pC

pA

O

O


The third forum of the world association for political economy wape

Dual decomposition of turnover w Economy (WAPE)“w” = pdiag(x) or “w” = diag(p)x “w” = “c” + “v” + “m”, r = g w = pAdiag(x) + pCdiag(x) + pSdiag(x) w’ = diag(p)Ax + diag(p)Cx + diag(p)Sx

„m“=pSdiag(x)

„w“ = pdiag(x) = diag(p)x

diag(p)Sx

„v“=pCdiag(x)

pRdiag(x)

diag(p)Rx

diag(p)Cx

„c“=pAdiag(x)

diag(p)Ax

O


Transformation of labor values into prices transformation problem
transformation of labor values into prices (transformation problem)

Marx‘ solution

pp(0) = w or w*

pp(1) = pp(0) R [1 + r(i)]

1 + r(i) = pp(i) x / [pp(i) R x]

Difficulty: input prices ≠ output prices

von Bortkiewicz solution

two identical solutions

a) Eigenvector solution: pp ... left-hand Eigenvector of R

pp R (1 + r) = pp, largest eigenvector of R: λ=1/(1+r)

b) iterative solution: i -> ∞

pp = pp(∞)

pp(i) = pp(i-1) R [1 + r(i-1)], 1 + r(i) = pp(i) x / [pp(i) R x]


Visual representations of the transformation of labor values into prices of production
visual representations problem)of thetransformation of labor values into prices of production


The third forum of the world association for political economy wape

Stucture of labor values problem)no surplus for services, variable exploitation rates c - constant capital, v - variable capital, m - surplus valueAustria 2003: 57 industries (percent)

m

m

v

v

c

c


The third forum of the world association for political economy wape
Marx‘ solution: Prices of production problem)c - constant capital, v - variable capital, m - surplus valueAustria 2003: 57 industries (percent)

m

v

c


The third forum of the world association for political economy wape
von Bortkiewicz: Prices of production problem)c - constant capital, v - variable capital, m - surplus valueAustria 2003: 57 industries (percent)

m

v

c


Transformation problem iterative solution

Video problem)

Transformation problem iterative solution


Geometric interpretation of input output indicators

3 problem)

x

w

p

pp, prices of production

2

O

1

Geometric interpretationof input-output indicators

hyperplane of all possible non-negative price systems

p x = const

value of total turnover is invariant


Hyperplane austria 3 sectors

Video problem)

hyperplane (Austria: 3 sectors)


The third forum of the world association for political economy wape

set of all feasible prices – corresponding to fixed surplus product, but variable distribution of profits: subset of hyperplane px = const (Austria: 3 sectors)


Prices and labor values hyperplane px const
Prices and labor values surplus product, but variable distribution of profits: subset of hyperplane px = const (Austria: 3 sectors)(hyperplane px = const)

: von Bortkiewicz‘ solution of the

transformation problem

Marx‘ solution of the

transformation problem


The third forum of the world association for political economy wape

Thank you surplus product, but variable distribution of profits: subset of hyperplane px = const (Austria: 3 sectors)

for your attention!

E-mail: fleissner@transform.or.at

Homepagehttp://members.chello.at/gre/fleissner

Homepage transform!at: http://transform.or.at