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But the inputs remained in value terms.

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Marx was a victim of his own mathematical naivety. Von Bortkiewicz, incidentally, was a friend of Walras.


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Desai agrees with von Bortkiewicz. Von Bortkiewicz could help Marx in his naivety! He was a pioneer of a new approach that treated the economy as a set of simultaneous equations input-output tables where inputs and outputs could be solved mathematically.

Marx's Vision of Communism (continued) | Mises Institute

All you needed was an equal number of equations and unknowns. These economists often set up their simultaneous equations simulating the inputs and outputs of the economy in terms of a corn model. From a materialist view either values or surplus value was being conjured out of the ether or made to disappear by our mathematical magicians.

This opened the way to the notion of profit as a mark-up or result of swindling that we reject when we conceive of capitalism as a system based on exploitation of the working class. Von Bortkiewicz was followed by generations of mathematically sophisticated economists who developed input-output models of the economy. In particular Piero Sraffa produced a slim book in Production of Commodities by means of Commodities that spawned a whole industry of Marx-refutations.

Sraffa had actually edited the collected works of David Ricardo, the illustrious classical economist and predecessor of Marx. The Marxists labelled his school as post-Ricardian.

Class 01 Reading Marx's Capital Vol I with David Harvey

This trend reached its peak in the book Marx after Sraffa by Steedman in Why not just deal with the relationship between inputs and outputs to work out the surplus generated in the economy? Then slap on class struggle to work out the distribution of the surplus between workers and capitalists.

Nobody can object to economists like Steedman following this procedure.

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What we can object to is his passing this off as a critique of Marxism. It is no more a critique of Marxism than it is a critique of egg mayonnaise or ballroom dancing. It is just nothing to do with egg mayonnaise, ballroom dancing or Marxist economics. Steedman certainly generated some funny results.

Marxists nevertheless may find themselves intimidated by economists like Steedman. He produces a weighty book almost entirely made up of algebra which purports to refute Marxism. Ever since we have been challenged to spot the logical flaw in the procedure of von Bortkiewicz and his successors. Of course, there is no logical flaw — given their initial premise. The whole method and starting point of the critics of Marx are wrong. The entire approach of input-output analysis is predicated on the economy clicking instantaneously into equilibrium states.

All the algebra does is to follow through the equilibrium and market clearing assumptions of the model and come to the conclusion that the results will differ from those of Marxist analysis. What a surprise! Conventional neoclassical theory postulates a universal principle of diminishing returns to a factor. If more capital is thrown at production, we expect its marginal productivity and hence the return the rate of interest to fall.

But how do you measure the quantity of capital? Capital goods are naturally heterogenous. How can one compare a fork lift truck to a turret lathe or a bank of PCs in an office? The only thing they have in common is they can all be had for money. How much money? How do we value capital? By its return. And how do we calculate its return? We calculate it by the quantity of capital deployed. It has to be said that Sraffa and his disciples delivered blows against orthodox neoclassical economics, in particular their capital theory.


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So basically neoclassical economics derives the price of capital from the rate of profit or the rate of interest as they usually call it and the rate of profit from the price of capital. In the post-Ricardian view the return on capital depends in part on the class struggle, which determines the distribution of income between wages and profits. The distribution of income, in turn, determines the return on capital. We do not have space to deal fully with the Cambridge capital controversy, as it does not directly impinge on the assault on Marxism. Suffice it to say that Samuelson, a defender of the prevailing orthodoxy, was forced into unconditional surrender A summing up.

Of course this does not prevent colleges and universities all over the world from dinning this discredited theory into the heads of unfortunate economics students. Joan Robinson was also anxious to turn the debate into a wholesale assault on the notion of equilibrium see the section on Equilibrium. What is the Marxist position on the evaluation of capital goods? We believe that capital goods have a value proportionate to the labour time congealed within them just like consumer goods.

We agree that individual capitalists have no interest in or understanding of the labour theory of value. This is still more the case when, in the overwhelming majority of cases, ownership of the means of production exists through share ownership. This gives rise to the phenomenon of fictitious capital, valueless pieces of paper that nevertheless entitle their owner to a share in surplus value.

George Bernard Shaw wrote a letter to The Times criticising the bourgeois economist Mallock in these terms. Marx realised the whole notion of factors of production was devised to invent a justification for the reward to capital. Geoffrey Harcourt was the original chronicler of the debate in Some Cambridge Controversies in the Theory of Capital , ]. How can Marx be defended from his schoolboy mistakes in not transforming inputs?

Marx was not a prophet. He was first of all a revolutionary.

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All revolutionaries make mistakes. If Marx was mistaken, we should admit it now. But, in any case, if we admit his procedure was wrong, what conclusions should we draw? It is worth repeating the words of the young Marxist Hilferding in his reply to Bohm Bawerk. In striking contrast with Bohm-Bawerk, Marx looks upon the law of value not as the means for ascertaining prices, but as the means for discovering the laws of motion of capitalist society.

The entire approach of input-output analysis is predicated on the economy clicking instantaneously into equilibrium states. All the algebra does is to follow through the equilibrium and market clearing assumptions of the model and come to the conclusion that the results will differ from those of Marxist analysis. What a surprise! Conventional neoclassical theory postulates a universal principle of diminishing returns to a factor. If more capital is thrown at production, we expect its marginal productivity and hence the return the rate of interest to fall.

But how do you measure the quantity of capital? Capital goods are naturally heterogenous. How can one compare a fork lift truck to a turret lathe or a bank of PCs in an office? The only thing they have in common is they can all be had for money. How much money? How do we value capital? By its return. And how do we calculate its return? We calculate it by the quantity of capital deployed. It has to be said that Sraffa and his disciples delivered blows against orthodox neoclassical economics, in particular their capital theory.

So basically neoclassical economics derives the price of capital from the rate of profit or the rate of interest as they usually call it and the rate of profit from the price of capital. In the post-Ricardian view the return on capital depends in part on the class struggle, which determines the distribution of income between wages and profits.


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The distribution of income, in turn, determines the return on capital. We do not have space to deal fully with the Cambridge capital controversy, as it does not directly impinge on the assault on Marxism. Suffice it to say that Samuelson, a defender of the prevailing orthodoxy, was forced into unconditional surrender A summing up.

Marxian economics

Of course this does not prevent colleges and universities all over the world from dinning this discredited theory into the heads of unfortunate economics students. Joan Robinson was also anxious to turn the debate into a wholesale assault on the notion of equilibrium see the section on Equilibrium. What is the Marxist position on the evaluation of capital goods? We believe that capital goods have a value proportionate to the labour time congealed within them just like consumer goods.

A History of Marxian Economics

We agree that individual capitalists have no interest in or understanding of the labour theory of value. This is still more the case when, in the overwhelming majority of cases, ownership of the means of production exists through share ownership. This gives rise to the phenomenon of fictitious capital, valueless pieces of paper that nevertheless entitle their owner to a share in surplus value.

George Bernard Shaw wrote a letter to The Times criticising the bourgeois economist Mallock in these terms. Marx realised the whole notion of factors of production was devised to invent a justification for the reward to capital. Geoffrey Harcourt was the original chronicler of the debate in Some Cambridge Controversies in the Theory of Capital , ]. How can Marx be defended from his schoolboy mistakes in not transforming inputs?

Marx was not a prophet. He was first of all a revolutionary. All revolutionaries make mistakes. If Marx was mistaken, we should admit it now. But, in any case, if we admit his procedure was wrong, what conclusions should we draw? It is worth repeating the words of the young Marxist Hilferding in his reply to Bohm Bawerk. In striking contrast with Bohm-Bawerk, Marx looks upon the law of value not as the means for ascertaining prices, but as the means for discovering the laws of motion of capitalist society.

Experience teaches us that the absolute height of prices is the starting point of this movement, but for the rest the absolute height of prices remains a matter of secondary importance, and we are concerned merely with studying the law of their variation. As if young people who were drawn into socialist politics because capitalism produces mass unemployment, poverty and war should accept the system because Marx made a mistake in some manuscripts he wrote over a hundred years ago! This is not only ridiculous in itself, it shows a basic lack of understanding as to what Marx was about.

As we demonstrate below, a doubling of productivity means a worker is capable of producing twice as many use values as before. But the worker adds the same value, worked up into twice as many commodities. The value and hence the price of the commodities will fall. This is what is happening now to computer memory. This is what happened a hundred years ago when Henry Ford and other pioneers turned car manufacture from a handicraft process for luxury goods to mass production for a mass market and reduced the value and price of an auto accordingly.

This is how capitalism constantly revolutionises the production process. But what is Desai trying to prove about innovations? Marx does not ignore this - he is the economist above all others who emphasises this as the life process of capitalism. If Desai means we should reward the innovator, then how? Under capitalism intellectual property is one of the most important property rights going.

Contrary to legend, Bill Gates did not invent most of the innovations associated with Microsoft. He bought them. Should he be rewarded for being richer than the inventors? That seems perverse. Maybe he was just craftier than the people he negotiated with? Meghnad should give up trying to assess the distribution of income under capitalism from some notion of fairness. There is no fairness under capitalism.

Hodgskin was a diamond geezer and that was a fine slogan in its time he was probably a syndicalist rather than a socialist but his ideas are no longer an influence on those striving to change society. We dealt earlier with general equilibrium theory, and the occult optimising significance of equilibrium. Marx, on the other hand, regarded equilibrium at most as a moment of becoming as an inherently dynamic system lurched from one non-equilibrium position to another.

Meghnad seems to be unaware that a substantial group of Marxist economists working in academia have taken a stand against the tendency to assimilate Marx into orthodox economics. What does this mean? This is the first conclusion that can be drawn from this book. He saw economic processes taking place in real time. Contents Pages v-viii. Acknowledgements Howard, M. Pages ix-x.

Get Access to Full Text. Introduction Pages xi-xvi. Marxian Economics and the Great Depression Pages The Political Economy of Stalin Pages The Soviet Mode of Production Pages Marx and Keynes Pages Monopoly Capital Pages The Falling Rate of Profit Pages The Permanent Arms Economy Pages