Front. Econ. China 2010, 5(4): 657676 DOI 10.

1007/s11459-010-0118-9

RESEARCH ARTICLE

Jie Meng

Labor Theory of Value and the Uncertainty in Capitalist Economy

Higher Education Press and Springer-Verlag 2010

Abstract This article aims to offer a reply to Steedmans critique of Marxs labor theory of value. Although this critique having been there for about three decades, the anti-critiques from Marxists are up to date flawed with fatal limitation, losing sight of an important dimension of labor theory of value, i.e., without taking it as a theoretical tool of understanding the uncertainty rooted in capitalist mode of production. The first part of this article reviews the controversy initiated by Steedman. Part 2 discusses Marxs dual theory of market value and Rubins interpretation. Our view is that, if Rubins interpretation is accepted, a refutation of Steedmans critique towards Marx will be impossible. Part 3 of this article explores the possible reconstruction of market value in the perspective of the dynamics in the pivoting of market value. We concludes that, the relationship between the standard condition of production and value is not, as argued by Steedman, of deterministic and one-directional character. For Marx, labor theory of value is applied to analyze the uncertain relation between the means and the end, the condition and the result of capitalist production. Meanwhile, another reply is attempted towards the negative comment on labor theory of value made by contemporary evolutionary economist such as Hodgson. In our view, Marxs labor theory of value is not irrelevant as claimed by Hodgson to the main topics of evolutionary economics such as variety and natural selection. It is through labor theory of value that Marx explains the co-evolution of technology and economy. Keywords uncertainty, labor theory of value, Rubin, Steedman B24, D46

JEL Classification
Received July 25, 2009

Jie Meng ( ) School of Economics, Renmin University of China, Beijing 100872, China E-mail: mengjie@ruc.edu.cn

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Reviewing the Controversy Initiated by Steedman

The past 20th century has witnessed two controversies over the so-called transformation problem. The first one was invoked by von Bortkiewitz. For him, the transformation from value to prices of production in Capital is incomplete. What needs to be transformed is not only output, the value of input needs to be transformed as well. It is noteworthy that von Bortkiewitz based his solution on a value system, in other words, labor theory of value for him is still a tacit assumption. In 1970s, following the suit of Sraffian ideas, Steedman raises a more subversive critique towards labor theory of value. Interestingly enough, he bases his critique on a word of Marx. In vol. 1 of Capital, Marx (1990a, p.129) defines socially necessary time which determines value magnitude in this way: socially necessary labor-time is the labor-time required to produce any use-value under the conditions of production norm for a given society and with the average degree of skill and intensity of labor prevalent in that society. According to Steedmans interpretation of this sentence, the value system from which the so-called transformation begins is determined by the standard production conditions in a given economy. Assuming a set of the physical production data, one can have the corresponding magnitudes of value. On the other hand, in terms of Sraffian theory, given a set of production conditions and real wage rates, one can also have a set of prices of production. Therefore, in the eyes of Steedman, it seems unnecessary for Marx to construct a value system on the basis of a set of standard conditions of production and real wage rates, and then to transform the value system into a system of prices of production. In Steedmans (1981, p. 14, p. 57) words, the transformation problem is a pseudo-problem, a chimera; since Marxs various labor-time magnitudes are entirely derivative of the physically specified real wages and production conditions, these latter physical quantities being fully adequate to the determination of the profit rate and the prices of production, it follows at once that the labor-time magnitudes are of no significance for that determination. Steedmans critique has made a huge impact upon the development of Marxist economics in the West. Many Marxists stand out to criticize Steedman, but at the same time accept his theoretical assumption, i.e., to interpret the relationship between the physical production data and the magnitudes of value in a deterministic and one-directional way, as a result leaving these critiques confined in charging that without labor theory of value, the characteristics of capitalist exploitation could not be fully grasped. In our view, If Steedmans interpretation of the relationship between physical production data and the magnitude of value were confirmed, all of his fundamental conclusions will be impossibly rejected. To refute Steedmans critique upon labor theory of value requires us to

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re-interpret the relationship between the physical data of production and magnitude of value in a way different from Steedmans. We would like to sum up the main conclusion of this article in advance: The standard condition of production as an economic concept cannot be understood without the help of the concept of value. The significance of value in Marxist economics lies in the fact that it is an indispensable theoretical tool for understanding what the standard conditions of production are. Similar points of view have ever been proposed by Shaikh, who remarks: what then determines this physical production data? For Marx, the answer is clear: it is the labor process. It is human productive activity, the actual performance of labor, which transforms inputs into outputs, and it is only when this labor is successful that we have any physical production data at all. Moreover, if the labor process is a process of producing commodities, then it is one in which value is materialized in the use-forms of materialized value, and we can then say that in the real process, it is values which determines the physical production data (Shaikh, 1982, pp. 7172). It is a pity that Shaikh seems not to realize that it is still needed to reconstruct Marxs theory of market value in order to substantiate the above insights. In this article, we would like to set this as our main task.

2
2.1

Interpretations on Marxs Theory of Market Value

Marxs Dual Theories of Market Value

There are at least two theories of market value in Capital, especially in chapter 10, vol. 3. The first theory can be identified as the theory of market value determined by the standard conditions of production. For example, as Marx (1990c, p. 279) says, Market value is to be viewed on the one hand as the average value of the commodities produced in a particular sphere, and on the other hand as the individual value of commodities produced under average conditions in the sphere in question, and forming the great mass of its commodities. These words apparently conform to the definition of the socially necessary labor-time in the beginning of vol. 1. According to which, the demand and supply condition do not play any significant role in determining market value of commodities, rather merely making market prices fluctuating around market value. The second theory can be termed the theory of market value determined by demand and supply conditions. According to which, the determination of market value directly associates with changes of demand and supply of commodities. Marx already expresses this idea in chapter 3, vol. 1 of Capital, when he discusses W-G-W, the metamorphosis of commodities. The second theory is

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finally elaborated in vol. 3 of Capital, especially in the chapters of ground-rent, where Marx comes up with the well-known concept of socially necessary labor-time in its second meaning. There exist apparent differences, even contradictions, between the dual theories of market value. The lack of proper reconciliation of contradictions between the two theories bears the seed for the long lasting controversies thereafter. The earliest controversy, reflected in the book of the former Soviet Union economist Rubin, took place in Germany and Soviet Union of 1920s. As Rubin (1928, p. 185) summarized, Proponents of the so-called economic concept of socially necessary labor say, the value of commodities does not only depend on the productivity of labor (which expresses that quantity of labor necessary for the production of commodities under given, average technical conditions), but also on the volume of social needs or demand. Opponents of this conception object that changes in demand which are not accompanied by changes in productivities of labor and in production technique bring about only temporary deviations of market prices from market values, but not long-run, permanent changes in average prices, i.e., they do not bring about changes in value itself. Since then, the above two opposite attitudes persist among Marxists, with the opponent view of the economic concept of socially necessary labor-time being traditionally much more influential. Itoh (1980, p. 84) once commented upon the reasons of the phenomena: If the ratio of demand to supply determines the level of market value, it may obscure the determination of value by the quantity of abstract labor embodied in the production of commodities, and it may resemble the marginalist demand and supply theory of price. In order to avoid such a position, the majority of Marxists have traditionally preferred Marxs first definition of market value and interpreted the market value as determined by the average labor time technically necessary for the production of a commodity. Steedmans critique is just based on the first definition of market value. That is to say, given the level of productive forces in a branch, the market value of commodities it produces is calculable. Although Marx leaves us many remarks on the second theory of market value (in the following text, the second theory of market value is used in the same sense with the economic concept of market value), he develops theory of market value mainly in the direction of the first theory in chapter 10, vol. 3 of Capital. For the sake of analytical convenience, he clarifies enterprises in a branch into three categories, i.e., the enterprises with best production conditions, the enterprises with average production conditions, and the enterprises with worst production conditions. Which kind of conditions of production will play the role of determining market value depends on the proportionality of the quantities produced under all three conditions respectively, and depends, in a sense, on the ratio of supply to demand. For example, if output produced under

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the best condition of production account for the majority of output, market value will be regulated by this kind of enterprises. If not, i.e., if the enterprises with average or inferior conditions of production turn out to regulate market value, the enterprises with superior conditions will have extra-profit, and in turn expand their output, as a result bring about glut in a given branch, which will impact upon market price and make it conform to market value of the enterprises with higher productivity, and vice versa. Rubin, and later Rosdolsky, maintain that Marxs theory of market value be interpreted in this way. As Rosdolsky (1977, pp. 9293) says, according to Marxs conception, market value can only move within the limits set by the conditions of production (and consequently by the individual value) of one of the three categories. Thus, if as a consequence of the market situation, the mass of commodities is sold above the individual value of the commodities produced under the worst condition, or alternatively the individual value of those produced under the best condition, the market price would indeed diverge from the market value. According to this interpretation, demand and supplys impact on market value is confined within certain limits, i.e., demand and supply only bring about fluctuation of market value within the limits between the best and the worst conditions of production. Beyond these limits, demand and supply would only cause deviation of market prices from market value. This deviation results from excess-supply or excess-demand, while the determination of market value presupposes normal condition of demand and supply, or market equilibrium with one of above three conditions of production as the prevailing one in a branch. For Rubin, Marx strictly distinguished the following two cases, i.e., the first case when market value is determined by the expenditures in enterprises with high productivity due to the fact that the greatest quantity of commodities is produced in these enterprises, from cases when market value is normally determined by average value, but because of over-supply, the market price is lower than (in Rubins book, it reads higher, which should be a wrong print) the market value and is determined by expenditures in enterprises with high productivity. In the first case the sale of goods according to labor expenditures in enterprises with high productivity signifies a normal state of affairs on the market and there is equilibrium between the given branch of production and other branches. In the second case the sale of commodities according to the same expenditures is caused by an abnormal oversupply on the market, and unavoidably causes a contraction production in the given branch, i.e., it signifies an absence of equilibrium among the individual branches. In the first case, commodities are sold according to their market values. In the second case, the price of commodities deviates from market values determined by socially necessary labor (Rubin, 1928, p.182).

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Therefore, it seems to Rubin that the determination of the market value always associates with the equilibrium of reproduction. As he writes, Market value corresponds to the theoretically defined state of equilibrium among different branches of production. If commodities are sold according to market values, then the state of equilibrium is maintained, i.e. the production of a given branch does not expand or contract at the expense of other branches. Equilibrium among different branches of production, the correspondence of social production with social needs, and the coincidence of market prices with market valuesall these factors are closely inter-related and concomitant (Rubin, 1928, p.178). 2.2 Rubins Critique of the Economic Concept of Market Value

Rubin defines the second theory of market value as the economic concept of market value, and develops a detailed critique towards it. Regarding that the second theory hinges upon the role of demand, He attempts to reconstruct this concept, viewing demand as merely dependent on the value of commodity. In chapter 10, vol. 3 of Capital, Marx ever mentions that demand is a function of price of commodity itself, or inversely proportional to the change of price. Rubin further discusses this point, and argues, Demand is a quantity which is determined only for a given price of commodities. In the capitalist society, social need in general, and also social need equipped with buying power, or the corresponding demand, do not represent, as we have seen, a fixed, precisely-determined magnitude. The magnitude of a particular demand is determined by a given price (Rubin, 1928, pp. 186187). Rubin designs a demand schedule which exhibits different quantities of demand in relation to different prices. According to him, among the infinity of unstable combinations of demand and prices, we could have only one stable combination of equilibrium which consists of the equilibrium price (value) and its corresponding equilibrium quantities. He points out that given the social needs to commodities and the level of income of current population, equilibrium price will determine corresponding equilibrium quantities of demand, not the opposite. The equilibrium price here refers to the price determined by market value. Rubin writes, The state of technology determines the value of the product, and value in turn determines the normal volume of demand and the corresponding normal quantity of supply, if we suppose a given level of needs and a given level of income of the population (Rubin, 1928, p. 190). The actual market price and demand revolves around the constant combination; if market price is lower than market value or the level of equilibrium price, the products quantities of the corresponding branch will be reduced with capital transferring to other branches; vice versa. Therefore, the deviation of price and amount from market value and equilibrium amount is not lasting. Rubin also confesses that the concepts of

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equilibrium price and equilibrium amount come from Marshall (Rubin, 1928, p. 189). According to Rubins above propositions, given the level of productivity, commodity value (or equilibrium price) determines demand, which in turn determines supply or output.1 This logic implies that labor productivity changes demand through the change of equilibrium price, and demand play the role of regulating output. Contrary to this view, for Marx, the increase of productivity not only leads to change in demand, but also brings about changes in supply or output. Marx pinpoints following dual tendencies, on the one hand the change of labor productivity reduces unit-value of commodity (and also unit price when currency value stays unchanged), on the other hand it raises the magnitude of use-value. These two parallel processes, being resulted from one and the same cause, are the driving forces of the development of the contradictions in capital accumulation. The causal relationship as posited by Rubin between equilibrium price and demand also presupposes that, given the social needs to commodities and the level of income of current population, demand is determined for a given price of commodity and only varies with change of the given price. It worthies noticing that Rubin conceptually distinguishes social needs and demand. Demand equals to the sum of commodities which can find buyers on the market, to put it further, the normal level of demand is determined by the productivity of commodity production. Rubin does not give an exact definition for social needs, he just emphasizes that social needs will change due to non-economic causes. For example, long-range changes in climatic conditions may create a larger demand for winter clothing (Rubin, 1928, p. 186, p. 188, p. 192). On the basis of this distinction between demand and social needs, Rubin could define demand, determined by unit-value of commodities, as the sum of commodities which can find buyers on the market; and attribute changes in demand to changes in labor productivity. By doing so, demand becomes a dependent variable of price changes. As demonstrated in the following, demand is not only a function of price changes, it is fundamentally shaped by the accumulation of capitalist class. The unpredictability of the scale of capitalist accumulation leads to the uncertain character of effective demands. If, according to Rubin, effective demands depend on commodities unit-value and the unit-value determined by the given level of technology in a branch, then demands would be fixed at least in theoretical sense, which apparently does not conform to the typical characteristics of a capitalist mode of production.
1

The market value of 2 roubles 75 kopeks determines the volume of effective demand, 240 000 arshines, and supply (namely the volume of production) will be attracted to this amount (Rubin, 1928, p.189).

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2.3

Is Market Value a Concept Subjected to the Concept of Equilibrium?

After expressing his points of view as above, Rubin summarizes the methodological errors of the second theory of market value. According to him, first of all, the second theory confuses normal state of affairs on the market with an abnormal state, the law of equilibrium among different branches of production with cases of breakdown of equilibrium which can only be temporary. Secondly, by doing this it destroys the concept of socially necessary labor which presupposes equilibrium between the given branch of production and other branches. Thirdly, the second theory ignores the mechanism of deviation of market prices from values, treating the sale of goods at any price in any abnormal conditions on the market, as sale which corresponds to value. Price is thus confused with value. Fourthly, they break the close relation between the concept of socially necessary labor and the concept of the productive forces, thus allowing the first to change without corresponding changes of the second (Rubin, 1928, pp. 183184). The core of these critical opinions (the first and second points) is to view the concept of value as subjected the concept of equilibrium. It seems to Rubin that it only makes sense to adopt the concept of value under the condition of equilibrium. 2 Throughout his analysis, there exist such assumptions that equilibrium is dominant tendency in capitalist economy and that the concept of value, as a comparative static concept, is used for explaining equilibrium conditions. In our eyes, all of these assumptions resemble neo-classical theory rather than that of Marx.3 In Capital, Marx does frequently use the word of equilibrium. However, his understanding and use of the concept is in sharp contrast with that of neo-classical economics. For neo-classical economists, equilibrium is considered as an ideal state that the whole economy tends to go towards; As a metaphor, it implies the belief of neo-classical economists in the intrinsic stability of capitalist economy. While for Marx (1990c, 291), equilibrium is realized only by chance, as he puts, In actual fact, demand and supply never coincide, or, if they do, it is only by chance and not to be taken into account for scientific purposes; it should be considered as not having happened. The concept of equilibrium and of disequilibrium, which are conceptually complementary to each other, are regarded by Marx as theoretical tools for analyzing economic evolution. In his
2

We call the equilibrium stage between supply and demand the state in which commodities are sold according to their valuesequilibrium between demand and supply takes place if there is equilibrium between the various branches of production (Rubin, 1928, p. 90). 3 Besides Rubin, there are still some late interpreters (such as Morishima) explicitly view Marxs economics as neo-classical type of general equilibrium theory (Morishima, 1979, pp. 12).

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words, this constant tendency on the part of the various spheres of production towards equilibrium comes into play only as a reaction against the constant upsetting of this equilibrium (Marx, 1990c, 476). The constant tendency towards equilibrium and the anti-tendency of upsetting of this equilibrium comprise two complementary aspects of economic evolution. As the representatives of evolutionary economics, Nelson and Winter (2002) recently emphasizes that the paramount concern of economics since Adam Smith is to explain how some kind of order emerges out of numerous separate decision-making of economic agents. For evolutionary economists, the order should not be considered as equivalent to equilibrium in neo-classical sense; rather, it consists of the complementarities of equilibrium and non-equilibrium. Using the concept of coordination, Freeman and Lou (2002, pp. 120122), further discusses the methodological features related to this problem. According to them, coordination is the appropriate concept by which to interpret and analyze control systems and cohesive functions in historical development .. Coordination explains why disequilibrium process exist but are constrained, why structural instability persists but does not drive the system towards explosion. On the other hand, there is coordination does not imply that there is harmony and equilibrium, either in the ideological sense of a general feature of the capitalist economies or in the precise sense of a permanent dynamic stability property prevailing in the markets. Besides, Marx had anticipated the importance of coordination process of capitalism as a whole, and had explained it as the outcome of profound tendencies and counter-tendencies, i.e., of conflict. As the cornerstone of Marxs economics, labor theory of value, rather than a tool for explaining certain general equilibrium theory, is designed to analyze the self-organizing process of social labor. In this perspective, Rubins interpretation of Marxs theory of market value is flawed in the sense that it loses sight of the dynamics and uncertainties in the determination of market-value, abandoning a important dimension of the analytical functions of labor theory of value. In the following section, we are going to further analyze this issue by means of Marxs reproduction schemas. By now, we are confined to point out that understanding market-value as subjected to static equilibrium conditions conflicts with Marxs following ideas, . Marx once defines capital as value in movement, which indicates that the determination of value is a dynamic process through historical time, and is governed by the contradictions inherent in capitalist mode of production. Concomitant with the dynamic determination of value are successive revolutions in the value of social capital which characterize the determination of value of individual capital with fundamental uncertainty. As Marx (1990b, p. 185) demonstrates, it is clear however that despite all revolutions in value, capitalist production can exist and continue to exist only so long as the capital value is

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valorized, i.e., describes its circuit as value that has become independent, and therefore so long as the revolutions in value are somehow or other mastered and balanced out. if the social capital value suffers a revolution in value, it can come about that his individual capital succumb to this and destroyed, because it cannot meet the conditions of this movement of value. The more acute and frequent these revolutions become, the more the movement of the independent value, acting with the forces of an elemental natural process, prevails over the foresight and calculation of the individual capitalist, the more the course of normal production is subject to abnormal speculation, and the greater becomes the danger to the existence of the individual capitals. Mandel (Introduction, Capital, vol. 2, p. 29) also points out that we can infer from revolutions in value brought about by constant technical changes that, value at input level do not automatically determine values at output level. Only after a certain interval will it be shown whether a fraction of the inputs have been socially wasted. These words not only explain what is the dynamics of value-determination, but reveal the methodological errors of calculating value with algebra by Neo-Ricardians, who presuppose that value at output levels is merely determined by physical data of production, leaving out the dynamics in value-determination, namely, the changes value has to experience through historical time as the substance-subject of movement (to borrow a philosophical term). To regard value as a concept pertaining to static equilibrium, conflicts obviously with the idea of value in movement. It is by no means Marxs intention to prove the existence of certain a priori equilibrium with the concept of value or market value. Were value a comparative static concept subjected to equilibrium conditions, it would be impossible for Marx to conceive the irreversible movement of value through historical time as substance-subject. What is implicit in Rubins emphasis on the link between market-equilibrium and value-determination, is to view labor theory of value as means to explain the absolute price level of commodities. While in Capital, Marx (1990c, p. 277) once explicitly indicates that explaining the absolute level of prices is of minor theoretical importance. What he concerns about is to illustrate long-run movement of prices with labor theory of value. He says, Whatever may be the ways in which the prices of different commodities are first established or fixed in relation to one another, the law of value governs their movement. When the labor-time required for their production falls, prices fall; and where it rises, prices rise, as long as other circumstances remain equal. When replying to Bohm-Bawerks criticism on labor theory of value, Hiferding (1966, pp. 139140) elaborates on this issue as well. He writes that, Marx looks upon the theory of value, not as the means for ascertaining prices, but as the means for discovering the laws of motion of capitalist society.

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Experience tells 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 concern merely with studying the law of their variation. the law of value discloses to us that in the final analysis this development of productive power controls variations in prices, it becomes possible for us to grasp the laws of these changes; and since all economic phenomena manifest themselves by changes in prices, it is further possible to attain to an understanding of economic phenomena in general. Were Hiferdings interpretation correct, i.e., were labor theory of value used for explaining long-run links between changes in labor productivity and changes in exchange value of commodities, equilibrium conditions could not be considered as indispensable for defining market value. On the contrary, labor theory of value is a part of dynamic economic theory, used for explaining modifications in working activities and how these modifications influence various parts of social economy through exchange. Rubin (1928, pp. 8081) himself has ever expressed a profound understanding of this fact as well, Since they (commodity producers) are connected in exchange through the products of labor, they also have connection in their productive processes, in their working activity, because in the process of direct production they must take into account the presumed conditions on the market. Through exchange and the value of commodities, the working activity of some commodity producers affects the working activity of others, and causes determined modifications. On the other hand, these modifications influence the working activity itself. Individual parts of the social economy adjust to each other. But this adjustment is only possible if one part influence another through the movement of prices on the market, a movement which is determined by the law of value.. Value is the transmission belt which transfers the movement of working processes from one part of society to another, making that society a functioning whole. Rubin tends to see all kinds of changes and their inter-relations only as spatially coexisting and simultaneous, instead of sequential ones. Value, as the transmission belt, not only transfers modifications from one part of social economy to another, but also makes current modifications influence the past and the future.

3 Market-Value and the Uncertainty in Capitalist Mode of Production

3.1 Reproduction Schemas and Dynamics of Market-Value Determination

For Marx, the laws of motion of capitalist production mode are initiated by teleological positing activities of numerous individual producers, and appear as

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social synthesis of all these teleological positing activities. Individual producers not only cannot fully foresee or control these laws in their teleological positing, but are governed by these laws ex post. The Hungarian Marxist philosopher Lukcs, in his late work on ontology, incisively demonstrates this issue. According to him, the fundamental characteristics of social being and of economy as its material base lies in the fact that the activities initiated by ideal forms and the materialistic economic laws brought about by those activities constitute a dialectic totality.4 In Capital, Marx has analyzed the totality in capitalist mode of production in detail. On the one hand, teleological positing activities of individual capitalist (characterized by circulation of individual capital) are synthesized into the movement of total social capital; on the other hand, the laws of reproduction of total social capital in turn exert influence and constraints on the teleological positing of individual capitalist. In order to disclose the laws of reproduction of total social capital, Marx designs his reproduction schemas comprising of two departments. Marxs two department reproduction schemas feature as follows: First, it is a simple macro-model which integrates individual labor process into social production, as well as describes the basic conditions of a material metabolism between society and nature.5 Secondly, reproduction schemas are at the same time a model of market which summarizes the relationship between demand and supply of social annual products. Vol. 2 of Capital carries the subtitle: the Process of Circulation of Capital, while Vol. 1 was subtitled: The Process of Production of Capital. At first sight, the distinction is clear. Vol. 1 is centered around the factory, the workplace. It explains the character of the production of commodities under capitalism as both a process of material production and one of valorization i.e., production of surplus value). Vol. 2, by contrast, is centered around the market-place. It explains not how value and surplus value are produced, but how they are realized (Mandel, Introduction, Capital vol. 2, p.14). Thanks to reproduction schemes, it is possible for us to analyze in a general way the contradictions between capitalist production and circulation. The character of the contradictions, as mentioned above, is of the conflict between
See Lukcs, About the Ontology of Social Being, Part two, chapter 3: The realm of ideas and ideology, section 2. (Chinese translation from German). 5 Marxs two department reproduction scheme, corresponds to the essential character of human production in general, not only its specific expression under capitalist relations of production. Man cannot survive without establishing a material metabolism with nature. And he cannot realize the metabolism without using tools. His material production will, therefore, always consist of at least tools and means of subsistence. The two departments of Marxs reproduction schemas are nothing other than the specific capitalist form of this general division of human production (Mandel, Introduction, Capital vol. 2, p. 29).
4

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individual teleological-positing in the capitalist labor process and the causal laws initiated by these teleological-positing activities. Here also comes the difficulty: one understanding is that reproduction schemas represent the equilibrium conditions to which capitalist reproduction should abide by, so that the schemas cannot be used to analyze contradictions in the process of capitalist accumulation. To quote Itohs opinion, The functions of the reproduction schemes are to show that capitalist production can continuously exist, by satisfying the basic material conditions of reproduction common to all societies, rather than revealing the inner contradictions of capitalism (Itoh, 1988, p. 183). On the other hand, Mandel offers opposite opinions, we have already indicated one of the most paradoxical form of abuse of the schemas, namely, utilization of them as proof that capitalism could grow harmoniously and unrestrictedly if only the correct proportions between the departments (the conditions of equilibrium) were maintained. The authors responsible for this aberration overlooked the basic assumption made by Marx: that the very structure of the capitalist production mode, as well as its laws of motion, imply that the conditions of equilibrium are inevitably destroyed; that equilibrium and harmonious growth are marginal exceptions to normal conditions of disequilibrium (overshooting between the two departments) and uneven growth. Suffice it to say that, under capitalism, both the dynamics of value determination and the non-determination of consumer expenditure make it impossible to maintain exact proportion between the two departments in such a way as to allow harmonious growth (Mandel, Introduction, Capital vol. 2, p. 31). Besides adding the non-determination of investment expenditures to consumer expenditures, we agree with all the viewpoints of the statement (see further discussion below), and which features the third characteristic of reproduction schemes, that is to say, the schemes not only summarizes the equilibrium conditions of capitalist reproduction, but also serves as a theoretical tool to analyze conflicts and disequilibrium inherent in capitalist reproduction. In the history of Marxian economics, Rosa Luxemburg for the first time makes this problem clear. Nevertheless, Luxemburg expresses her ideas in a selfcontradictory way. On the one hand, she realizes that the analytical focus of Marxist economics is the contradictions investigated in vol. 3 of Capital, especially the contradictions between the production of surplus value and the realization of surplus value. On the other hand, she takes a critical stand toward reproduction schemes. It seems to her that the reproduction schemes in Capital vol. 2 is unable to be applied to the analysis of the contradictions of capital accumulation, and is in conflict with the relevant theories in vol. 3. As a matter of fact, Luxemburg points to what Marx fails to complete in a theoretically incorrect form, i.e., to utilize reproduction schemes in the analysis of contradictions of capital accumulation, and on the basis of which to analyze the dynamics and the

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uncertainty in the determination of value. As discussed above, Rubin views market value as subjected to equilibrium conditions and treats equilibrium as the dominant feature of capitalist production, to which we have attempted an elementary critique. According to Rubins definition of equilibrium, the theoretically conceivable, steady and long-run equilibrium on demand and supply is in fact reproduction equilibrium, namely equilibrium among different branches of production. Reproduction equilibrium is the precondition for the long-run equilibrium of demand and supply. Besides, he criticizes neo-classical economists since the latter merely center around the equilibrium of demand and supply, ignoring reproduction equilibrium (Rubin, 1928, p. 213f). However, it seems that those problems obsessing Luxemburg do not exert any influence on Rubin at all. For Rubin, the main thrust of Marxist analysis does not lie in the contradictions in capital accumulation, but the equilibrium laws of social production. It never occurs to him that it is possible to use reproduction schemes as analytical tool in explaining the dynamics of market value. At first sight, reproduction schemes are constructed in accordance with equilibrium conditions among total magnitudes of values, which easily induces people to regard value determination as the process of how equilibrium conditions come into being. Here, we would like to introduce a newly developed equilibrium condition of reproduction, so as to exhibit that any equilibriums of capitalist reproduction are de facto marginal exception, while the normal state being dynamic disequilibrium which inevitably impact upon the determination of value. Equation (1) is developed by Okishio (1988, pp. 1516).
t t +1 t +1 t +1 t +1 S1t + S2 = S1 c + S 2 c + S1v + S 2v

(1)

The left side of the equation is the intended accumulation of capitalists in the two departments of social production. denotes the rate of intended accumulation, Si (i=1, 2) the surplus value. The right side, i.e. the items of demand, is attributed to the real accumulation of capitalists from the two sectors of social production. The superscripts t and t+1 denote the differences between production and realization in time and in conception. Now, let us see how Marx analyzes the contradiction between the production of surplus value and the realization of surplus value, and compare it with above equilibrium condition. As Marx (1990c, pp. 352353) says, The conditions for immediate exploitation and for the realization of that exploitation are not identical. Not only are they separate in time and space, they are also separate in theory. The former is restricted only by the societys productive forces, the latter by the proportionality between different branches of production and by the societys power of consumption. And this is determined neither by the absolute power of production nor by the

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absolute power of consumption but rather by the power of consumption within a given framework of antagonistic conditions of distribution, which reduce the consumption of the vast majority of society to a minimum level, only capable of varying within more or less narrow limits. It is further restricted by the drive for accumulation, the drive to expand capital and produce surplus-value on a larger scale. Here, Marx enumerates three determinants of the conditions for realizing surplus-value. Besides the societys power of consumption and the proportionality between different branches of production, he also mentions capitalists drive for accumulation. Among the three factors, capitalists drive for accumulation is the deterministic one since accumulation could reshape the proportionality between different branches in terms of the scale and direction of accumulation as well as the societys power of consumption through certain multiplier-effect. The role of accumulation in the realization of surplus value is shown clearly in the above equation, since the right side of the equation is just the items denoting real accumulation of capitalists in two departments. In vol. 1 of Capital, as Marx ever demonstrates, surplus-value realized is the very source for capital accumulation. While according to the new equilibrium condition, the realization of surplus value depends on real accumulation of capitalists in the two departments. This newly developed equilibrium equation therefore confirms that Kaleckis well-known propositionCapitalists profits depend on their own investment, not the oppositeis actually included in Marxs reproduction schemes. The equilibrium conditions revealed by reproduction schemes represent the social conditions of realizing individual teleological positing activities of capitalist producers. The formation of these conditions is by no means necessary, and by no means the normal state of capitalist production, since the level of real accumulation of capitalist class is unpredictable. This unpredictability can be shown in the following inequality.
t t +1 t +1 t +1 t +1 S1t + S2 >< S1 c + S 2 c + S1v + S 2 v

(2)

The dynamic character in the determination of value is manifested through the subscripts denoting time. The law of value (the equilibrium law of capitalist mode of production in Rubins eyes) involves not only synchronous distribution of labor-magnitude among different branches, but also dynamic distribution of labor-magnitude during historical time, i.e., during the successive periods of time of reproduction. From formula (2), one can see that value of social products produced in the prior reproduction period is realized due to the happening of real accumulation of the later period. The level of real accumulation creates equivalent value for the products produced in the prior period, determining correspondingly value magnitude of the products in the prior period.

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As Marx says that the production of surplus value depends upon the level of development of productive forces. However, should the accumulation of t+1 period has not reached enough scale, the surplus value produced at t period will not be totally realized, which means that the currently attained level of productive forces is actually not recognized within the given framework of capitalist relations of production. From this perspective, the current level of productive forces is by no means a concept merely related to technology, but one of economic sense. Similarly, such concept as the standard condition of production in Marxs economics cannot be understood as equal to purely physical data of production. In other words, the standard condition of production is a result selected by certain economic mechanism. Although the physical data of production is the raw material of such selection, it cannot by itself determine what is the standard condition of production in a branch as well as socially necessary labor time. In the perspective of reproduction schemes, the determination of value takes place on the macro level in the first place, which implies that the process of determining value stems from the level of total social capital or total social products, and then traces back to the value of individual commodity. This interpretation seems to conflict with the logic presented in Capital which starts from the determination of value of individual commodity. Nevertheless, the exterior contradiction is nothing but a reflection of the difference between the method of investigation and of presentation in Capital. The determination of value of individual commodity and of value of total social products are intrinsically related, as Marx (1990c, p. 774) says in vol. 3, not only is no more than labor-time devoted to each individual commodity than necessary, but out of the total social labor-time only the proportionate quantity needed is devoted to the various types of commodity. It is around this problem that there exists sharp contrast between the dual theories of market value. According to the first theory supported by Rubin, the physical conditions of production in a given branch determine the unit value (i.e., the equilibrium price) of commodity, which in turn determines the sale of the commodity, and the product of these two magnitudes is the volume of social needs. Here we have three factors which play the adjusting role, i.e., equilibrium price, equilibrium output corresponding to equilibrium price, and equilibrium amount of labor distributed to that branch, all of which serve as centers of fluctuation of empirical variables. While in terms of the second theory, the unit value of a commodity equals to total amount of labor allocated to the given sphere of production divided by the magnitude of its sale, therefore what considered as the result in the first theory, i.e., the total amount of labor allocated to a branch, becomes the starting point of analysis. In the eyes of Rubin, the connection existing between socially necessary labor and the given level of

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productive forces is severed since according to the second theory, socially necessary labor for producing a commodity could change even without any change in the level of development of productive force in a given branch. Rubins critique could be answered in the following way: For the second theory, changes in the level of development of productive forces tend to intensify the contradictions of capital accumulation, and through which bears upon the determination of socially necessary labor time. As illustrated in equation (1), the contradictions in capital accumulation are summarized as conflicts between the production of surplus value and the realization of surplus value. On the one hand, the production of surplus value depends upon the development of production forces. On the other hand, the so-called demand is in the final analysis determined by the accumulation of capitalist class. It could be imagined that capitalist production should base itself on the production of given use-value all the time, difficulties in realizing products would be inevitable, and hindering further accumulation. In the beginning of Capital, as regards the impact of development in productive forces upon the two factors of commodity, Marx discloses the following dual tendencies: The development of labor productivity is inversely proportional to changes in the magnitude of unit value, and is directly proportional to changes in the magnitude of use-value. The limitation of use-value on valorization stems from these two kinds of movements in opposite directions. Along with the development of productive forces, valorization becomes more and more dependant upon the realization of use-value. It is in this sense, therefore, that contradiction between value and use-value can be viewed as the driving force of the development of contradictions between the production of surplus value and the realization of surplus value.6 3.2 Conclusion Remarks

Hereto, a formal reply to Steedman could be attempted. The relationship between standard conditions of production and value is not of deterministic and one-directional character. The standard condition of production cannot be considered as pre-determined without the concept of market-value. It is inappropriate for Steedman to declare that the concept of value is redundant. For us, the concept of market-value in Marxs economics is connected with the self-organization and uncertainties rooted in capitalist mode of production. The uncertainties referred to here are the ones between the means and the end, the condition and the result of capitalist production. The physical conditions of production are initially the starting point of capitalist production. But the
6

For a further discussion of this problem, see Product innovation and Marxist theory of capital accumulation (Meng, 2004).

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problem is that the agents of capitalist production are not only unaware of to what extent valorization will be realized, but unable to identify what are the socially recognized standard conditions of production. It is in the following sense that Marxs concept of value (and the concept of capital defined in terms of value) reflects the above mentioned situation: to capture the magnitude of market value or the standard condition of production in a statistical means is doomed to fail, and which should not be regarded as shortcoming of the theory itself but rather the theoretical reflection of the fundamental uncertainties in capitalist production.7 Here, we might as well resort to the famous Uncertainty Principle in quantum physics as an illustration of the theoretical significance of labor theory of value. Thus labor theory of value, on the one hand, is a tool for analyzing uncertainties in capitalist mode of production, on the other hand, exhibits the epistemological limit of economics itself. Zeleny (1980, pp. 201202), a philosopher from Czech, ever gives following comment when referring to Marxs theory of knowledge: In the recognition of the limitations of human reason Marx seems stand closer to Kant than Hegel. In Kant, the thing in itself behind phenomena is incomprehensible. Marx, on the one hand, objects to delineate an absolute distinction between phenomena and thing in itself, on the other hand regards human cognitive ability as constrained by the mode of social practice. It is a pity that Zeleny does not referred to labor theory of value at all when making such comment. While in our eyes, labor theory of value is the best case serving to confirm his point of view. What we want to add to his argument is that the cognitive limitations of human reason reflect the ontological limits of human activities in historical context. Obviously, the distinction between Marxist economics and neo-classical economics on this issue is clear-cut, since the latter advocates the omniscient economics through the concept of rational selection. As we can see, socially necessary labor time determining the magnitude of value appears as the result selected by the process of capitalist reproduction. The empirical conditions of production in a given branch are the raw materials of the selection. With this in mind, another reply can be attempted towards the negative comments on labor theory of value made by evolutionary economist such as Hodgson, according to whom the reason why Marxist economics is irrelevant to the main topics of contemporary evolutionary economics such as variety and selection is largely due to the fault of labor theory of value. As Hodgson (1993, p. 75) says, In Marxs economics it is assumed that value calculations pertain to the most profitable technique that has become established
7

From this standpoint, the recent empiric studies about labor theory of value flourishing in the wake of the New Interpretation, is cast in doubt as well.

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at a given time. Value quantities thereby relate to the amount of socially necessary labor time involved with this technique. By this theoretical device the essential function of variety in economic process is expunged. Without ever-present variety there is no raw material for natural selection. It is significant that Marx, along with both the classical and the neo-classical economic theorists, focuses on the emergence and eventual dominance of a single technology. Hodgsons view, being heavily influenced by Steedman, is based upon misunderstanding of Marxs economics. In Marx, value is not associated with the most profitable technology and is not determined purely by the given level of technology as well. In Hodgson, Marxs concept of value is one of deterministic character, excluding such process as natural selection. As a matter of fact, certain mechanism analogous to natural selection does play an important role in determining market-value and the standard condition of production in Marxs economics. The standard condition of production could be seen as, to borrow the words of another evolutionary economist Metcalfe (2002, p. 8)the emergent outcome of the economic process not a precondition of it. Moreover, What is representative depends on the manner of co-ordination of the relevant behaviors, and hence it will change with the economic process even when the individual behaviors of the real agents are fixed. This kind of views remind us of Marxs words on the false social value in the chapter on differential rent in vol. 3 of Capital. As Marx (1990c, p. 799) puts, the determination of the market value of productsis a social act, and it is based necessarily on the exchange value of the product and not on the soil and the differences in its fertility (i.e., the given conditions of production). Even if the empirical conditions of production in a branch have not change at all, the standard condition of production may as well vary with the development of contradictions in the process of capital accumulation. Labor theory of value thereby does not aim to explain in a determinative way the emergence and eventual dominance of a single technology as claimed by evolutionary economist such as Hodgson. Rather, It is through the concept of market value that Marx explains the co-evolution of technology and economy.

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