# All Value-Form, No Value-Substance: Comments on Moseley’s New Book, Part 4

by Andrew Kliman

Here is the fourth installment of “All Value-Form, No Value-Substance,” the series of comments I’m writing on Fred Moseley’s new book, Money and Totality: A Macro-Monetary Interpretation of Marx’s Logic in Capital and the End of the “Transformation Problem.” It responds to Moseley’s reply to the third installment.

Here are

the first installment, published on May 11,

the second installment, published on May 12,

and the third installment, published on June 6.

1. Fred Moseley says:

Kliman has argued that, since his equation (1) – which is supposed to represent my interpretation of Marx’s theory of the rate of profit – can be converted into his equation (1”) (or equation (8) in Part 4) – which is Sraffa’s “physicalist” theory of the rate of profit – therefore the rate of profit in (1) is determined in the same way as the rate of profit in (1”) – i.e. the rate of profit in (1) depends only on physical quantities.

I have argued that Kliman’s argument is based on circular reasoning (equation (1) is derived from (1”)). But there is a more fundamental reason why Kliman’s argument is invalid – because Marx’s theory of the rate of profit is not determined by equation (1). Rather, the rate of profit in Marx’s theory is determined independently of equation (1), by the aggregate ratio of S/(C+V) and S is determined by surplus labor (a detailed algebraic summary is in Chapter 2 of my book). Marx’s rate of profit that is determined in this logically independent way can then be taken as given in the calculation in equation (1); but Marx’s rate of profit is not determined by equation (1). Marx’s theory of the rate of profit is consistent with equation (1) (as Kliman’s calculations show), but the rate of profit is determined by S/C+V, not by equation (1).

This fundamental difference in the determination of the rate of profit between Marx’s theory and Sraffa’s theory can be demonstrated by examining the effect on the rate of profit of labor-saving technological change in the two theories, using Kliman’s own numerical example in his Part 1.

Start with Kliman’s first table of his two sector example on p. 2 of Part 1 that accurately represents my “macro-monetary” interpretation of Marx’s theory. C and V are taken as given as quantities of money capital, S is determined by V (assuming S/V =1) and the rate of profit = total S / (total C+V).

Then assume a reduction of one unit of labor in both sectors. Assume that the quantity of output and constant capital remain the same in both sectors. Assume that the unit wage = 1, so that variable capital is reduced by 1 in both sectors (from 2 to 1 in sector 1 from 10 to 9 in sector 2).

Continuing the assumption that the rate of surplus-value = 1.0, then the amount of surplus-value will also be reduced by 1 in both sectors. (This is the key point that is missing in Sraffa’s theory.). And thus the total rate of profit for both sectors together falls from 50% (12/24) to 45% (10/22).

In Sraffa’s theory, on the other hand, as we know from the Okishio Theorem, such cost-saving technological change never reduces the rate of profit and increases the rate of profit if the technological change takes place in a basic goods industry. Thus we have two completely different conclusions regarding the all-important question of the effect of labor-saving technological change on the rate of profit. (This also shows that the Okishio Theorem does not apply to Marx’s theory but only applies to Sraffa’s theory.)

The key to the explanation of these different conclusions of Sraffa’s theory and Marx’s theory is the different roles played by LABOR in the two theories (labor theory of value in Marx’s theory vs. no LTV in Sraffa’s theory). In Sraffa’s theory, labor is only a COST, and in this sense the cost of labor is no different from the cost of other inputs. Therefore, labor-cost-saving technological change to produce a given amount of output will never reduce the rate of profit.

In Marx’s theory, on the other hand, labor is not only a cost, but is also a producer of value and surplus-value. Therefore, labor-saving technological change not only reduces costs, but also reduces the value and surplus-value produced. (Again this is what is missing in Sraffa’s theory). So the effect of labor-saving technological change on the rate of profit in Marx’s theory depends on the net effect of these two opposing intermediate effects. Or one could say: depends on the net effect of the increases in the composition of capital and the rate of surplus-value. In the example above, there was an increase in the composition of capital (from 1.0 to 1.2) and the rate of surplus-value remained the same, so the rate of profit fell.

Or one could take Kliman’s example of labor-saving technological change in his second table in Part 1. In this example, variable capital in sector 2 is reduced from 10 to 2 and thus surplus-value is also reduced from 10 to 2 (the crucial missing step in Sraffa’s theory). As a result, according to my interpretation, as Kliman correctly shows, the rate of profit falls even more from 50% to 25%.

However, according to Sraffa’s theory, such labor-cost-saving technological change will never reduce the rate of profit, and will usually increase it.

This crucial and fundamental difference between these two theories of the rate of profit can also be clearly demonstrated by the extreme case of “full automation” (the limit case of a reduction of labor) which has been discussed in the literature (Dmitriev, Steedman, Pack).

According to Sraffian theory, if there is a physical surplus in this fully automated economy, then there will always be a positive rate of profit, even though there is no labor or surplus labor. Indeed, without labor and labor cost, the rate of profit would be a maximum!

According to Marx’s theory, on the other hand, such an economy would have a zero rate of profit, even though there is a physical surplus. The only source of profit is surplus labor. A reduction in the labor employed reduces the amount of profit produced and an elimination of labor eliminates profit altogether. This important conclusion is unique to Marx’s labor theory of value, and it clearly demonstrates that Marx’s theory of the rate of profit is very different theory from Sraffa’s theory.

This difference can also be seen from Kliman’s equation (1”) in his two sector example in his Part 1 which is derived from Sraffa’s “physicalist” theory. If we set b = 0 (b is the real wage), then equation (1”) reduces to:
-a1 (1 + r) +1 = 0
And solving for r:
r = (1 – a1) / a1
Since it is assumed that 0 < a1 0. Thus we can see clearly that if there is a physical surplus, then according to the Sraffian equation (1”), there will be a positive rate of profit. But according to Marx’s theory, to the contrary, the rate of profit in this case would be = 0, in spite of the surplus product, because there is no surplus labor.

Therefore, I conclude that my interpretation of Marx’s theory of the rate of profit is fundamentally different from Sraffa’s theory. Even though input prices = output prices in my interpretation, it does not follow that my interpretation is the same as Sraffa’s theory in the sense that the rate of profit is determined only by physical quantities. The rate of profit in my interpretation of Marx’s theory is determined by the relation between surplus labor and money capital invested. Input prices = output prices in my interpretation, not because input prices and output prices are determined simultaneously (as in Sraffa’s theory), but rather because the economy is assumed to be in long-run equilibrium (as discussed in my reply to Kliman’s Part 2).