3023. On Fred Moseley's "Money and Totality"

By Barry Finger, Solidarity, September-October 2018

Paul Burkett's review of Fred Moseley’s Money and Totality well captures the logic of Moseley’s refutation of the standard critiques of Marx’s “transformation” problem. This can also be approached somewhat differently.

The price of any given good, and the sum total of goods, is the outcome of the manifold intersections of two schedules: demand and supply, which reflect the intersection of quantities of output and price. Let me emphasize: price not labor-time. So in order to understand the relationship of price to labor-time, there must be an intermediary link — money — the pricing unit, which is reducible to a given quantity of time.

In any given period, say one year, the price of the annual product ($V + $S) is the monetary expression of a sum total of productive labor time worked. From this relationship, the monetary value of an hour, a day or a year of labor-time can be calculated.

If we assume, as does Moseley, that an hour of labor-time has a fixed expression in monetary units over the course of many years (which is an empirical unlikelihood, even if a handy simplifying assumption), then the M in the formula M-C-M’ or M-C-(M+ ?M)has the same value at the end of the years it takes to recoup the initial outlay as it did in the beginning.

Thus the value of inputs can be treated as fixed data and not as moving variables. That’s exactly what Moseley does. In that sense alone, the value of the money capital invested in wages and means of production is invariant and does not need to be “transformed.” M amount of dollars invested in year one with an assumed expression of Y units of labor-time still represents Y units of labor-time in, say, year 10 when the useful life of the machinery has been totally recouped by M dollars.

This is the first problem with Moseley’s solution: the “transformation problem” that he so neatly finesses really only occurs over the course of the years. From a capitalist standpoint, and from Marx’s viewpoint, changes in the labor content of the monetary unit over time have to be reflected in the final M through an inflation premium. Otherwise the value of the dead labor incorporated in the constant capital cannot be preserved. In practical terms this means that capitalists need to recoup an investment commensurate with the purchasing power that the initial M stood for.

Again, there is nothing intrinsically wrong with how Moseley approaches this aspect of the problem. It is a perfectly acceptable heuristic device that allows him to sidestep the unnecessary complication that would result from changes in the value content of the monetary unit. At the same time, as I hope to show. It gets us no closer to an answer to the problem.

Profit Rate Equalization

The real problem comes in with Moseley’s treatment of profit-rate equalization. Here he accepts unreflectively the belief, inconsistently presented by Marx, that surplus value flows among sectors according to the proportional weight that the individual branch’s capital occupies with respect to aggregate investment.

An application of that principle is this: capitals of the same size, but of differing organic composition — that is, made up of different proportions of constant and variable capital — earn the same profit in the same time period.

This is the seeming contradiction at the heart of the “transformation problem:” namely, that profits are no longer proportional to the living labor that variable capital sets in motion.
Surplus value is then treated by Moseley as a social relationship having the quality of a liquid that can spill over from one sector to another. But in fact, surplus value is not what moves when profit rates are unequal. Investment does. Capital withdraws from spheres that underperform and expands spheres that are relatively more lucrative.

This incessant movement changes the production structure of the economy: it shifts sectoral supply (and demand) schedules, changes the value of money, the level of employment and wages until market-clearing prices begin to emerge reflecting a uniform rate of profit.

But this means that the physical structure of the economy, the prices of replacement inputs and final output, the rates at which labor is exploited, are all recruited into the process of profit-rate leveling.

When the competitive dust settles, part of the surplus labor time worked in sectors with proportionally higher labor inputs cannot be totally realized in the form of surplus-value; it cannot take a price form. That which can be is profit. Labor here is effectively exploited at a lower rate than average.

Conversely, the surplus labor time worked in sectors with a lower than average labor component is realized at a premium in price form. It is effectively mobilized at a higher than average rate of exploitation.

Marx, and by extension Moseley, treat a uniform rate of exploitation (and therefore the average rate of exploitation) as data. And for certain purposes that assumption can be employed illustratively. But the closer we approach the surface, the further that simplifying assumption is from reality.

There is no market mechanism that could bring about this uniformity. Neither Marx nor Moseley make any attempt to identify one. Instead, the average rate of exploitation is a function of the many sectorally divergent rates of exploitation. The average rate of exploitation is not data and cannot be treated as such. It is the outcome of capitalist competition and the incessant ebb and flow of investment among sectors of the economy.

Profit rate equalization, in the absence of secondary deductions for merchants’ profit, interest and rent — that is, at the level of abstraction at which Marx introduces the problem — does not involve a transfer of surplus values. To interpret it differently is to be beguiled by averages. From the process of averaging, no redistribution of substance can be implied. If the average height of people in a room is 5’10”, those who are 5’8″ do not transfer two inches to those who are 6′.

Rates of Profit and Exploitation

Moseley is so devoted to the letter of Marx’s presentation that he fails to see the central problem. The same economic structure that yields prices having a uniform rate of profit cannot also be consistent with one that reflects a uniform rate of exploitation, unless capital to labor ratios are themselves uniform throughout the economy. Even then, the various sectoral outputs have to stand in proper proportion to support market-clearing prices that have this attribute.

The problem is that both he and Marx arbitrarily define value as prices that reflect profits that are uniformly proportional to wages. Prices of production are incompatible with values defined in that way and can only be reconciled by tying logic into a pretzel — the pretzel being the redistribution of surplus values.

The secondary knots are the insistence on a series of supposed invariant postulates: the sum of prices equals the sum of values; the sum of profits equals the sum of surplus values; the invariance of input prices, etc. that have become the hallmarks of Marxist orthodoxy. 

The “transformation problem” as Marx poses it cannot be resolved. Neither can it be resolved by means of his neo-Ricardian critics, such as Bortkiewicz, since they work under the same framework: an invariant production structure.

One cannot at the same time argue that capital movements create a uniform rate of profit, and treat that structure-in-motion as values evolve into prices of production as a given rather than an unfolding outcome. One set of price characteristics is incompatible with the economic structure of prices with differing characteristics.

All that is necessary to solve the “transformation” (non) problem is provided by Marx at the outset. Price is value in the form of money — all prices, whatever their characteristics. Once the relationship between labor time and money has been established, prices have been effectively explained. No part of that explanation entails secondary assumptions about a uniform rate of exploitation or, for that matter, a uniform rate of profit.

The singular significance of the average rate of profit is that it functions as a track changer, a spontaneous market regulator adjusting the manifold movements of capital among various sectors of the economy.