.png)
The chaos theory of profitability refuted
Back to theory in this post.
The law of the tendential fall of the average rate of profit (LTRPF) lies at the very heart of Marxian economics. It is essential to explain all aspects of the capitalist economy, from economic crises to imperialism and the theft of international value inherent in imperialism. In short, it is essential for labour’s indictment of, and struggle, against capitalism. It is thus not by chance that it has been the object of sustained attacks since the publication of the third volume of Capital.
One such critique that has gained some traction in Marxist circles is that by Marxists Emmanuel Farjoun and Moshe Machover in their book written in 1983 (and republished by Verso in 2020) called Laws of Chaos. They argue that Marx’s transformation of the values of commodities by the equalisation of individual rates of surplus value (profit) into prices of production based an average rate of profit for all capitals is indeterminate. Supposedly, in Marx’s Capital 1, the price of a commodity is determined by the value contained in it (individual value), while in Capital 3 it is determined by its social value, the value it has after individual profit rates are modified by their equalization into an average. Thus values are converted into prices of production.
Like many other critics, Farjoun and Machover reckon that this conversion is inconsistent because prices of production would then not be uniquely determined by a quantity of value in labour time. Farjoun and Machover argue that Marx was wrong and Marxist must recognise that “there is no rigid relation between labour content and price. The ratio between price and labour content is a random variable, which can assume, for a given individual transaction, any positive numerical value whatsoever”. What Marx and the rest of us apparently need to recognise is that individual profit rates are not determined by any definite amount of value measured in labour time, but are ‘chaotic’ ie. ruled by the laws of probability. So there is no average rate of profit, but only a ‘scatter’ of profit rates.
In the paper attached, Determination and probability in Marx’s transformation ‘problem‘, my colleague Guglielmo Carchedi refutes this ‘chaotic’ theory of the relation between the value of commodities and prices of production. A scatter as a whole always has an average. It is an essential feature of any group of numbers. It arises necessarily from it and together with it. It follows that the average does not pre-exist the scatter. Each time a scatter arises or changes, the average arises or changes too. And a decreasing sequence of averages measures a decreasing average quantity of surplus value generated relative to the capital invested within a given time frame ie an average rate of profit. It is perfectly determinable and not ‘chaotic’.
Why does any of this matter? Well, if an average rate of profit on capital invested cannot be determined and instead is either non-existent or merely random, then this drives a hole through Marx’s LTRPF and in turn, any compelling explanation of crises in capitalist production. However, in the attached paper, Carchedi shows that the ‘probabilistic approach’ is wrong and indeed a step backwards in Marxist theory.
Addendum:
Chaos and determination in Marx’s rate of profit: a reply to Cockshott I published a short paper in Michael Roberts’ blog on 8 December.
In this paper, I argued against the view of Farjoun and Machover (1983 and 2020) that Marx’s transformation of values of commodities into prices of production through the equalisation of individual surplus values into an average rate of profit was indeterminate (and thus only probabalistic) and indeed was ‘chaotic’ and ‘unpredictable’.
Subsequently, some readers asked Paul Cockshott, a longstanding Marxist economist and a strong supporter of this ‘chaos’ theory, to respond. On 17 December he did so.
Here is my response.
Paul opens his comments with an unhappy statement, that for Marx’s transformation of values into prices “there is no evidence nor real use”. This is patently untrue and if Cockshott were truly interested in a serious debate, it would kill that point before it starts. Marx’s transformation of values into prices does have a ‘real use’, actually more than one. It is the core of Marx’s theory of prices and of crises, just to mention two. It is supported by textual evidence, theoretical consistency and a solid and large empirical verification, all of which is ignored in his comments.
Nevertheless, I shall reply to some points in Cockshott’s piece for the sake of theoretical clarification. As a matter of personal taste, I will avoid terms such as ‘prattle’, ‘true believers’, ‘religious defenders’, ‘dogmatist’, etc. that he refers to in dealing with my arguments.
First, concerning the falling rate of profit, Cockshott says “the critical issue is to understand under what circumstances the rate of profit will fall and whether these are binding long term tendencies in a maturing capitalist economy”. No. The critical issue is why in the long term the ROP falls tendentially (as it does), why in the shorter-terms the counter tendencies can prevail, and why the tendential fall re-emerges each time in spite of the counter tendencies. The problem should be framed in terms of tendencies and counter-tendencies, as Marx does.
“Now I’m going to ask why Carchedi just ignores publications by Zachariah, Cottrell and Cockshott on why this happens.”, says Cockshott. Simple. I focus on The Laws of Chaos by E. Farjoun and M. Machover. On the other hand, quid pro quo, Cockshott ignores my publications on the dialectical method and on why a dialectical approach is necessary to understand the transformation.
Cockshott goes on: “He (Carchedi) ignores our model which gives an exactly accurate prediction of how the rate of profit will move two or three years ahead.” This is not a (short term) prediction but, as Cockshott says, but of the “binding long term tendencies.” I do not propose to discuss the Cockshott model as it is not relevant to this debate, in my opinion. However, I do notice he finds a sharply rising rate of profit for Egypt. This seems very much out of line with the latest estimate of Egypt’s rate of profit in the Extended World Penn Tables series 7.0. On this estimate, the long term tendency of the rate of profit to fall applies to Egypt too.
Cockshott says that I “suggest that probability and determinism are opposites.” I certainly do not suggest this. I focus on the relation between chaos and determinism, not between probability and determinism. What I say is that in the economy all things are interconnected, that the nature of this interconnectedness is determination, that the task is to uncover what this determination is, and that chaos does not exist. We think that there is chaos when we cannot discover the laws of determination. For Cockshott, chaos means that “a small perturbation in the initial conditions produces a large perturbation in the final state.” i.e. a variation in the initial conditions leads to a change in the outcome. But is that not just determination?
Cockshott doubts that “the transformation method of Marx (was) absolutely central to Marx’s economics.” But it is. Capitals with a high organic composition are generally the most productive and produce less surplus value per unit of capital invested. But given the tendential equalization of the individual capitals’ ROPs, these high OCC capitals appropriate a share of the surplus value produced by the low OCC capitals. This is in essence the transformation. Without it, there would be no incentive for capitals to innovate, to expand. Cockshott says that “industries with high organic composition tend to have low profit rates.” But to be more accurate, high OCC capitals produce less surplus value, but they realize more through appropriation from low OCC capitals. Cockshott ignores the basic distinction between value produced and value realized.
Cockshott says that “If it (transformation) was so central, it would have come on early” in Marx’s writings. Marx was a genius, but not Jesus Christ. He had to finish and publish first the foundations in Capital volume 1. Unfortunately, he could not finish the further developments in volumes 2 and 3. According to Cockshott, “Instead, it’s relegated to something that he didn’t bother actually publishing himself.” Really? Marx wrote his transformation explanation at the same time as Volume one, even if it was edited up by Engels after Marx’s death.
Cockshott shoots some more. “The problem with dogmatists like Carchedi is that they don’t think it’s worth looking at. They assume, as a given, that the organic composition of capital does not determine profit rates.” This is astonishingly wrong. Of all of Cockshott’s misreadings, this is the greatest and most glaring. Of course, the organic composition of capitals is relevant to profit rates. See what I said above.
Cockshott says that I “substitute consideration of the subjective desires of capitalists to “pursue the maximum feasible profit rate” for uncovering the actual laws governing the distribution of profit rate.” But for capitals to pursue the maximum ROP, there must be agents of capital who desire it, no? The agents of capital want more profit. Marx’s transformation explains the distribution of those profits among capitals.
Comments