Marx's Theory of Value and Profit

In, in Volume One of Capital, Marx makes the assumption that prices are

proportional to labor time, which means, in his terminology, that

price and value are

equal.

And this, he says, makes it very clear

that profit comes from the surplus value

extracted by each capitalist. Under this assumption, that's clear.

The exploitation of labor becomes central.

If you can make workers work longer, you get the profit yourself, and so on.

But when you come to Volume Three, Marx himself argues, as we know

he will, because Smith and Ricardo have already made that point,

that prices

have to deviate.

And then the question is to explain the form of their deviation

because it gives

rise to new phenomena. One of the phenomena is that it seems

every capitalist gets their profit from getting a normal rate of profit on their

capital.

And Marx's argument is that's just a superficial view of it.

What is actually happening is that surplus value

is being transferred from one

sector to another. If price goes above value,

you're receiving a profit above surplus value, which means somebody else's

capital is paying for that difference.

If price goes below value, you're not receiving all of the surplus

value you

yourself extracted as a capitalist, and it's going somewhere

else. So

deviations of prices from values imply transfers of value.

Now, that leads to a problem because in the

transformation

problem, these transfers add up, so they end up zero.

What one capitalist gets as pluses, all the other capitalists g-- and

other capitalists get in minuses add up to zero.

But

that turns out to be insufficient because when we develop the problem

further,

the transfers don't turn out to be between capitalists, they're between buyer and

seller.

And not every buyer

of a good is a seller of a good.

A buyer of a good can be, uh, a, a worker, the seller of labor power.

The buyer of a good can be a capitalist and owner of the means of production.

So then we suddenly have transfers of value that take place from the

capitalist

across circuits of capital and revenue, and it turns

out, uh, and, and that can be shown formally,

and will play a part in my

book,

that these transfers add up to zero, but they don't necessarily add up to zero

within the circuit of capital. In other words,

total profit can be different

than total surplus value because some transfer goes outside

and some stays within. A simple way to think of this is think of

capitalism being done,

uh, in Manhattan, but workers and capitalists living in Brooklyn.

Workers live in Staten Island, of course, and, and, uh, capitalists live in

Brooklyn. So buyers

who are buyers as personal consumers are buying

across the river, so to speak. Now, we can add up all the transfers within

Manhattan and all the transfers in Brooklyn and Staten Island.

The sum of these two transfers of the balance of payments is zero, of course.

But not all of them will be... You could have a positive sum here and

a negative sum here. Now, that simple principle turns out to explain

why profit can be different from surplus value.

In other words, one of the key problems in the

transformation problem.

My, uh, argument is not only can you do that,

but all the elements are

there.

Nothing I said is, uh, taken from anywhere else except the

argument in Capital. The circuits of capital revenue comes from

Volume Two.

It plays a big part in Volume Two. Did Marx do it just for the fun of it, or

did he have in mind using it for this issue of transfers?

Well, we have some clues. He had definitely an intention of using it

for transfer,

but he didn't. And the Marxist tradition, instead of picking

up on that gap and asking how could you deal with it,

simply either defended the hypothesis that profits must be equal to surplus

value or said, "Well, look, clearly they can be different, therefore,

surplus value

has no link to profit." This is exactly the Newtonian problem

that I was talking

about before.