i give up
This is interesting. I hadn’t thought of this. I suppose, however, that Mr. Keen would argue that independent or not, the mere existence of the M-C-M circuit negates Say’s Law.
Indeed. But Marx doesn’t believe he’s describing any sort of arbitrage (at least according to Bohm-Bawerk’s analysis, which I rely upon exclusively here since I’m no expert in Marxism).
Bohm-Bawerk:
"…[Marx] declares that the surplus value can neither originate in the fact that the capitalist, as buyer, buys commodities regularly under their value, nor in the fact that the capitalist, as seller, sells them regularly over their value. It cannot therefore originate in the circulation. But neither can it originate outside the circulation. For ‘outside the circulation the owner of the commodity only stands related to his own commodity. As regards its value the relation is limited to this, that the commodity contains a quantity of the owner’s own labour measured by definite social laws.’. (Capital and Interest, p. 371)
Marx:
Our money owner, who is yet only a capitalist in the grub state, must buy the commodities at their value, must sell them at their value, and yet at the end of the process must draw out more money than he put in. The bursting of the grub into the butterfly must take place in the sphere of circulation, and not in the sphere of circulation. These are the conditions of the problem. (Das Kapital, p. 150; Capital and Interest, p. 372)
As Bohm-Bawerk indicates, the origin of the ‘surplus value’, or profit, in Marx’s analysis is the commodity of labor.
Bohm-Bawerk:
The solution Marx finds in this, that there is one commodity whose use value possesses the peculiar quality of being the source of exchange value. This commodity is the capacity of labour, or Labour Power (Capital and Interest, p. 372).
Thus, seems to me that the entire of Mr. Keen’s criticism of Say’s Law, constructed as it is upon Marx’s twin circuits C-M-C’ and M-C-M’, comes down to whether or not Marx is correct in his identification of ‘labour power’ as the source of capitalist profits.
Summarise this in one paragraph, otherwise it’s just too TL;DC. As for Marx’s belief that “labour power” is the source of profit, Reisman has eviscerated this abject nonsense in his article on the Marxian theory of exploitation. Will Marx ever recover from the total rape? Who knows…
What does “Mr Keen” think money is, exactly?
Not the point, but good to know.
I will not. This is your problem, not mine. Color crayons and pretty pictures aren’t included. Sorry.
All relevant info on Mr. Keen’s argument can be found in the OP, and certainly in Mr. Keen’s paper which is linked in the OP. The stipulation, however, is that you have to care to bother yourself.
So yes, it is relevant. BTW, learn to summarise stuff for your audience if you want people to take the time to read it. Copy/pasting blocks of text is unlikely to get a substantive response, your dismissive little tirade notwithstanding.
Perhaps, but again, only if you consider M-C-M and C-M-C as independent circuits. They’re not. First, the stipulation (implied by Marx) in the C-M-C circuit is that the laborer/artisan exchanges a good/service for a sum of money, all of which he then surrenders on the purchase of another good/service. This is demonstrably false since it is obviously far from a universal rule. What we see in exchanges, is that although people may spend a great proportion of M immediately, the balance is saved. They may choose to use this remainder to effect the purchase of another C (thus concluding the circuit) at some time in the future, or instead embark upon the M-C-M circuit. That some people choose (willfully or ignorantly) to refrain from ever engaging in M-C-M transactions can hardly be a sound criticism of Say’s Law, that ultimately it is one’s production Isupply) of marketable goods and services which permits him to purchase (demand) something else.
That may be the case. I think there are a lot of reasons to doubt te argument that ‘labour power’ is te source of capitalist profits (at least in any reasonably free economy). Responding to Rodbertus, in Capital and Interest, Bohm-Bawerk writes:
…The perfectly just proposition that the labourer should receive the entire value of his product may be understood to mean, either that the labourer should now receive the entire present value of his product, or should receive the entire future value of his product in the future. But Rodbertus and the socialists expound it as if it meant that the labourer should now receive the entire future value of his product, and they speak as if this were quite self-evident, and indeed the only possible explanation of the proposition. (emphasis added)
…present goods have a different value in the present from future goods.
Point taken. I apologize. I will edit the OP to include a summary.
Good idea. BTW, Reisman’s article addresses the question of the origin of profits in the latter section. I’m not sure what you mean if it’s not the question he answers in the article.
As this is my first post I will quickly introduce myself: I am about to begin my journey into economics, so my knowledge on theory and the various schools is in no way developed. Atm I identify myself as being Post Keynesian (PK), but in saying that I also agree with Austrian criticisms of government. I see quite a bit of overlap between the Austrians and Post Keynesians, in particular in regards to uncertainty and time as espoused by Shackle (I consider to be an PK) and Lachmann. In saying that, my depth of knowledge on the Austrian School is extremely elementary, the most I can say is that I am aware of the school, parts of their methodology, several key figures, spontaneous order and the Austrian business cycle theory. I frequently visit mises.org and the forums, and I have been intending to join for several weeks now, but have been kept busy by uni and work.
In regards to Say’s Law, I have been going through Chapter XV, The general Theory and SAY’S LAW WERE (ARE) THE CRITICS RIGHT. I haven’t been too impressed with the latter to be honest.
Now onto Steve keen.
From what I have read of Keen’s work he has a unique interpretation of Marx, in that he distinguishes between two of Marx’s theories of values. The first being Marx Labour Axiom from which The labour theory of value is derived, and the second being Marx’s Commodity Axioms. Steve Keen firmly rejects the former, that is the LTV but accepts the latter. On the LTV you can find Keen’s criticisms in his book, Debunking Economics. Throughout the book he consistently rejects the LTV and that aspect of Marx, and finally dedicates an entire chapter to why Marxism is irrelevant but why most of Marx is not. I’m unsure whether he distinguishes between the two theories of value in this book, but he certainly distinguishes between them in Use-value, exchange value and the demise of Marx’s labor theory of value (Keen, 1993. I believe you can find this on his website www.debtdeflation.com/blogs/). That paper should be of particular interest as Keen suggests that the LTV isn’t even logically coherent using Marx’s methodology. A conclusion reached from the paper is that labour is a source of value but so is every other input in the production process, which makes the LTV irrelevant. On the Commodity Axiom, keen accepts and sees them as incongruous with the LTV. It is from the commodity axiom that C-M-C and M-C-M’ are derived, as well the foundation for his critic of Say’s Law.
Regarding the popularity of Steve Keen in Australia, he has certainty experienced a boom in popularity of recent, but he is largely ignored by the mainstream economists in the media and academia. When he has been acknowledge, it has usually resulted in outright attacks against him, for suggesting that the central bank was a factor in causing this crisis, that Australia is not immune and not special and won’t be able to wear the coming storm.
Steve keen isn’t a Keynesian, but a Post-Keynesian (he also identifies with elements of the Austrian school, mainly Schumpeter). As I have previously mentioned they have a slight overlap with the Austrian School regarding uncertainty, time etc but they also stress effective demand (hence there disagreement with Say’s Law), they believe that Keynesian and New Keynesian are incompatible with Keynes and outright reject Mainstream economics (neo-classical, New Keynesian). You’ll find that a lot of their papers are directed entirely at the logical inconsistency of the Keynesian Schools. Other foundations for the school include aspects of Marxism, Sraffa, Schumpeter, Institutionalists, systems and cybernetic theory (I believe Hayek might overlap here as well).
As to Say’s Law, I will admit I do not have the knowledge to properly argue this point I have only recently began to look at it in any great depth, in saying that my current opinion is that it doesn’t hold in our economic system, but my opinion is certainly not concrete and most likely subject to change. Steve Keen’s rejection of Say’s Law stems from his belief that money is a store of value, that there is a distinction between saving and investment and that there exists in our society a class which wishes to draw more out of the system than they put in, as represented by M-C-M`. This existence of this class and this behaviour in the economy invalidates Say’s suggestion that producers solely produce to consume and that ‘money performs but a momentary function’.
Unfortunately I do not have the time to respond to the rest of the post, and I admit that I have only read the first part before Austroglide dives in and begins his rejoinder. I wanted to clear up any misunderstanding that may have come about from the assertion that Keen accepts the LTV and that the LTV forms the basis of his attack on Say’s Law.
Edit: I apologise for the weird text that has appeared on the post. I can only see it when I view the post, not when I try to edit it. I copied my post over from word, so perhaps that has something to do with it. again apologies, if a moderator wants to clean them up, then by all means go ahead. I would greatly appreciate if someone could tell me what I can do to get rid of them.
If you paste into the HTML editor instead of the Rich Text Editor, that might take care of it, but then you would lose any font formatting (e.g., italics, underlines, etc.) that you had made.
Ultimately, it is forecasts and projections about what the market will ultimately value, which induces entrepreneurs, laborers, etc., to undertake the effort and disutility of labor. The perception that the product of one’s labor will in the future be valued by others is what causes labor. It is not the labor which causes value, but rather the belief that one’s labor will ultimately be valued, which causes labor.
In a free market, the production costs for a good, A, will tend to approximate the market prices for A, because anyone unable to produce A profitably at less than the market prices will direct his labor to some other more gainful endeavor.
I agree with this.
(1) Does Marx view the twin circuits as independent? This is not clear in Mr. Keen’s presentation.
(2) A distinction: Marx assumes subsistence wages in his analysis, so for him there would be no inconsistency in assuming zero net savings in the C-M-C’ circuit. This would clear Marx.
However, as your answer implies, it doesn’t clear Mr. Keen, for obviously subsistence wages can’t realistically be countenanced in any analysis of today’s economies. I agree with you on this.
This point aside, as far as Mr. Keen is concerned, the locus of the fatal flaw in Say’s Law is the M-C-M’ circuit. To Mr. Keen’s understanding, Say’s Law easily accommodates the C-M-C’ circuit, but cannot accommodate M-C-M’. Thus, the key to his argument is the unpacking of his reasoning regarding M-C-M’ and the economic dynamics he (and Marx) associate with it.
Mr. Keen:
…whereas exchange in the C-M-C’ sphere has its own guarantee of overall balance, no such guarantee exists for exchange done within the M-CM+ circuit. (Keen, p. 207)
This [M-C-M’] circuit violates Say’s precepts about the behaviour of producers, justifies Keynes’s later distinction between aggregate supply and aggregate demand, and introduces ‘general gluts’ and other macroeconomic phenomena as potential causes of economic crises in addition to disproportionality. (Ibid, p. 201)
Indeed, Mr. Keen attributes many an economic malady to the M-C-M’ circuit:
With the presence of a circuit dominated by the desire to accumulate, the simple harmony of commodity production and consumption (vulnerable only to disproportionality) gives way to the potential for instability arising from speculative overproduction, excessive and insufficient expectations of profit, maldistribution of income, excessive debt, and the whole panoply of macroeconomic issues that believers in Say’s Law cannot comprehend. Say’s ‘Law’ therefore, is not a recondite insight into the nature of a market economy, but evidence of a basic failure to comprehend capitalism. (Ibid, p. 202)
Welcome. I respect your open minded approach.
Do you happen to have any links to Mr. Keen’s ideas on this commodity-based value theory? I think it’s necessary to understand Mr. Keen’s value theory before addressing any of the points you raise in your post.
He’s wrong becuase adding money doesn’t actually change anything. Profit and interest are not monetary phenomenons, they exist with in barter economies as well.
Money simply helps humans to calculate profit, it does not create it. No more than the invention of measuring stick created distance.
Individuals act to replace a less desireable situtation for a more desireable situtation. They act when they expect to get more than they gave up, it doesn’t matter if they are substance farming, bartering, or using money.
A lot of his papers can be found at his blog
In regards to his ideas on the commodity based value theory, I would suggest reading:
Use value, exchange value and the demise of Marx;s labor theory of value
A Marx for Post Keynesians (unpublished)
The first link details the two set of axioms and explains how the LTV is not compatible with Marx’s labour axioms. As i said earlier his interpretation of Marx is quite unique, and he demonstrates that there is no logical foundation for the LTV from Marx.
I’ve read these two papers, and here is my response:
==================================================================================
Mr. Keen proposes the notion that capitalism can best be understood using a dialectic methodology and theorizing upon a set of seven axioms taken from Marx, what he calls Marx’s “Commodity Axioms”. (“A Marx for Post Keynesians,” pp. 3-6)
Central to Mr. Keen’s economics, thus his criticism of Say’s Law, are two tenets:
- “surplus value” (in other words, capitalist profits) results from capitalists purchasing inputs, the value of the final output of which will be higher than the initial factor costs
- capitalism has two main circuits: (C-M-C) where the objective is the consumption of “use values”, and (M-C-M) where the objective is the production of surplus value
Unfortunately Mr. Keen’s argument is a hot, hot mess.
At root, the problem lies in Mr. Keen’s inability to satisfactorily account for the origin of surplus value. To be sure, he quite ably asserts, again and again, what he believes its origins to be. But, ultimately, the project comes to naught because no reasonable proof of origin ever is submitted.
Notice:
Mr. Keen’s value theory posits that commodity prices are determined by costs of production. (Ibid, p. 13)
Notice also, however:
Mr. Keen’s understanding of the M-C-M’ circuit requires quite the opposite:
…money is used to buy inputs to production…which are then combined in production to produce new commodities of greater value than the inputs, which are sold for more money than the inputs cost. (Ibid, p. 7)
According to Mr. Keen’s analysis of M-C-M’, capitalist profits result from a process of arbitrage. For the arbitrage to work, the selling price must be greater than the production costs. However, this contradicts Mr. Keen’s supposition that commodity prices are determined by costs of production; for if this were actually the case, the capitalist’s selling price would be equal to his production costs.
==================================================================================
Surely this can’t be it. Something still must be missing from this picture. Indeed, something is still missing. However, its inclusion will not clarify matters one bit, for this is precisely where Mr. Keen’s “analysis” depends centrally on “the appeal to assertion”.
In short, this is where the concepts of “exchange value” and “use value” enter the picture. Capitalists, it is supposed, purchase commodities at prices which reflect their exchange values, but in the process of production their use values are brought to bear, resulting in a final commodity of higher value than the combined factor costs. This is the hypothesized origin of surplus value and capitalist profits.
But Mr. Keen fails to provide a convincing explanation as to why this is a credible representation or accurate description of the production process. His singular accomplishment here is merely to assert the relationships among exchange value, use value, and market prices. Indeed, no explicit argument is ever formulated to prove this proposition. Instead, Mr. Keen, following Mr. Marx, implicitly and silently grants its truth based upon the mere fact of capitalist profits.
And here’s a bit of completely non-shocking news:
The attempt to achieve an acceptable reconciliation has been a major, if not the major, intellectual focus of Marxian economics. See Desai 1988 for a recent survey; for a recent attempt to “solve” the transformation problem, see Mohun 1994. [!] (Ibid, p. 5).
In other words, no Marxist can provide a convincing account of surplus value.
In other words, Mr. Keen’s argument is fatally flawed.
==================================================================================
But if Mr. Keen’s explanation for capitalist profit is unsound, then so too is the M-C-M’ conception. Not to mention Mr. Keen’s central use of M-C-M’ to supposedly debunk Say’s Law.
Indeed, the argument forwarded in the OP regarding Mr. Keen’s profit theory still applies. Ideally, both the value and profit theories would concord, but when here they don’t, the value theory makes no difference - for it’s the path of capitalist profit in the M-C-M’ circuit that Mr. Keen hopes convincingly to trace in disproving Say.
==================================================================================
Finally, the tone used here is perhaps a bit flippant. The argument, however, is not. If an hypothesized cause and effect cannot be proven and instead must be asserted, the explanatory truth of the hypothesis cannot be granted. It is reckless to proceed with an economic analysis built upon such a faulty foundation, and the results of such an analysis should be regarded as useless.
One would be well served to keep a long distance from the sway of Mr. Keen’s theories.
==================================================================================
EDIT: I am mistaken just above when I argue the following:
But if Mr. Keen’s explanation for capitalist profit is unsound, then so too is the M-C-M’ conception. Not to mention Mr. Keen’s central use of M-C-M’ to supposedly debunk Say’s Law.
The M-C-M’ conception, removed from its original Marxian context, and therefore absent the Marxian conceptions of use-value and exchange-value, can indeed describe the process which brings about capitalist profits.
The Austrians, like Mr. Keen, posit the origin of profits to be entrepreneurial arbitrage, after all. Of course, the Austrian theory of entrepreneurial arbitrage is far different from that of Mr. Keen. What’s more, the Austrians conceive of this arbitrage as an economic good - indeed, an economic necessity - at the heart of a growing free market economy. The reasons why are examined in the latter sections of the OP, “The Austrian Analysis of Profit” in particular.
By contrast, Mr. Keen (incorrectly) conceives of the arbitrage as containing the germ of many an economic ill, as well as the key to demonstrating the fallacy at the root of Say’s analysis. The problem with Mr. Keen’s analysis is that it builds upon the Marxian constructs of exchange-value and use-value - and therefore conceptually is burdened with the impossible task of logically developing an irrefutable connection between exchange-value and use-value on the one hand, and how these cause market prices and capitalist profits on the other. Mr. Keen fails in this, and indeed apparently so too have generations of Marxists. Ultimately, then, Mr. Keen is unable to provide a reasonable account for capitalist profit. Without such an account, his economics are catastrophically lacking.
Greetings,
I wouldn’t ordinarily engage in a debate on here, but since a major premise of your case is that my critique of Say’s Law relies upon Marx’s “Labour theory of value”, and is therefore false, I felt impelled to point out to you that my very first published academic paper was entitled Use-value, exchange-value, and the demise of Marx’s Labour Theory of Value (Journal of the History of Economic Thought, 15 (1), Spring, 107-121).
In that paper I showed that the labour theory of value was intellectually inconsistent with Marx’s avowed method of dialectics (which, by the way, is also part of Hayek’s method–though he like Marx applied it badly at crucial junctures [See Chris Sciabarra’s Marx, Hayek and Utopia on that point]]. In brief, the “Labour theory of value” is false on the basis of Marx’s own logic, and it has never formed part of my intellectual foundation. Properly applied, Marx’s foundational logic argues that all inputs to production are potential sources of surplus value, and all the arithmetic of the “Labour theory of value” is nonsense from first principles.
Regrettably I have had as little luck in convincing committed Marxists of this as I will apparently have in convincing committed Austrians of the falsity of Say’s Law.
It is also possible, please, for someone who has a flaw in part of his analysis to be right in another. The very proposition that because I used Marx’s excellent argument against Say’s Law, the critique must therefore be false because it quotes Marx, is a sign of the painful ideological divide that has made economics far more a set of competing religions than a candidate for science.
Greetings,
I will address this specifically later, if this remains your wish.
For now, however, notice in my post immediately above that I have corrected my analysis to accommodate your cost of production theory of value, and therefore it is the more germane argument to discuss.