[Guglielmo Carchedi (1992): Frontiers of Political Economy, Verso: 57-67]
The market value
on the one hand... is to be viewed as the average value of commodities
produced in a single sphere and, on the other, as the individual value
of the commodities produced under average conditions of their respective
sphere and forming the bulk of the production of that sphere. (Marx,
1967c, p. 178)
It is clear that here Marx uses the term “average” not in the sense of
“mean” but in the sense of “mode” or “modal group”, that is, as the
value around which, or the class in which, the values of commodities
tend to be more heavily concentrated. If this is kept in mind, there is
no harm in using the term average.
MARX: Carchedi 1992 | market value | OCC
The process through which the market value arises is technological
competition among capitals within a sphere of production. To understand
its nature, we should look at Marx’s notion of /organic composition of
capital /(from now on, OCC). The OCC has a double nature, so to speak.
On the one hand it depicts a value relation, it is a /value composition
of capital. /From this point of view it depicts the relation between the
value invested in constant capital and the value invested in variable
capital. On the other hand, it is a technical relation. From this point
of view it depicts the relation between the quantity and quality of
specific types of machines, buildings, etc., on the one hand, and the
quantity of labourers, with specific types of skill, who operate those
means of production, on the other. This is the /technical composition of
capital. /In short, “the value-composition of capital, inasmuch as it is
determined by, and reflects, its technical composition is called the
organic composition of capital” (Marx, 1967c, pp. 145-6).
MARX: Carchedi 1992 | OCC and technological competition | Thus /increased efficiency /(productivity) is not simply a /reduction of the value per unit of output /but, rather, it is such a decrease as a result of an /increase in the physical output per unit of capital invested /due to the introduction of “labour saving” techniques, that is, /due to /techniques which require a /higher OCC /per unit of capital. | productivity
This allows us to see the relation between technological competition and
OCC. An increased efficiency (or productivity) within a certain branch
means an increased output of use values per unit of capital invested in
that branch. This is made possible by the introduction in that branch of
more efficient technologies, of more “capital intensive” techniques,
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FRONTIERS OF POLITICAL ECONOMY
and thus by a higher OCC per unit of capital (Marx, 1967a, p. 622). This
means that the value per unit of output of these products falls while
the OCC increases. Thus /increased efficiency /(productivity) is not
simply a /reduction of the value per unit of output /but, rather, it is
such a decrease as a result of an /increase in the physical output per
unit of capital invested /due to the introduction of “labour saving”
techniques, that is, /due to /techniques which require a /higher OCC
/per unit of capital.
For example, in the textile industry we can witness “changes paralleling
those which ushered in the Industrial Revolution in Britain 200 years
ago”. In weaving, “shuttleless looms ... have greatly increased the
speed of weaving”. In spinning, “friction spinning machinery produces
yarn at the rate of 300 metres a minute, compared with the 150 metres a
minute that is the norm with established techniques of rotary spinning”.
In dyeing and finishing, “sophisticated control systems are required to
monitor the various stages in the addition of dyes and other chemicals
to fabrics”. In the design of new clothes, “computer-aided design is
playing a part” while “other advances are taking place in the area of
carding machines”. Some progress has even been made “in linking the use
of robots to automatic sewing machines”. Moreover, research and
development will have to be stepped up and new technologies are expected
to be even more expensive (Marsh, 1987).
<nb/>There are at least two points with regard to productivity which should
be mentioned. First, productivity is here a measure of units of output
per unit of capital, considered as the sum of its constant and variable
parts. The standard notion used in business literature is obtained by
dividing units of output by units of input. The advantage of the notion
submitted here is that it makes it possible to see the positive relation
between an increase in productivity and an increase in the percentage
share of constant capital (or a percentage decrease in variable capital)
in a unit of capital, that is between an increase in productivity and an
increase in OCC.
Second, productivity is a physical measure. It thus applies typically to
material labour. This notion can be applied to mental labour, but only
inasmuch as (a) the knowledge produced is incorporated in physical
entities (newspapers, pupils, etc.) and (b) that incorporation is
immediate, it does not go through intermediate steps. If there are such
intermediate steps, it is impossible to determine its effects on
productivity. For example, it would be wrong to measure the productivity
of product designers in terms of the number of prototypes completed. In
fact, “designing an item to make production smoother will improve the
efficiency of the entire plant” but “if such a design takes twice as
long to complete as a simpler approach, it certainly does not mean that
the engineer is less productive” (Chew, 1988, pp. 115-16).
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SOCIAL DISTRIBUTION THROUGH PRICE FORMATION
While technological competition and thus technological improvements can
lead to an increased OCC, it is also possible that more productive
technologies might be less, rather than more, “capital intensive”. There
would seem to be then no clear relationship between increased OCC and
higher efficiency. Actually, such a relationship does exist.2
Consider the semiconductor industry. Here, companies must continuously
invest in Research and Development (R & D) programmes and engage in
capital investments. Those unable to do so “do not survive more than one
or two product generations” (Ferguson, 1988, pp. 58-9). This is the
tendency, as indicated by the fact that, in the 1974-84 period, capital
expenditure in this branch has risen from 6% of revenue in both Japan
and the US to 28% in Japan and 20% in the US. This leads to increased
productivity in the production, and thus to lower prices of,
semiconductors. At the same time, they become increasingly powerful.
The counter-tendency is given by the cheapening of capital goods due to
technological innovations. In this case, as a consequence of the lower
costs and technological improvement of semiconductors, personal
computers (of which semiconductors are an essential component) become
cheaper and more powerful. This lowers the OCC (“barriers to entry”) in
certain sectors based on machining.
But this is only a counter-tendency, a temporary obstacle, so to speak,
to the realization of the tendency. In fact, the tendency reappears
within the counter-tendency as soon as this latter has become
manifested. In the computer industry itself, capital expenditures are
increasing. It now seems that
the entire information technology sector is headed towards a single,
wide technology base dominated by micro-electronics, systems
architecture, software, and flexible mass manufacturing. Cost structures
will be dominated by the initial and fixed costs of R & D, capital
investment and marketing. Marginal and direct labor costs will decline
to /negligible /levels. (Ferguson, 1988, p. 59; emphasis added, G.C.)
Against this background, we can now properly understand the nature of
the law of the tendential increase in the OCC. This is not an argument
for a secular trend, for a secular increase in the OCC. Rather, since a
tendency cannot exist without its counter-tendencies, we can observe the
co-existence of both tendency (in some branches) and counter-tendencies
(in others) and again the reappearance of the tendency within the
counter-tendency as soon as the latter (the branches where the OCC has
fallen) realizes itself. Seen like this, this is a tendency of the first
type. If data on the OCC are aggregated for all branches (both branches
where the OCC is increasing and where it is decreasing), then data show
a tendency
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FRONTIERS OF POLITICAL ECONOMY
of the second type, that is, the temporal succession of increases and
decreases in the OCC, according to whether the tendency or the
counter-tendencies are stronger at any specific moment. This movement,
far from being a sign of the unpredictability of the relation between
increased efficiency and level of OCC (see, e.g., Pasinetti, 1981, p.
188), clearly depicts one of the fundamental laws of movement of the system.
What empirical evidence is there to support this thesis? When estimates
of the OCC are examined statistics can be found which either support or
reject the thesis of the increase in the OCC.3 Is there then a reason
why we can confidently choose figures supporting, rather than rejecting,
the thesis of the tendential increase in the OCC? There is. But then
this thesis must be correctly interpreted, that is, <nb/>it must be seen as a
tendential increase in the ratio of constant to variable capital due to
the tendential mechanization and automation of production, distribution
and exchange, and thus to the tendential replacement of men and women by
machines.4 In short, higher OCC and higher unemployment are two sides of
the same coin.
Estimates of the OCC in specific countries are hard to come by. What one
can find are substitutes, as for example estimates of the ratio of the
stock of capital per employed. This ratio, even though a pale indication
of the OCC, is a good enough indicator for the present purposes.5 Column
(a) of Table 3.1 gives the figures of the stock of capital per employed
in the ten countries of the European Community (EUR 10), where 1960 is
equal to 100, and columns (b) to (g) give the rate of unemployment in
selected countries.
Comparison of column (a) with columns (b) through (g) in Table 3.1
leaves no doubt as to the direction of the movement. Equally eloquent
are international data on total unemployment for the OECD countries:
this was 8 million in 1973 and had reached 30 million in 1987 after
having peaked at 32 million in 1983. Total unemployment continues to
increase, even though with a fluctuating movement. The role of
information technology in this process has been momentous. As a recent
survey put it, so far information technology “has been used to reduce
production costs” but its widespread adoption “has contributed more to
unemployment than to growth” (UNCTC, 1988, pp. 47-8). Only one
illustration will suffice: “in Fiat’s factories the first generation of
automation cut manning levels by half /(The Economist, /May 21, 1988, p.
81).
Technological competition within branches leads to the introduction of
new and more efficient techniques by some capitalists. In order to be
competitive, the other capitalists have to adopt those techniques as well.
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SOCIAL DISTRIBUTION THROUGH PRICE FORMATION
*Table *3.*1 *Stock of capital per employed (a) and unemployment rates
(b) to (g)
<return/>
/Source: /(a) Mortensen, 1984, pp. 62-7; (b) to (g) various issues
ofOECD /Economic Outlook /and OECD /Main Economic Indicators./
For a time, these are the commonly used (modal) techniques. But while
the bulk of the producers use these techniques, on the one hand some
producers have not yet adopted them and, on the other hand, new
inventions are already being introduced in the production process. Thus
the general adoption of a certain technique does not exclude that, at
any given point in time, some capitalists have already introduced new,
and yet more advanced, techniques and some other capitalists have fallen
behind in the technological race. It follows that, under the coercion of
competition, <nb/>the bulk of commodities is produced by the modal capitals,
that is, the bulk of the production units is clustered in a modal
category. It is this modal category which determines the social value of
commodities.6
At this juncture, let us mention parenthetically two points. First,
technological competition is such that capitals compete not only by
introducing new techniques to produce the same good but also by
producing substitutes of that good. Inasmuch as commodities compete as
substitutes, they can be aggregated as one type of commodity and
constitute one branch.
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FRONTIERS OF POLITICAL ECONOMY
Secondly, under conditions of rapid technological change, enterprises
can use different techniques at the same time. The process through which
a technique becomes modal, that is, through which the bulk of
commodities is produced with that technique, is thus a gradual one. An
example is provided by the experience of a small engineering company:
In one corner of the factory stands a numerically controlled machine
tool bought in the early 1970s which is controlled by a perforated paper
tape and which the operator loads by hand with the appropriate drill bit
or cutting tool.
Nearby is a mid-1970s version of the same piece of equipment which is
computer numerically controlled. It has a programmable memory capable of
running several different machine programs and an automatic tool change.
The latest stage in [this] automation drive stands on another part of
the shop floor; it has a flexible machining centre with a series of work
tables which permit the operator to set up several rough castings for
machining. This allows him to carry out other tasks while the centre
selects the correct tool from the 80 in its magazine.
[This company] is one of a growing number of small companies in Britain
to computerize its manufacturing operations. Two thousand small
companies (employing between 10 and 99 people) - equivalent to 11 per
cent of manufacturing companies of this size range in Britain - had
introduced CAD/CAM by the end of 1986. (Batchelor, 1988)
It is thus not necessary to assume that the bulk of enterprises only
uses the modal technique and that the remaining part only uses either
less or more advanced techniques.7
<nb/>The process of diffusion of techniques and the emergence of the modal
one can be better understood by using the so-called S-curve,8 as in
Chart 3.1. In phase A, the introductory phase, a certain technique is
emerging. In phase B, the growth phase, it is adopted by an increasing
number of capitalists. In phase C, the maturity phase, it is adopted by
the maximum number of firms, which is not necessarily 100% of all firms.
In phase D the technique begins to be abandoned in favour of other, more
efficient, ones.
At any given moment there is a technique which has become the modal one
(except for a particular case to be discussed shortly) and which has
reached or is reaching phase C. Other competing techniques are emerging
(phase A), are spreading (phase B), have reached their maximum expansion
without having become the modal one (phase C), or are starting to disappear.
It is possible that during a certain period no technique is modal
because this is a period of transition in which two or perhaps more
techniques produce approximately the same quantity of a certain product.
In this case, the tendency towards a modal technique, a tendency of the
first type, changes into a tendency towards a mean technique, one of the
third type. The realized modal technique changes into an unrealized mean
tech-
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SOCIAL DISTRIBUTION THROUGH PRICE FORMATION
Chart 3.1 The diffusion of a technique
nique towards which the realized techniques tend by overtaking each
other in terms of efficiency and thus in terms of the quantity of
products produced by each of them. But this change, important as it is,
has no relevant theoretical consequences for the present purposes. It is
also possible that the unrealized mean technology, a tendency of the
third type, changes again into a tendency of the first type if one of
the competing technologies gains again the upper hand and produces the
bulk of the commodities.
The choice of the modal^9 technique, or production process, is influenced
not only by technological changes in the branches producing its
instruments of labour but also by at least three other factors. First,
the technology in a certain branch is changed by technological
developments in those branches which produce its objects of labour.
Biotechnology provides a particularly important example. As a result of
developments in the biotechnology branches, their products become
interchangeable inputs for other branches, e.g. food and beverages. For
example, at the beginning of the 1980s, the US soda producers switched
from beet sugar, imported from the Philippines, to maize (of which the
US is the largest world producer) as a sweetener (Ruivenkamp, p. 7).10
Second, the choice of the modal production process can be influenced by
technological developments outside that branch and affecting the use
and/or the price of that product. For example, in the competitive
struggle between conventional 35 millimetre cameras and instant cameras, the
63
FRONTIERS OF POLITICAL ECONOMY
declining popularity of instant photography can be explained not only by
“the advent of easy-to-use, relatively inexpensive 35 millimetre
cameras” but also by “the proliferation of one-hour film processing
shops which produce photographs which may cost half as much as instant
prints” (Sims, 1988).
Third, the question as to which technique becomes modal is also
dependent upon brand-name and extensive distribution network. But these
factors, in turn, are related to technological superiority and can play
a dominant role independently of that superiority only for relatively
short periods of time.
How do we find the market value? By theorizing the real process of price
competition within a branch.
The modal capitalists compete on the market, in order to sell their
products, and this process ensures that those products are sold at
roughly the same price. But the other (non-modal) capitalists tend to
ask the same price too. If there is sufficient demand for all products
to be sold, capitals with above mode productivity have no reason to
lower their price and capitals with below mode productivity must sell
their commodities at this price. If demand and supply do not coincide,
price competition and supply adjustments will tend to bring supply in
line with demand, so that all commodities are tendentially sold (I
disregard crises of realization). In short, tendentially, all
commodities are sold and their price tends towards the price realized by
the modal ones, that is, the price realized by the commodities produced
under modal conditions of productivity. It is because of this assumption
that the market value is a /tendential /concept.
This means that the computation of the market value must be carried out
under the /D /= /S assumption, /that is, under the assumption that
social demand is such that /all commodities are sold /at their social
(market) value, /at the price realized by the modal commodities so that
capitals with different levels of productivity tendentially realize
different rates of profit.^11 In Marx’s words,
<nb/>For a commodity to be sold at its market value, i.e. proportionally to
the necessary social labour contained in it, the total quantity of
social labour used in producing the total mass of this commodity must
correspond to the quantity of the social want for it, i.e. the effective
social want. (Marx, 1967c, p. 192; see also pp. 178 and 185)
Or, in order to determine the level of the market value, we must
abstract from discrepancies between social demand and supply.
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SOCIAL DISTRIBUTION THROUGH PRICE FORMATION
It follows from what has been said above that, in order to compute the
market value we must first compute the individual value of the modal
commodities and then consider whether social demand is such for the
modal commodities (and thus for all commodities) to realize that value
or not. If it is not, both modal and non-modal commodities must realize
a modified value. Consider Table 3.2 which depicts three capitals within
the same branch, where c is constant capital, v is variable capital, s
is surplus value, V is the value produced by each unit of capital, O is
the output per unit of capital, V/O is the individual value per unit of
output, VTR/C is the value tendentially realized per unit of capital,
and VTR/O is the value tendentially realized per unit of output, or
market value per unit of output. In this table these three capitals are
assumed to constitute the whole branch and capital I is assumed to
produce the bulk of those commodities. Here, capital I is not shown to
be the modal one (its output would have had to be much larger than that
of the other two capitals). A more detailed picture would show three (or
more) categories such as IA ... IH, II, ... IIM, ΠIN ... IIIZ where the
output of the capitals in category IA ... IH would represent the bulk of
that branch’s commodities and where for each capital the total capital
invested would be shown.12 This would be a more detailed picture of
reality but a simple model as in Table 3.2 has all the elements
necessary to depict the real process under consideration while, at the
same time, conveniently showing them at a glance. Also, in this and the
following tables, by value is meant hours of homogeneous labour, that
is, after skilled labour has been reduced to unskilled labour and after
more or less than average intensity labour has been reduced to its
average intensity (for the rationale behind this assumption, see 3.7.4
below). Since value manifests itself as money, c, v, s, V, etc. can also
be expressed in money terms.
By assumption, in Table 3.2 the individual value of the modal commodity
is the value of the unit of output of capital I, 120/100 = 1.2. Under
the assumption that the market value coincides with the individual value
*Table 3.2 *The formation of the market value
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FRONTIERS OF POLITICAL ECONOMY
of the modal commodities, capital I realizes 100 x 1.2 = 120; capital II
realizes 130 x 1.2= 156; and capital III realizes 90 x 1.2= 108. In this
case, the value realized is 384 (120+156 + 108) which is bigger than
360, the value produced. To realize 384 there must be a transfer of
purchasing power from other branches.
But such an outcome can only be accidental. Suppose that only the value
produced can be realized in that branch. To see how much value each
capital tendentially realizes under this distributional constraint in
Table 3.2, a /distributional ratio /equal to 360/384 = 0.9375 must be
applied. Then, the value realized per unit of output (VTR/O) falls to
1.2 x 0.9375 =1.125. This is the market value per unit of output (see
the last column of Table 3.2). The three capitals then tendentially
realize the values given in the VTR/C column, 100 x 1.125 = 112.5, 130 x
1.125 = 146.25 and 90 x 1.125 = 101.25. The three rates of profit are
12.50%, 46.25% and 1.25%. This is the tendential reward for the most
efficient capital (II) and the penalty for the less efficient one (III).
In terms of value, there is a transfer of value from capitals I (112.5 -
120 = -7.5) and III (101.25 - 125 = -23.75) for a total of 31.25 to
capital II (146.25-115 = 31.25). Now the total'value realized (112.5 +
146.25 + 101.25) is equal to the total value available for distribution
(360), all commodities are sold at a value (1.125) equal to the value
realized by the modal commodity, and the capitals which are more (less)
efficient that the modal ones realize a higher (lower) rate of profit
than that of the modal capitals.
The previous subsection has shown that the size of the market value
depends upon whether transfers of (and thus changes in) social demand
are allowed or not. This would seem to contradict what was said in
subsection 3.2.4, that to find the market value we have to abstract from
changes in demand, or fluctuations of demand around supply. It would
seem then that we both need to take into account shifts in social demand
and abstract from them. However, this is not the case.
Consider two branches, A and B, where - given a certain level of supply
- there is sufficient social demand (demand and purchasing power) for
all commodities /a /and /b /to be sold at a price equal to the
individual value of the modal ones.
Suppose now that the social demand for /a /increases, while supply
remains unchanged: /a's /price increases too. But then /b’s /price must
decrease. If purchasers, due to this shift in relative prices, return to
the previous pattern of demand, prices will return to the old level.
This is a /weak /or /self-correcting /change in social demand. In this
case the market
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SOCIAL DISTRIBUTION THROUGH PRICE FORMATION
value has not changed, but there has been a fluctuation of the market
price of /a /and /b /around their market value. The fluctuation of
demand around supply has not created a new axis around which the market
prices can fluctuate (Marx, 1967c, pp. 180-81).
But it is also possible that an increase in the social demand for, and
the price of, /a /does not discourage the purchase of /a /and that the
concomitant decrease in the social demand and price of /b /does not
encourage the purchase of /b. /The need for /a /and /b /can still be
satisfied, but at different price levels. In this case, the market value
has risen in A and fallen in B. The modal commodities realize more than
their individual value in A and less in B. This is a /strong /or /non
self-correcting /change in social demand. A new centre of gravity has
been created around which the market prices fluctuate.13
In short, the changes in demand which determine the level of the market
value (non self-correcting changes) are not the changes in demand
(self-correcting changes) we have to abstract from in order to determine
that level and which determine the market prices.
Thus the D = S assumption means not only that there is sufficient social
demand for all commodities to be sold at a price equal to the price
realized by the modal commodities (something which implies that we take
into account strong changes in social demand) but also that we disregard
weak changes in social demand.
To sum up, the /market value per unit of output /is the value realized
by (and not necessarily the individual value of) the modal commodities.
Its level, or magnitude, is determined (a) by the structure of
production (which determines the individual values of the modal
commodities), (b) by the distribution of social demand among branches
(which can cause deviations of the value realized by the modal
commodities - and thus by all commodities - from their individual value
due to non self-correcting changes in the distribution of social demand)
and (c) under the tendential condition that all commodities are sold
when their price equals this social value, and disregarding the
self-correcting differences between demand and supply.14
Table 3.2 shows that /capitals /are rewarded in terms of transfer of
value for the introduction of new techniques. But the reward in terms of
value is not perceived by /capitalists. /They are only interested in
prices and profits, in the fact that within a given time period they are
now producing
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FRONTIERS OF POLITICAL ECONOMY
more physical units per unit of capital invested and that they can sell
them at a money price that brings in larger money profits. This larger
production, or this larger money profit, is what motivates the
capitalist to invest in capital intensive techniques. But at the level
of value, the discrepancy between the individual value of a commodity
and the value it realizes is what causes an appropriation of value from
other capitalists. Thus, for capital II, 1.125 > 0.8846. The opposite
holds for the less efficient capitals (for capital I, 1.2 > 1.125, and
for capital III, 1.3889 > 1.125).
Through the price mechanism, the more productive capitals can
appropriate more value than the value produced by their workers and
increase the tendentially realized rate of profit as well as, once we
drop the D = S condition, the actually realized rate of profit. This
creates the /illusion /that dead labour, or constant capital, creates
value, whereas constant capital is only the means through which value is
appropriated from other, less productive, capitals.