This is a reply to the first of Andrew Kliman’s two posts on my recent book Money

and Totality: A Macro-Monetary Interpretation of Marx’s Logic in Capital and the

End of the ‘Transformation Problem’. I will pass over Kliman’s insults to me and
other Marxian economists in the opening paragraphs of his post and try to keep the
discussion on a higher plane.

In Kliman’s post, he attempts to prove that my interpretation of Marx’s theory of the

rate of profit “arrives at physicalist results” with a numerical example and some
algebra. Kliman’s model is a very simple two-sector model which assumes no fixed
capital and equal turnover times in the two sectors. Therefore, whether or not
Kliman’s conclusions follow from his simple model – to be examined below – they
do not apply to my interpretation of Marx’s theory which assumes fixed capital and
unequal turnover times. But let’s take a look at Kliman’s simple model.

The example consists of two periods – before and after technological change (see
Kliman’s tables on p. 3 of his post). The “technological change” that is assumed in
the second period takes place primarily in Sector 2. C in Sector 2 is the same (10) in
both periods, but V and also S are reduced from 10 to 2 and thus value (W) is reduced
from 22 to 6, and the rate of profit for the economy as a whole is reduced from 50%
to 25%.

In Sector 1, C, V, S, and W all remain the same, but profit is reduced from 6 to 3 (as a
result of the reduction in the general rate of profit) and thus price is reduced from 18
to 15. In a later narrative, Kliman states that the quantity of output in Sector 1 is also
reduced from 18 to 15 (hence it appears that the unit price is assumed to be =1 in both
periods). But this is a bizarre result – the quantity of output in Sector 1declines even
though both the inputs of C and V remain the same. What kind of “technological
change” is this? I wish Kliman would explain why output in Sector 1 declines.

Along with this numerical example, Kliman presents some algebra that he claims
proves that my interpretation of Marx’s theory of the rate of profit is “physicalist”
(i.e. depends only on physical quantities). This argument begins with the equation
under the tables on p. 3 of his post, which Kliman argues holds true for this numerical
example and also holds true in general. However, Kliman does not explain how this
complicated equation is derived and I wish he would explain this derivation in detail.

In any case, Kliman argues further that, because my interpretation assumes that input
prices are equal to output prices, various substitutions can be made into his equation
(1) that convert the quantities of money capital in my interpretation to physical input-
output coefficients and relative price ratios, and the relative price ratios cancel out, so
that equation (1) is converted into equation (1”) (toward the bottom of p. 4 of his
post), according to which the rate of profit depends solely on the physical input
coefficients a and b.

1
However, these substitutions are possible only because there is only one capital good
(Sector 1) and only one wage good (Sector 2). For example, if there were two capital
goods, then:

C1/P1 = (p1 a11X1 + p2 a21X1) / p1X1 = a11 + (p2 /p1) a21

which does not reduce to a11. And similar results for C2/P2, C3/P3,V1/P1, V2/P2, V3/P3.
Many price ratios would remain and would not cancel out. Therefore, equation (1”)
cannot be derived from equation (1) if there are more than 1 capital goods and wage
goods, which of course there are (many more) in the actual capitalist economy.

Indeed, I don’t think even equation (1) could be derived if there are more than 1 capital
goods and wage goods.

Therefore, Kliman’s argument does not prove that my interpretation of Marx’s theory of
the rate of profit is “physicalist”.

Fred Moseley