15 Transformation problem

Feygin

Legal Marxists like Petr Struve and, most importantly for economic theory, Mikhail Tugan-Baranowsky were trained both in Marxism and Austrian Marginalism. Tugan-Baranowsky’s intellectual project was to figure out how to make the labor theory of value work with the critique of it presented by Bohm-Bawerk and his concept of “roundaboutness” – or how capital goods produce other capital goods and also consumer goods. In Bohm-Bawerk’s critique of Marx, roundaboutness means that it is the particular time in production, not labor exploitation is where capitalists derive their value added. Tugan-Baranowski and other Russian legal Marxists ( I should note here that Russian is a difficult identity Tugan-Baranowski was a Ukrainian and later was the finance minister of the social-democratic Ukrainian 1917 Central Rada which, shortly after his death, became the government of the Ukrainian People’s Republic) noted that you could make the labor theory of value work together with roundaboutness if you reject, as Marx began to in Volume 3 of Kapital, that the rate of profit must fall. Instead, capitalists can change the technical composition of capital to create more or less roundaboutness from production to consumer goods output and maintain profits.

The falling rate of profit thus became a special condition to be created by very rapid innovation and growth, not a hard and fast rule. Capitalism could just go on and be relatively stagnant and stable. This inspired several further developments in Russian economic thought. First, it was behind Kondratieff’s technological cycles, which showed how capitalist economies could adapt to productivity shocks created by new technologies without collapsing due to class conflict. It also was the impetus behind Ladislaus Bortkiewicz’s (another Russian-born economist but not of Russian but Polish origin) solution to Marx’s transformation problem. Bortkiewicz showed that you could get an accurate price and profit rates using a labor theory of value if you modified Marx in two ways. First, you solved the problem simultaneously rather than sequentially as a series of simultaneous equations. Second, you assumed a three-sector model wherein you have sectors which produce both machine tools, wage goods, and luxury goods.

Feygin (2023) Economists We’ll Be Talking About: Wassily Leontief