This is an important book, written by Andrew Kliman, and published by Lexington Books. In a nutshell, what Andrew Kliman shows is that Marx's laws of motion of capitalism (how capitalism works and does not work) are logically consistent and theoretically valid.

Kliman's book is a compilation and summary of all the efforts of a few Marxist economists over the last 30 years to defend Marxist economic theory from critics (both bourgeois and those claiming to be Marxist).

Over the last 100 years, various bourgeois economists have all claimed that Marx's labour theory of value and its application to understanding how profitability under capitalism would move was logically inconsistent and/or just plain wrong.

So overwhelming were these arguments that most economists, including most Marxist economists, accepted them. The eminent Marxist economist Paul Sweezy swallowed the criticisms hook line and sinker in 1949 when he republished both Böhm-Bawerk and Bortkiewicz's papers. Later in the 1970s, most Marxist academics accepted the arguments of Sraffa and the Japanese Marxist economist, Okishio, that Marx's errors meant that his law of the tendency of the rate of profit to fall under capitalism was wrong theoretically. They included Michael Kidron and Andrew Glyn in the UK, among many others.

For them, Marx could not explain the nature of capitalist exploitation consistently and could not provide a logical explanation of capitalist crisis either. Thus, Marx's economic theories were shelved except by a few, who were quickly dubbed 'fundamentalists' unable to accept reality.

What were main criticisms of the bourgeois and Marxist critics of Marx? The first deals with Marx's transformation of values of each commodity (as measured by the labour time going into producing them) into prices of production (as measured by cost of production and the average profit).

Marx knew that his labour theory of value did not mean that each commodity sold in the capitalist market would be priced according to the labour time needed to produce them. Competition under capitalism meant that profitability would tend to be equalised or averaged out across the economy. If a company or industry had a higher rate of profit, capital investment would move towards that sector and away from another in order to reap that extra profit. This would lead to an averaging out of the profit generated from the labour employed in all sectors. The labour value embodied in each commodity would be transformed into a price of production that was based on the average profit across all sectors. That would differ from the labour value in the commodity, which was based on the labour time involved. Some of the surplus value generated from workers in one sector would have been transferred to another sector.

Prices of production

But, Marx argued, this did not mean that the labour theory of value no longer provided an explanation of capitalist production because, in aggregate across the whole economy, the total value of all commodities would still equal the total prices of production; total surplus-value would equal total average profit and the rate of profit in value terms would equal the rate of profit in price terms for the whole economy. Thus, indirectly but decisively, the labour time appropriated by the capitalist into the value of production of commodities explained the prices of all commodities.

Bortkiewicz argued that Marx had made a crucial error in his analysis. If the value of a commodity is transformed into a price of production by an average profit, then Marx should also transform the values of the original investment in capital equipment (constant capital) and labour force (variable capital) into prices of production too. But if Marx had done that, then his formula would not lead to total values equalling total prices of production and/or total surplus-value equalling total profit. Thus Marx's theory of value falls to the ground.

Kliman shows conclusively in his book that Bortkiewicz's 'correction' of Marx's 'error' is wrong. There is no need to transform the values of the inputs into the production process based on prices of the outputs. That is logically and temporally wrong. If you make a pair of trousers and price them according to the cost of the textiles and something for the wear and tear of the machinery and for the labour time involved, you don't then reprice the labour time or the machines you used according to the price of trousers you have just made. That's because you have already spent the money on the machines, textiles and labour. To do so is not only logically incorrect; it makes no sense of what happens in the real world. Thus Bortkiewicz's correction is wrong and Marx's solution to the transformation problem is perfectly valid.

The other main criticism of Marx was on his law of the tendency of the rate of profit to fall. For Marx, this was the most important law of the motion of capitalism, because it showed that capitalism had an inherent tendency towards crisis and collapse. Capitalist production is production for profit and if profit should fall, capitalists may well stop production.

Marx argued that the capitalist economy reproduces by increasingly using technology and equipment in place of the labour force in order to drive down costs and raise the productivity of labour. But, as the cost of machinery rises relative to the cost of employing labour (what Marx called a rising organic composition of capital), the rate of profit will tend to fall because if it takes less labour time to make a commodity, its value (or price) would fall and thus tend to squeeze profitability.

This law has been criticised and mauled by a succession of bourgeois economists. They argued that Marx's conclusion was inconsistent with his assumption: because the rate of profit could not fall if the organic composition of capital rose. This was not an empirical question; it was logically impossible.

Marx had said that no capitalist would willingly introduce a new method of production unless it is increased his profitability. In other words, investment in new equipment must raise profitability for the capitalist, not lower it. That seemed to contradict Marx's law that increased investment in technology relative to the labour force would tend to drive down profitability.

Marx resolved this contradiction by explaining that, while the first capitalist would increase profitability by introducing a new technique before others, once all the rest had done so, profitability would fall back and to an even lower level than before.

Okishio denied this. His mathematical formula showed that, assuming there was no increase in real wages for the workers, any increase in the use of new technology would raise profitability and would never cause it to fall. After all, if the workers produced more in the same number of hours, productivity would rise and thus profitability: QED!

Okishio's theorem was soon accepted as a devastating demolition of Marx's position. If you wanted a cause for the rate of profit to fall, you would have to look elsewhere, probably to a rise in the share of wages relative to profit (as argued by Ricardo back in 1819 and Sraffa in 1960 - and later empirically by Andrew Glyn in the 1970s.). It meant that any explanation of crisis under capitalism could not rely on Marx's own theory.

In his book, based on previous works and the work of others, Kliman provides a convincing refutation of Okishio's theorem. Okishio's theorem, ostensibly a correction of Marx, made a similar mistake to Bortkiewicz. If a new technology increases the productivity of the labour force, it lowers the value of labour time in the production of commodity. According to Marx, that will lower the value or price of production and tend to lower profitability, other things being equal.

But, according to Okishio, a rising organic composition of capital will not squeeze profitability because a higher productivity of labour will immediately (simultaneously) lower the costs of production involved in the new equipment and the wages of the labour force used in production and thus their prices.

But again this is illogical, as Kliman explains. You cannot reduce the cost of production using the new prices achieved with the new technology because you have already spent it at the old prices. The new prices only apply to the next round of production. The process of production is not simultaneous, but temporal. You can do anything with mathematics, but if your assumptions are unrealistic, you will come up with unrealistic outcomes.

Distortion

Moreover, Kliman shows that Okishio is not really correcting Marx, but completely distorting Marx's theory. Marx assumed from the start that the prices of inputs to production would differ from the prices of the output.

Thus, the work of Kliman and others has been to reclaim Marx's economic theories through what they call a temporal single-system interpretation (TSSI). It is temporal because Marx's theory is dynamic. The prices of the inputs going into production do not change simultaneously in line with the prices of the outputs after production.

And it is in the single-system that Marx's labour theory of value is not divorced from the prices of capitalist production, but is integrally connected to them. You cannot have profits without surplus-value and you cannot have surplus-value without the appropriation of labour time by capitalists from workers. Thus Marx's economic theory of exploitation is logically consistent with the process of capitalist production. The creation of profit depends on the creation of surplus-value.

There is one very important point in the book that Kliman emphasises. Kliman is not saying that Marx is empirically correct. It may not be that the rate of profit under capitalism does fall as the organic composition of capital rises, or the organic composition of capital may not rise under capitalism. Marx's law of motion of capitalism may not fit the facts to explain economic crisis. That is the job of others to show or not.

I can remember the debates in the mid-1970s that some of us had with Andrew Glyn and others over whether Marx's 'orthodox' theory of the rising organic composition of capital and the tendency of the rate of profit to fall was valid both theoretically and empirically. We knew instinctively that Marx had not got it wrong and his iterative solution to the introduction of new technology and the rate of profit made sense.

What Kliman has done is summarise the arguments of the defenders of Marx's economic theory. He shows that a proper reading of Marx's Capital reveals a coherent theory of capitalist production from the labour theory of value and a logically consistent explanation of the movement of profit.

He has stripped away the obfuscations of the neo-Ricardians. Marx did not make theoretical errors (at least in the areas that the critics have claimed and others have accepted for over one hundred years since Volume 3 of capital came out). And for that, Kliman must be thanked.

Kliman makes every effort to make his book simple and easy to follow. But even so, many of the arguments are complex and those who do not have some knowledge of Marxist economics may find it difficult. But it is worth persevering, because those who digest the arguments in the book will come away with formidable weapons to defend Marxist economic ideas.

Andrew Kliman's new book 'Reclaiming Marx's Capital: A Refutation of the Myth of Inconsistency' had a successful launch in London on the 11th July with a broad platform there to speak in support, including Michael Roberts, our economics correspondent; Chris Harman, editor, International Socialism Journal; Alan Freeman, co-editor, "Marx and Non-equilibrium Economics"; Martin Graham, reviews editor, Communist Review, as well as Kliman himself, from the USA.

Audio files of the speakers (recording, editing and posting by Nadim Mahjoub) are available here:

Michael Roberts

Alan Freeman

Martin Graham

Chris Harman

Andrew Kliman

See also:

• Marx's Economics and Lord Desai's "revenge": A response to the book "Marx's Revenge" by Meghnad Desai - Part Eight by Mick Brooks (August 2005)