7 Marx’s Theory of Value and the “Transformation Problem” ANWAR SHAIKH Assoclate Profesor of Economics tthe New Sebool or Social Research |. INTRODUCTION I's curious that in the almost eighty years since the publication of Volume It lof Marn’s Capita, x major theoretical problem, the infamous “transformation problem,” has never been sstsfactorily resolved, Throughout Volume I, written by Marx after he had already completed the first draft of Volume II, the analy- ibis based on the assumption that exchanges of commodities take place at prices proportional to their labor vilues. [will eall these prices the “rece prices” of commodities. In Volume IIL, which was compiled by Engels from ¢ incomplete first draft, after Marx's death, Marx extends his analysis to take into account “prices of production,” demonstrating how one cen derive these prices from the “direct prices” of Volume I. This derivation, from ther on the center of an intense controversy, was the original “transformation procedure. (Opponents of the lsbor theory’ of value immediately seized on the apparent incompleteness of Marx's procedure, Bohm-Bawerk, for instance, questioned the tenability of Marx's statement that the sum of prices after the transformation would remain equal ta the sum of values, others have pointed out that Marx's procedure contains an “error,” because while he transforms the prices of outputs jon,” he leaves the inputs untrans- from “direct prices” to “prices of produ: formed. Since commodities appearing a outputs of a productive system are often ‘also inputs inco the system, itis argued that Marx's procedure is logically flawed, ‘direct prices" and “prices of production” are two separate and untelaced phe omens, leading to a “great contradiction” between Volume I and Volume III of int has been made by Samuelson ation procedure: “Con- Capizal, More recently, essentially the san 171. in which he atzacks the very idea of a template two alternative and discordant systems, Write down one. Now trans form by taking aa eraser and rubbing it out. Then fill in the other one. Voila You have completed your transformation algorithm.'"!As we shall ce, this ert cism is completely incorrect. It is also somewhat misplaced; if anything, it applies perly co the neoclassical “transformation procedure” which was the cen- ter of the soralled Cambridge Capital Controversies, a procedure in wich ‘Samuelson himself was quite prominent.” (On the Marxian side, there have been, of course, many “solutions” to the “For a cigcuson of this debate asx neoclassical “transformation problem,” see Shaikh (191 This aici, a stuion to a problem the bac plagued» comtury of Marston scholarship. 08MARX'S THEORY OF VALUE 107 transformation problem, from Bortkiewiee's original trinsformation procedure tnd its subsequent variants to Francis Seton's important paper (18). Unforcu rately, as even supporters and sympathetic critics ofthe labor theory of value fdmit, these “solutions” all suffer from the same basic defects; they show “the formal possibility of a consistent derivation of prices from values" while apparently severing the crucial links between price and value magnitudes whieh Marx seemed to emphasize in his own procedure. In most discussions of the issue, these links have appeared in the form of the following equalities: of the ‘sum of prices” and the 'sum of values"; of the magnitude of profits and the magnitude of surplus-ealue; of the profic wage ratio and the rate of surplus value, and of the general rate of protic in price terms and the same rate in value Terms. As is well-known by nov, in any “correct solution” elther the first oF the second, but not both, can be always made to hald, while in general ‘ovo cannot, What then are we to make of Marx's procedure? Tehas been sugaested that Marx, having published Volume I in full conf dence that the labor theory of value was che correct basis, discovered too late in ‘writing Volume II, that it was not, Buc that doesn’t work, beeause we know that Volume I was published well after Volurse 11 had been drafted. Others, pethaps more charitably, have suggested thar because the labor theory of value as a theory of relative prices was so much a part of the tradition of classieal economies, it twas taken ever by Marx almost unexamined. A variant of this line of reasoning, ‘whieh is popular among some Marxists, is that if nowadays we view Marx-asan economist as 2 member of the elassical schoo, is we who import into theory of value, which is only nominally similar to thar of Smith and Ricardo, the presMarxian question of the quantitative relationship between prices and values. Inthe variant, therefore, the nck of examination is on our part, not that fof Marx. Marx was simply not terbly concerned with the quantitative rela- tionship.” ‘To anyone who has read Masx’s voluminous comments and critiques of the clasical economists, notably in Theory of Swrplus-Value and in Capital, becomes impossible co ascribe to Marx an unthinking take-over of a labor theory (of value from anyone a al Marx spends literally hundreds of pages discussing values and their relationship, both qualitative and quantitative, to wages, profs and prices; no aspect, no ise, ie ignored in these incredibly decailed discus: sions, So the main line of that argument does noc hold up. As for the va insofar as it argues that there isa vase difference berween the “value” of Smith and Ricerdo and the “valve” of Marx, itis undeniably correct; where it goes - ‘onclusion thar Marx ether ‘which dominated the pre: 5h in jumping from this imporcant fact co 1 dloes, or even could ignoce the quantitative ase Marxian “value theory.” Consider for a moment the fact that there is avast difference between Einstein and Newton too, one which stems from different methodologies, di ferent objects of analysis, etc.,and extends al the way co differences in concepts and calculations, There i, in other words, what Thomas Kuhn calls a "paradigen break” between the two modes of analysis." ‘The notion that Einstein and Newton, for instance, treat what appears to be some autonomously defined subject“Physies"—is an illusion whieh is Fos tered by textbook propagindists whase very aim isto treat science as the glorious108 THE HIDDEN WEANING OF THINGS towards “tcuth,” In reality, however, almost every conception Jation in Relativity Theory contradicts those of classical physics. "To reduce Einstein t0 a "tidied up” Newton would therefore be impos: sible, What is worse, this impossibility would show up in the form of "logical contradictions,” “redundancies,” and “irrationalitis” in Einstein, not in New: ‘on, for the propositions derived from the Theory of Relativity eannot be Serived within a Newtonian basis, What can we sy, for example, in a Newvonisa Eramework about the fundamental Binsteinian notion chat there exists finite limi, che speed of light, for the velocity of any object? Only that it is clearly wrong, oat best, # nation we (as Newronians) have no use for in ous frame work~one which cherefore appears “mythics,” and ea ‘metaphysical,” "irelevant.” Insofar as some Marxists have pursued a similar line of argument as to the “reduction” of Marx to Ricardo, they have been making an absolutely crucial poine: namely, that by artempring to "reduce" Marx to Ricerdo, or to neoclas cal economics, the impossibilizy of this reduction will manifest ite of "contradictions" and "irrationalities” in Marx! What we think we find, on 2 Ricardian or neoclassical basis, is chat Marx is simply incorrect, or at best gets involved in an “unnecessary muddle."* What we have in fact demonstrates is that you cannot derive Marx from Ricarda or Samuelson Obviously, none of this implies that Marx is above criticism. The point here ig that in order ta be able to evaluate Marx's solution to some problem, we must first of all define the problem. We must, in other words, /acate the prob lem in terms of some general analysis, so that we may sce which solutions are adequate and which are not. [thas often been said that the hardest part of solving a problem ie figuring our the question ‘Some Marxists, however, jump from the implications of the differen between Marx and Ricardo to the false conelusion thar Marx was, or at last chat Marxists could be, unconcerned with the quantiative relationships between prices and values (whether he was and whether Marxiseanalys fact two seperate issues, but ane leads ta the other) To begin with, the statement that Marx did notin fact consider these rmarteis to be important runs headlong into the contrary evidence of the vast amount of attention Marx's writings give to them; the only way to get around this evidence in tam, is to try and show that the issue iselfisirelevant. In this \way the real basis of this line of reasoning turns oue to be the argument thet Marxist analysis ean, and should ignore the quantitative relationship. On the one hand, this argument gets much ofits impetus feom the persistent, and to some ex tent, damaging attacks on the “transformation from values to prices” and on the ‘other it derives much of its appeal from a reaction agsinst the obvious banality ‘of neoclassical economics in which relative prices theless, the argument is simply untenable, for i is ba could be are in lure so prominently. None sé on an unspoken concep: which when made explicit is quite unsupportable namely, that asa science, the Marxist analysis of eapitalism can simply choose to ignore the quantitative aspects of any phenomena, ance it has understood the ualitative aspects, Marx himself had a higher opinion of his work: (Considering what this third book treats it cannot confine itself to general reflection selative to this synthesis, On the contrary, it must locate andMARX'STHEORY OF VALUE 109 describe the concrete forms... The vatious forms of capital, as evolve: this book, thus epprozch step by step the form which they assume on the surface of society, in the action of aiffevent capitals upon one another, in ‘competition, and in the ordinary consciousness of the agents of produc- tion themselves. (Capital,* Volume IIL, Part 1, Ch I, p25) Unfortunately not many Marxists today scem willing to accompany Mark all the way in his arduous journey; and of those that do, even fewer spear to be interested in pulling together and extending, where necessary, the sometimes incomplete analysis of Volume IL. The labyrinths of the curnover of eapica in Volume Il, the “perry detail” of the endless tables of differential rent in Volume I, and certainly the unending controversy about the “transformation problem” must all seem so very tedious, perhaps even dangerously confusing, o those who main content to bask in the brilliance of Volume I.® But Marx at least did not find in che difficulty of a subje 8 sulficient reason For avoiding it ‘That isa disadvantage I am powerless co overcome, unless it be by fore warning and forearming those readers who zealously seek the truth. There is no royal road to science, and only those who do not dread the fatiguing climb ofits steep paths have a chance of geining its laminous summits (Capieal, Volume 1, "Preface to the French Edition,” p. 21) Il. VALUE AND PRICE 1. Caloulation versus Conception Thave, up to now, confined myself toa discussion of the so~lled “transforma: tion problem” and of various atitudes toward it. Itis, however, a major purpose of this paper to demonstrate that one can, precisely in the manner ser on by lars, calculate che “correct prices of production” from values, The link betwee the two, one so obvious tha: until recencly it seems to have been completely overlooked, ** is simply thar while Marx's procedure isa periectly general one 's only the frst step in an iterative cransformacian from “ieet prices” to ‘prices of production." But while this extension of Marx's procedure docs falsify the so-called “impossibility theorems” on it (most recently voiced by Paul Samuelson), ic by no means establishes the need for such a transformation in che first place. As has often been pointed cut, "prices of production” can instead be caleulated directly from the sume "economic data” as “direct prices. difference between the two methods of calevlation therefore lie notin the end point but in the beginnings that i, i lies notin the magnitude of “prices of production” but in their meaning, in their conception, To reduce the issue of the transformation to one of merely caleulacion, is ply to reduce Marx to neoclassical economics. And, as I pointed out eatlier, the impossibility of such 2 totes fom Capital refer wo she lteretional Publics edison, New York, 1967 The transformation procedu contained in ths paper was fie presented in = pape 2 to the Grades Ceomomice Department of Vale University. Feomunry 1973.8 simiat tesa eas presented by Michio Morshim in “Marx in the Light of Madero Economie Theory As Inaugural Lecture,” London School of Economies, November 1973410 THE HIDDEN MEANING OF TH nes seduction can only “show up" as “redundancy” in Marx: after al, i both ‘methods arive a the same end point, why bother with Marx's needless "detour" ‘heough values? The question may be put more precisely: in what way is Marx's analysis of value different from that of orthedox economics? What sorts of issues, con ‘ceptions, and ealeulations are specific to it elone? What laws does Marx derive From it which cannot be derived from conventional economic analysis? Unless ‘we make an attempt to answer these questions, any discussion of the “trans formation” issue is quite irelevant: without a proper understanding of the con- cept of value as it appears in Marx, iris pointless to try and analyze the so-called “transformation fom values to prices of production." The discussion of the actual transformation algorithm is therefore postponed until Section II, In this, seetion we must establish its raison dete, 2. Basie Method Whatever the social form of production, labourers and means of produc- tion always remain elements of it But ina state of separation fram each other either of these factors ean be such oly potently. For production fo go on they must unite, The specific manner in which chi uaionis accomplished distinguishes the different economic epochs ofthe serucure af society trom one snother. (Capita! Vol. MCh. 1 Section 1, p34) Tie specific ecomamie form, in which enpsid serpiw labore pursped out of direct producers, determines the relationship of rulers and {uled, ast grows out of production itself and, in eurn, reacts upon fe asa