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Marx’s Theory of Value and the

'Transformation Problem”
ANWAR SHAIKH
Associate Professor o f Economics at the
New School fo r Social Research

I. IN TR O D U C TIO N
It is curious that in the almost eighty years since the publication of Volume III
of Marx’s Capital, a major theoretical problem, the infamous “ transformation
problem,” has never been satisfactorily resolved. Throughout Volume I, written
by Marx after he had already completed the first draft of Volume III, the analy­
sis is based on the assumption that exchanges of commodities take place at
prices proportional to their labor values. I will call these prices the “direct
prices” of commodities. In Volume III, which was compiled by Engels from the
incompietefirstdraftj after Marx’s death, Marx extends his analysis to take into
account “prices of production,” demonstrating how one can derive these prices
from the “direct prices” of Volume I. This derivation, from then on the center
of an intense controversy, was the original “ transformation procedure.”
Opponents of the labor 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 to the sum of values; others have pointed out that Marx’s
procedure contains an “error,” because while he transforms the prices of outputs
from “direct prices” to “prices of production,” he leaves the inputs untrans­
formed. Since commodities appearing as outputs of a productive system are often
also inputs into the system, it is argued that Marx’s procedure is logically flawed;
“direct prices” and “prices of production” are two separate and unrelated phe­
nomena, leading to a “great contradiction” between Volume I and Volume III of
Capital. More recently, essentially the same point has been made by Samuelson
[17], in which he attacks the very idea of a transformation procedure: “Con­
template two alternative and discordant systems. Write down one. Now trans­
form by taking an eraser and rubbing it out. Then fill in the other one. Voila!
You have completed your transformation algorithm.” 1As we shall see, this criti­
cism is completely incorrect. It is also somewhat misplaced; if anything, it applies
most properly to the neoclassical “transformation procedure” which was the cen­
ter of the so-called Cambridge Capital Controversies, a procedure in which
Samuelson himself was quite prominent.*
On the Marxian side, there have been, of course, many “solutions” to the

*For a discussion of this debate as a neoclassical “transformation problem ," see Shaikh [19].
This article, a solution to a problem that has plagued a century o f Marxian scholarship,
was previously unpublished.

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