The Transformation of Values to Prices of Production: Yet Another Interpretation

In the third volume of Capital (1894), Marx attempts to explain capitalist prices as a redistribution of an already created ‘wealth’ from the production process, along with profitability portraited as the ‘economic result’ of the exploitation of labor. To do so, he presented an algorithm for transforming the labor values into prices of production, which are defined in such a way as to follow the capitalist laws of exchange. Marx’s method was deemed inadequate, and attempts were made to ‘correct’ it, resulting to the well-known result of the impossibility of simultaneously satisfying the Marxian Equivalences (Bortkiewicz 1907). This shortcoming has led to a rich literature on the ‘transformation problem’, as well as to many different proposals for its solution; however, none of them has so far succeeded in being promoted as the undisputed solution to the ‘transformation problem’. In this paper, we argue that this limitation is not, as argued in the literature, a result of the futility of Labor Theory of Value to capture the exchange processes, but that of the identification of the (Sraffian) exchange prices with the (Marxian) prices of production. Moreover, we propose yet another solution to the ‘transformation problem’ by providing a new definition of prices of production, distinct from that of exchange prices, which consistently indicates a specific redistribution of the labor values in the process of circulation; under this definition, both equivalences posed by Marx are satisfied. Finally, we also present the main methods proposed to solve the (static) ‘transformation problem’ that are found in the literature, according to the interpretation they attribute to the transformation, and a numerical example, so as to distinguish them from the solution proposed in the paper.