Clearing up Marx and profit: Ending the ‘Transformation Problem’ once and for all

by BARRY HEALY

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Money and Totality, A Macro-Monetary Interpretation of Marx’s Logic in Capital and the End of the ‘Transformation Problem’ by Fred Mosely (Haymarket Books, 2016)

Karl Marx published Volume 1 of Capital in 1867. By the time of its second German edition, just six years later he wrote, in a postscript: “That the method employed in ‘Das Kapital’ has been little understood, is shown by the various conceptions, contradictory one to another, that have been formed of it.”[1]

If anything, the contradictory conceptions have grown worse since then with various, near-intractable debates raging within Marxist circles. One of the fiercest of those debates is over the so-called “Transformation Problem”.

The Problem revolves around Marx’s representation of the prices of production in Part 2 of Capital Volume lll – which was edited by Friedrich Engels out of Marx’s manuscript papers after Marx’s death.

Marx exposed the circuit of capital with his formula of:

• M, representing money capital, purchasing

• C, commodities used in

• P (production) manufacturing

• C’, commodities possessing increased value, which, when sold in the market return

• M’, increased money to the capitalist.

The circuit can be summarised: M – C…P – C’ – M’. It is a circuit in which money capital converts itself into other forms of value, the physical commodities required for production including payment for labour power. Marx termed those commodities used in production “constant capital” and “variable capital”.

Capitalists utilise constant and variable capital to produce new commodities containing increased value. The extra value is extracted via sale in the market place so that the capitalist has increased money. Capitalists don’t pay workers’ wages equal to the extra value that the workers create. The “surplus” of value between the wages paid and the price obtained in the market is the source of capitalist profit.

People planning to embark on reading Capital could well stop and read Fred Moseley’s second chapter in Money and Totality, A Macro-Monetary Interpretation of Marx’s Logic in Capital and the End of the ‘Transformation Problem’, which is an algebraic representation of the entirety of Marx’s method.

History of the Transformation Problem

Beginning with Russian economist Ladislaus Bortkiewicz in the early 1900’s, the criticism has been raised that Marx made a fundamental error. He said that Marx calculated constant and variable capital in terms of value but the resulting commodity was valued in terms of price of production.

He said that Marx had failed to “transform” the inputs of constant and variable capital into prices of production. He effectively said that Marx was talking value at one stage of his theory and price at another and had failed to connect the two. In the earlier volumes of Capital Marx is said to have been talking about individual workers and capitalists and then leaping to a system-wide view in Volume III.

Because of this Bortkiewicz said Marx’s method was insufficient to calculate relative prices and the general profit rate.

Given that Marx’s entire project was to explain exactly how capital obtains profit from the conversion of surplus value into money, this was devastating. Marx had dedicated himself to explaining the dialectical transformation of many things, so it is quite a claim that he misunderstood something as basic as how profit occurs.

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