7 Transformation of values into prices of production
7.2 From values to prices of production
In his well-known transformation tables in chapter 9 of Capital 3, Marx contrasts five capitals worth £100 (including fixed and circulating capital) and states that they have different profit rates because of their distinct OCCs.
From their individual profit rates he calculates an average and, from this average, Marx derives the prices of production of the output (see Table 7.1).
In spite of their importance, the reason why Marx includes capitals with the same size, £100, and the reason why he determines the price of production of the entireoutput of each capital, rather the unit price, have escaped the literature. They have probably been attributed to convenience or ease of exposition. However, since Marx is interested in the OCC, this procedure is necessary. Let us start from the equal size of the advanced capitals:
the organic composition of capital . . .must be considered in percentage terms. We express the organic composition of a capital that consists of four-fifths constant and one-fifth variable capital by using the formula 80c20v.12
Marx uses the per cent form several times, in the transformation and elsewhere. He does this because this is the onlyway to assess the OCC in the static case, when it cannot be measured directly. If we assume, as Marx does, that the value-productivity of labour is the same in every firm and that the rate of surplus value is determined for the entire economy (see section 4.1), the per cent form (e.g., 60c40v rather than 6c4v or 180c120v; and 80c20v rather than 8c2v or 2400c600v) has striking consequences: variable capital becomes an indexof the quantity of labour power purchased, labour performed, and value and surplus value pro- duced.13 Moreover, there is a direct relationship between the quantity of labour put in motion, the value of the output and the rate of profit.This is what Marx wants to emphasise in the transformation. As these relations are established in production, they involve the organic(rather than value) com- position of capital:
84 Transformation of values into prices of production
Transformation of values into prices of production 85
Table 7.1Marx’s transformationa Used up Rate of‘Value’‘Price’ constant Cost surplus Value ofrate ofPrice ofrate of Capitalscapital pricevalue Surplus the productprofitProfitproductionprofit (Mcv)(c´)(kc´v)(s/v)value (s)(M´ks)(rs/M)(MR)b(pk)(r´/M) I.80c20v5070100%209020%229222% II.70c 30v5181100%3011130%2210322% III.60c40v5191100%4013140%2211322% IV.85c15v4055100%157015%227722% V.95c5v1015100%5205%223722% 390c110v202312100%11042222%11042222% aThe last row indicates totals or averages,where appropriate. bR is the average ‘value’rate ofprofit. Source:Capital 3,pp.255–256.
Capitals of the same size, or capitals of different magnitudes reduced to percentages, operating with the same working day and the same degree of exploitation, thus produce very different amounts of surplus-value and therefore profit, and this is because their variable portions differ according to the differing organic composition of capital in different spheres of production, which means that different quantities of living labour are set in motion, and hence also different quantities of surplus labour, of the substance of surplus-value and therefore of profit, are appropriated . . . At any given level of exploitation of labour, the mass of labour set in motion by a capital of 100, and thus also the surplus labour it appropriates, depends on the size of its variable component . . . Since capitals of equal size in different spheres of production, capitals of different size considered by percentage, are unequally divided into a constant and a variable element, set in motion unequal amounts of living labour and hence produce unequal amounts of surplus-value or profit, the rate of profit, which consists precisely of the surplus-value calculated as a percentage of the total capital, is different in each case.14 Use of the per cent form helps to illustrate the principle that profit is created in production, and that it depends primarily upon the quantity of labour power put in motion, rather than the value of the means of production. For Marx, this shows that profit is a ‘dividend’ drawn from the social surplus value.15Finally, the per cent form shows clearly that total value equals total price of production, and that total surplus value equals total profit.
These aggregate equalities are essential for Marx. They should not be understood as two independent conditions or as ‘testable hypotheses’, as if Marx’s value theory would be falsified unless they are verified empirically.
For Marx, these equalities are one and the same and they necessarily hold, but they are influential at distinct levels. Total price is equal to total value because price is merely a form of value, orbecause total profit is equal to total surplus value. Alternatively, individual prices differ from values because profits differ from surplus values, due to the redistribution of surplus value in the transformation. These equalities always hold because they express the development of the same concept, social labour, across distinct levels of analysis (see section 1.1).16
Marx’s abstraction from the transformation of the value of the inputs and the value of the money-commodity, which naturally follows from his analysis based upon the OCC, confirm that these equalities should be understood primarily conceptually. They express the relationship between value and surplus value with their own forms of appearance, price and profit. Prices of production are a relatively complex form of value, in which price-value differences redistribute surplus value across the economy until the average capital in each branch of industry has the same profit rate.17
Let us look at this relationship from another angle. Commodity values and prices can be analysed at distinct levels. At a very abstract level, value is 86 Transformation of values into prices of production
a social relation of production or, in quantitative terms, the labour time socially necessary to reproduce each kind of commodity. It can also be seen as the monetary expression of this labour time as direct price, price of production, or market price (see chapter 5). These shifts are due to the refinement of these concepts through their reproduction at greater levels of complexity, which captures increasingly complex determinations of the price form and, therefore, of the value relation. Their detailed study comprises a large part of the body of Marx’s work, and of Marxian value theory more generally.18
We have seen above that the per cent form is convenient, because it highlights the effect on the profit rate of differences in the OCCs of the advanced capitals. However, because it equalises all capitals to £100 regard- less of their actual size, the per cent form changesthe average rate of profit and modifiesthe quantities produced by each original capital:
In our previous illustration of the formation of the general rate of profit, every capital in every sphere of production was taken as 100, and we did this in order to make clear the percentage differences in the rates of profit and hence also the differences in the values of the commodities that are produced by capitals of equal size. It should be understood, however, that the actual masses of surplus-value that are produced in each particular sphere of production depend on the magnitude of the capitals applied . . . [I]t is evident that the average profit per 100 units of social capital, and hence the average or general rate of profit, will vary greatly according to the respective magnitudes of the capitals invested in the various spheres.19
Since the values, surplus values, prices and profits calculated through the per cent form are different from their original magnitudes, it is impossible to calculate the price vector through Marx’s transformation procedure. As the per cent form is necessary to assess the OCC, and since its use precludes the calculation of prices, it cannot be argued that Marx’s main objective in the transformation is to devise a method for the calculation of the price vector.
Although some may find this disappointing or worse, it is hardly surprising, for the transformation ‘problem’ is not primarily about the calculation of prices. It is essentially a qualitativeproblem: the demonstration that price of production is a more complex form of expression of social labour than value, because it reflects the distribution of labour and surplus value across the economy.20 Analysis of the input values is irrelevant to this end, and their consideration may cloud, rather than illuminate, the essential problems at stake.