The Full Solution of a Problem of Commodity Values Transformation

into Production Prices

Valeriy Kalyuzhnyi, Candidate of Economic Sciences

(Ukraine)

“It is never the original thinkers that draw the

absurd conclusions.”
K. Marx

In the article the full and comprehensive solution of a problem of transformation of the commodity
values into production prices is given. The multilink algorithm of transformation in complete
conformity with K. Marx’s concept is proved for the first time. The new elements of the economic
theory are submitted: a way of modeling of production spheres on the basis of three-branch model of
reproduction, method of individual rates transformation of profit in the sphere of production into
average rate, and average rates —- into general profit rate. The algorithm of inverse transformation
of the production prices in values is revealed, the practical meaning of the value- prices is enlightened.

INTRODUCTION

The scientific trend developing the theory of value, including the labour theory of value (LTV) is
being actively developed in the foreign countries. The development LTV is still not completed because
of presence so-called "transformation problem". From the mathematical point of view a problem was
already formulated in 1905-1907 due to Tougan-Baranovsky (1905) and Bortkiewicz (1907).1
Bortkiewicz asserted that the К. Marx’s solution of the problem of commodity values transformation
into production prices in the 9th chapter of volume III of "Capital" was incomplete. The offered procedure
of transformation covers only “output” production prices. “Input” production prices are expressed in
value before, as well as after this procedure (Bortkiewicz, 1907). As a result the same commodities are
bought on values, and are sold at the production price. It reveals an obvious contradiction. According to
Bortkiewicz, “input” and “output” value of the commodities should be simultaneously transformed into
production prices. Thus it is necessary to observe two basic Marx postulates (invariance condition): 1)
the sum of the profit must equal the sum of the surplus value; 2) the sum of the production prices of the
total social product must equal the sum of its value. Bortkiewicz does not take into consideration the
necessity of the transformation task solution in some stages. Besides he enters his own postulate in the
implicit form — under transformation real wage rate2 should remain constant. Basically because of this
it fails to receive the general solution of transformation problems which is appropriate to Marx concept.
As a result the transformation of commodity values into production prices has appeared to be rather
complicated and unsolved scientific problem. In the course of numerous attempts of its solution during
the ХХth century it has been erected actually to the rank of the main problem of classical political
economy. But its availability puts under doubt existence of a rational basis of the economic theory –
value, which has labour as its source, instead of something completely different.
In the given article it is shown for the first time that the formulation of the problem by Bortkiewicz is
erroneous. It does not correspond to a classical question


Kalyuzhnyi, V. (2006) The Full Solution of a Problem of Commodity Values Transformation into Production
Prices, Ukrainian Journal Ekonomist. – №6. – Р.25-31.
1
 “...in what way an equal average rate of profit can and must form, not only without a violation of the law
of value, but on the very basis of it” (Marx 1894, Preface to the first edition).

The original solution of the problem in its classical formulation is given in volume III of "Capital"
(Marx 1894). But in it the separate mathematical operations are covered insufficiently they should be
carried out in the certain order at the decision of a transformation task. For example, the stage of profit
average rate formation in a separate sphere of production is submitted unsatisfactorily.
The purpose of the given article — the construction of algorithm of commodity value transformation
into production prices in complete conformity with Marx’s concept, and also substantiation of some new
elements of the economic theory, on which the correct and comprehensive solution of the researched
problem depends.

THE BRIEF HISTORY OF A TRANSFORMATION PROBLEM SOLUTION

After publication volume III of "Capital" the thesis, according to which there was a contradiction
between I and III volumes of "Capital", was one of favorite arguments of Marx's critics, such as,
Mühlpfordt (1895), Böhm-Bawerk (1896) and Komorzynsky (1897). The main object of criticism was,
certainly, Marx's supposed failure in the commodity value transformation into production prices. The
additional researches were taken up again and again, by Dmitriev (1898), Tougan-Baranovsky (1905),
Bortkiewicz (1907), Charasoff (1910), Moszkowska (1929). They were proceeded by Sweezy (1942 and
1949), Winternitz (1948), May (1948), Seton (1957) and Samuelson (1970 and 1971).
The following stage of researches in 1970 years was marked by occurrence of “neo-Ricardian” or
“Sraffian” interpretation of Marx’s theory, submitted by works of Dobb (1972), Morishima (1973), Meek
(1976), Steedman (1977 and 2003), etc. This interpretation became most widely accepted and dominant.
Being based basically on results of Sraffa’s work (1960), “neo-Ricardian” interpretation means, that the
production prices and general profit rate can be received directly from technological matrix of the branch
charges of production means and the real wage as prerequisite.
On this basis stated, that value magnitudes are “at best, redundant”: at worst, they are downright
meaningless (Steedman 1977). Thus forget, that value magnitudes can be determined with use of the
same matrixes, and then are transformed into the production prices. But when determining the production
prices the information (in the obvious or latent form) about the parity of necessary and surplus-product
magnitudes is required. When defining value such information is superfluous.
At the same time a different way of consideration of a problem called the iterative solution to the
transformation problem (ISTP) appeared. It was advanced more or less simultaneously by Brody (1970),
Okishio (1972), Shaikh (1973), Morishima (1973), then Morishima and Catephores (1978), Shaikh’s
article and Tonak (1994) and had precedent in Shibata (1934). The analysis shows, that ISTP is only
iterative way of the solution of price equations system at the given postulates, but not by the way of a
transformation problem solution.
Since 1980s, there have been a growing number of challenges to this dominant neo-Ricardian
interpretation of Marx’s theory. First, and, apparently, the best of them was so-called "new solution" (or
"new interpretation") of a transformation problem. It which was first introduced independently by
Dumenil (1983) and Foley (1982 and 2000). Since then it has been development by Lipietz (1982), Glick
and Ehrbar (1989), Mohun (1994 and 2004), Devine (1990), Campbell (1997 and 2002), Moseley (2000)
etc. The critical analysis of "new interpretation" is given by Saad-Filho (1996) and also Nakatani and
Rieu (2003).
Freeman and Carchedi (1996), Kliman (2000), Kliman and McGlone (1999), Freeman (1999),
Freeman and Kliman (2002) and others. have also presented interpretation as "the temporal single-system
(TSS)". In which Marx's transformation conditions are see by the authors as logically consecutive. TSS

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is based on use of dynamic transformation models. The critical analysis of the given approach has been
done by Dumenil-Levy (1998), and also Dong-Min Rieu (2003).
Simultaneous single-system interpretation (SSSI) has been offered by Wolff, Roberts and Callari
(1982 and 1984). In this system the invariant size of the constant capital in models of value and
production prices is used. The basis is that if the constant capital has been advanced in the production
process, its constant quantity in the circulation process should be saved. The critical remarks as to
simultaneous production price system are given in the article by Loranger (2004).
Acquaintance with the literature on the problem could be continued, mentioning tens of other authors’
papers, also those published in 2000s (see, for example, Huan and Zhang 2005). However it is necessary
to ascertain, that any of the solutions of problem offered till now does not correspond to Marx's concept.
To have a proof, we will analyse major attempts of a transformation problem solution.
As a rule, they were carried out with use of three-branch model of simple reproduction (1). Basically
more complex models of the price equations for n branches can be applied (Seton, 1957).

The three-branch model of simple reproduction

1. Branch producing means of production............... w1  c1  v1  s1 
2. Branch producing workers' consumption goods 
(wage goods) ……………………………………… 
w2  c2  v2  s2  (1)
3. Branch producing capitalists' consumption goods 
(luxury goods)…………………………………….. w3  c3  v3  s3 
Gross product ……………................................... W  C V  S
where wi — the annual value of product (at s i / v i  const ) of i -th branch; ci — the annual value of
the constant capital (means of production); vi — the annual value of the variable capital (workers' wage);
si — the annual surplus-value (capitalists' profit).

The priority of the model use (1) belongs to Tougan-Baranovsky (1905). He inverted the
transformation problem, i.e. he started from of three-branch model already which had already been
expressed in the production prices, and then transformed these prices in value. Tougan-Baranovsky’s
conclusion was that none of Marx's postulates were not satisfied. In particular, the average profit rate
changes after transition from the prices to values.
In the model (1) it is supposed, that the fixed capital is wholly consumed for one year. Therefore profit
rate is defined under the formula r  s / c  v  . More complex model of reproduction, with the help of
which it is possible to take into account periodic annual consumption of fixed capital and also a part of
the circle capital in the structure of the constant capital, is submitted in my article (Kalyuzhnyi, 2004).
For the model (1) equilibrium conditions of simple reproduction set the following equality:
w1  c1  c2  c3  C 

w2  v1  v2  v3  V  (2)
w3  s1  s2  s3  S  
Bortkiewicz assumed that with transformation of value into the production price of value of
production means, workers' consumption goods and capitalists' consumption goods change accordingly
in x , y and z times. Having designated a symbol r to general profit rate, he built and solved the
following equation system:
c1 x  v1 y  r c1 x  v1 y   w1 x 

c 2 x  v 2 y  r c 2 x  v 2 y   w 2 y  (3)
c 3 x  v 3 y  r c 3 x  v 3 y   w3 z 

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 As far as in of the equations system three equations and four unknown parameters, Bortkiewicz
accepted z  1 . As, w3  S and w3 z  P , where P — the profits sum, at z  1 the profits sum is always
equaled to the surplus-values sum, that is P  S . But at P  S the sum of the production prices deviation
from the sum values occurs: Cx  Vy  P  C  V  S . If at transformation a condition is entered
Cx  Vy  Sz  C  V  S , then Sz  P  S (Winternitz, 1948). Meantime Marx asserts that
«… the sum of the profits in all spheres of production must equal the sum of the surplus-values, and
the sum of the production prices of the total social product equals the sum of its value» (Marx 1894, Ch.
9).

Besides this after values transformation into the prices according to Bortkiewicz’s technique an
average branch rate of profit changes S / C  V   P / Cx  Vy  . This fact is considered by some
researchers as default of one of Marx’s postulates.
Sweezy (1942, Ch.7) tried to solve the problem at the assumption, that the capital in capitalists'
consumption goods production has an organic structure, average in relation to two other branches. In this
case the simplified system of the equations for all four unknown turns out x , y , z and r , which is
soluble. Lack of such a solution is an arbitrary supposition about an organic structure of the capital in
one of the branches.
According to a "new interpretation" (Glick and Ehrbar 1987) for goods value transformation into the
production price it is necessary to solve the following system of the equations:

c1 x  v1  r c1 x  v1   w1 x 
c2 x  v2  r c2 x  v2   w2 y 
 (4)
c3 x  v3  r c3 x  v3   w3 z 
r Cx  V   S 

In this case P  S and w2  w3  V  S  w2 y  w3 z  V  P , that is the equality of the sum of the

prices to the sum of values is carried out for net product, but not for a gross product. In fact, in 9-th and
49-th chapters of volume III of "Capital" text acknowledgements can be found that Marx formulated
equality of the sum of the prices of production of total social product to the sum of its value concerning
set of end-products. The end-products form the material contents of the national income (or net domestic
product according to system in the terms of SNA -93). Distinctive feature of end-product is that

«…its production price is not included into the cost-price of some other commodity» (Marx 1894, Ch. 9).

For simple reproduction model (1) the end-products are the ones of the second and third branch.
After transformation by means of the system of the equations solution (4) an average branch profit
rate changes, and also the conditions of balance of simple reproduction are broken (2), as V  w2 y and
P  w3 z . It means, that there is a change of rate of a real surplus-product S / V , and also rate of real
wages. Because of it the workers can buy on the nominally constant wages a little bit more or a little bit
less that quantity of necessary products, which initially enters into a basket of real wages.
To restore rate of real wages the authors of one of the versions of "new interpretation" tried with the
help of concept "value of money". In their opinion, the change of a buying power of money is necessary
to buy necessary products in the market. "Value of money" is the ratio between the quantity of direct
embodied labour in a certain period and total price of net product in the same period. But the change of
a buying power of money will touch a price level of all commodities, and not just what enter into a net

4
product. Therefore, at the end, the equality between the sum of the profit and sum of surplus-value will
be broken. As we shall see from the subsequent statement, Marx offered a different way of restoration of
rate of real wages.
In Loranger’s solution (2004) general rate of profit is predetermined the average for branches rate of
profit from value system (1) and the postulate about equality of the sum values to the sum of the prices
for a total product is accepted:
c1 x  v1   c1 x  v1   w1 x 
c 2 y  v 2   c 2 y  v 2   w2 y 
 (5)
c3 z  v 3   c 3 z  v3   w3 z 
w1 x  w2 y  w3 z  w1  w2  w3 
In this case equality of the sum of the profit to the sum of surplus-value also is carried out, but at
infringement of conditions of balance of simple reproduction (2). Loranger does not explain, why in the
various branches of production the price of the constant capital changes in a different degree. His
traditional mistake also is, that the equality of the sum values to the sum of the prices for a total product
is accepted. Such equality agrees Marx should to be carried out for a net product.

THE FORMATION OF AVERAGE PROFIT RATES AND THE MODIFICATION OF

CONSTANT CAPITAL VALUE IN PRODUCTION SPHERES

F. Engels not casually specified, that the full and comprehensive solution of a transformation problem
is connected in view of several interconnecting links between commodity value and by their production
prices (Marx 1894, Preface). These links or stages are submitted in 9-th chapter of volume ІІІ of "Capital"
Marx, but it is made insufficiently expressive. So, at an explanation of transformation values of products
of spheres I-V is only mentioned that
“…the profit rates in every individual sphere of production taken by itself have previously been reduced to
just as many average rates” (italics mine — V.K.) (Marx 1894, Ch.9).

For reconstruction of this obviously absent link — stage of the item of information in each sphere of
production of rates of return to average rate, — we shall use model (1) as the numerical circuit of
reproduction (see table 1). With its help the separate authors (Glick and Ehrbar 1987), (Samuelson 1970),
(Sweezy 1942) investigated a transformation problem.
[Table 1]
In the beginning it is necessary to redistribute products of branch model of reproduction (1) on spheres
of production, meaning, that agrees Marx’ in each sphere the separate end-product, namely is made:
c1I  v1I  s1I  w1I 

c2  v2  s 2  w2   Sphere І,
CI  VI  S I  W I 
c1II  v1II  s1II  w1II 

c3  v3  s3  w3   Sphere ІІ. (6)
C II  V II  S II  WII 
Where w1I  C I  c1I  c2 and w1II  C II  c1II  c3 . Therefore VI  S I  w2 and VII  S II  w3 .
The task can be complicated, having increased number of spheres by differentiation of branches 2
and 3, but with the purposes of simplification further we shall consider result of transformation of three
branches in two spheres of production submitted in table 2.
[Table 2]
5
 According to the Marx concept in the beginning in each of spheres of production the individual rates
of profit are necessary for reducing to some (hence, not known beforehand) average rate. With this
purpose we shall pay attention that, for example, in sphere I rate of profit in sub branch 1.I is equal
0,1905, and branch 2 — 0,3636 (see table 2). Therefore in sphere I the alignment of rates of return in
average rate should be accompanied by increase of the price of output sub branch 1.I, in which the means
of production are made. There should be also appropriate increase of value of the constant capital in sub
branch 1.I and branch 2.
Generally index of growth of the price of the constant capital X j (at j  I, II and i  2, 3), at which
there is an alignment of rates of profit, is possible to define from the following equality:
w1 j X j  c1 j X j  v1 j  wi  ci X j  vi 
 . (7)
c1 j X j  v1 j c i X j  vi
The left part of equality (7) defines rate of profit in sub-branch 1j , and right part — in branch i .
Having used the given table 2 and having solved the appropriate equations (7), we shall receive X I 
1,2 and X II  1,32469.
The result of public production after education of average rates of profit in two spheres of production
is submitted in table 3. From it is visible, that in each sphere of production rate of profit is shown to
individual average rate: in sphere I she makes 25%, and in sphere II — 28,01%. General rate of profit
for all spheres of production is equal 26,12%. In initial model (see table 2) general rate of profit was
equaled 29,63%.
[Table 3]
Products of similar spheres of production I-V, in which the average rates of profit were already
established, Marx uses in, on the first sight, an elementary table example in 9-th chapter, volume III of
"Capital". Thus Marx specially specified about inadmissibility of treatment C in the example as value
of the constant capital of separate sphere of production.
“It is necessary to remember this modified significance of the cost-price, and to bear in mind that there is
always the possibility of an error if the cost-price of a commodity in any particular sphere is identified with the
value of the means of production consumed by it” (Marx 1894, Ch.9).

The funny thing consists that all economists have understood this instruction in the sense that the
magnitudes C in Marx spheres of production I-V cannot be left at a level of value, and ostensibly it is
necessary to transform to the prices of production. Marx specifies that after education of average rates of
profit in spheres of production of values of the constant capital are already transformed into cost-price
(price). The point of view Wolfgang Mühlpfordt is the exception (1895). He tried to prove, that as the
constant capital in Marx spheres I-V is already expressed in "prices", so far as Marx actually has failed
to explain transformation values into prices of production (see Kliman 2000). The given remark is lawful,
as in the text III of volume of "Capital" there is no description of the mechanism of the item of
information in each sphere of production of rates of profit to average rate, and consequently, and
mechanism of transformation of value the constant capital in constant cost-price.
Now it is clear, that because of an establishment of average rate of profit the constant capital in
separate sphere is actually expressed in the various prices of production. Such prices, nevertheless, render
neutral influence on formation of value of a end-product of this sphere. So, from table 2 and 3 it is visible,
that the net product after education of average rate of profit is equal sphere I to value of a net product
before education of average rate of profit, that is VI  PI VI  S I  300. The similar equality is carried out
and for sphere II. It means, that the deviation of the price from value of the constant capital does not
influence value of a end-product of separate sphere of production and value of its net product. Analyzing
the given table 2 and 3, also it is possible to be convinced that after transformation value of output of that

6
branch, which is the direct producer of a end-product, coincides with value and by a price net product of
sphere of production: w2  V I  S I  V I  PI and w3  V II  S II  V II  PII .
The specified quantitative parities are caused by the following. So, constant capital consumed in
branch, in which the end-product of sphere is made, owing to alignment of rates of profit in average rate
becomes dearer (cheaper). But from it the sum of the profit in sphere does not change. That magnitude
of surplus-value, which loses (receives) branch making a end-product, receives (loses) sub-branch,
making for this branch of a means of production. That in each sphere there is a neutral deviation of the
price of the constant capital from its value, Marx names such modified value (price) of the constant
capital by the cost-price.

THE ORIGINAL TRANSFORMATION OF PRODUCT VALUE IN PRODUCTION

SPHERES INTO PRODUCTION PRICE

The second stage of accounts necessary for alignment of average rates of profit of spheres of
production in known now general rate of profit further is required, as it does in the example Marx. Our
method of account differs only by that at an establishment of initial general rate of profit the average
rates of profit in account per 100 units of advanced capital are not defined. You see agrees Marx
“The formation of the average rate of profit is, therefore, not merely a matter of obtaining the simple average
of the different rates of profit in the various spheres of production, but rather one of the relative weight which
these different rates of profit have in forming this average. This, however, depends on the relative magnitude
of the capital invested in each particular sphere, or on the aliquot part which the capital invested in each
particular sphere forms in the aggregate social capital” (Marx 1894, Ch.9).

The result of public production after education of general rate of profit is submitted in table 4.
[Table 4]
Comparing the given table 3 and 4 is seen, that after distribution on all spheres of production of
objectively existing general rate of profit deduced from average rates of profit and equal 0,2612, there is
without change a number of parameters. It is the prices of the constant capital C I  C II  C  465,6; the
variable capital V  V I  V II  300; surplus-value (profit) S  P  200, price of output, net product and
rate of profit S / C  V   P / C  V   0,2612. Thus there is a differentiation of rates of profit in
divisions of spheres. It is caused by that originally process of an establishment of general rate of profit
in spheres of production influences only profit of branch making an end-product.
The differentiation of rates of profit in divisions of spheres can be removed, if from iteration to
iteration to carry out transition to new average rates of profit, and then — to appropriate general rate of
profit. In a result the differentiation of the prices of the constant capital in spheres is liquidated also and
the same numerical result of accounts, as well as after application of system of the equations of "new
interpretation" (4) turns out. In particular, general rate of profit r  0,2610, and magnitude C  466,3.
The similar procedure requires only 5-6 iterative steps. But she does not change the qualitative
characteristics of process of transformation and in given clause in detail is not considered.
The given table 3 and 4 show, that the basic equality — Marx’s postulates P  S and V  S  V  P ,
and also number of minor equality (equality of average and general rates of profit of the spheres,
invariance of sizes of the constant and variable capital) are carried out. Similar minor equality some
economists wrongly consider as additional Marx’s postulates. However additional conditions of
invariance are not carried out if to spend comparison of results of transformation with primary numerical
model submitted in table 1 and 2. With the purpose of the given comparison the received result (see table
4) again we shall unit in branch (see table 5).
[Table 5]

7
 The comparison of result of original conversion of value into price of production submitted in table
5, with initial given table 1 shows the following:
1. In all production branches (see table 5) general rate of profit 26,12% deduced earlier from average
rate of spheres of production was established. Initially average branch rate of return determined values,
equaled 29,63% (see table 1).
2. The sum of the profit of all branches is equal to the sum of surplus-value.
3. The net product which has been counted up in the prices of production, is equal to a net product
expressed in value, i.e. V  P  V  S = 500 monetary units, for example, billion dollars. It means, that
the sum of the prices of production of the end-commodities is equal to the sum them values, as:
w p 2  w p 3  V  P  V  S  w 2  w3 .
Thus, main consists that during conversion of value of branch products into the price of production
on one of stages of initial transformation the entire value magnitude produced by all the labour newly
added during the year did not change. She was equal 500 billion dollars. And it means that according to
the Marx’s concept it is possible to show, as identical average rate of profit not only without infringement
of the law of value, but on its basis is formed. The total public product (the sum of end-products) at all
stages of transformation values in the prices of production is sold at primary value, and the total sum of
surplus-value is only redistributed in the beginning inside sphere, and then and between spheres of
production, turning in the sum of the profit.
Further we shall pay attention to that fact, that after original conversion the conditions of balance of
reproduction (2) are broken. Now workers can get on the wages only part of a necessary product, namely:
300V / 305,4w2 100%  98,2% of its former quantity. There is some decrease of rate of real wages
and increase of rate of a real surplus-product. In the beginning rate of an surplus-product made 66,7%,
now she is equal: 200S  5,4V  / 300V  5,4V 100%  69,7%.
The majority of the researchers do not take into account, that the similar result completely corresponds
to the theoretical Marx’s concept, stated in the economic manuscript 1857-1858 years. In particular,
having investigated education of general rate of profit and its influence on real wages of the worker,
Marx has made such conclusion:
“Thus the worker may experience all three cases: its gain or loss from the operation = 0; it may depreciate
its necessary wages, so that they no longer suffice hence make him fall below the necessary minimum; it can
thirdly bring him a surplus wage, which is resolved into a very small share of its own surplus labour” (Marx
1857, Notebook IV).

Why at transformation there is a change of real wages and why it is rather insignificant? As was
shown, and it also asserts Marx, after an initial establishment of the prices of production value of the
constant capital undergoes direct modification, and value the variable capital is exposed only to indirect
modification. You see the money wages remain constant, and the price of workers' consumption goods
deviates from their value. Marx in this occasion writes:

“As for the variable capital, the average daily wage is indeed always equal to the value produced in the
number of hours the labourer must work to produce the necessities of life. But this number of hours is in its
turn obscured by the deviation of the prices of production of the necessities of life from their values. However,
this always resolves itself to one commodity receiving too little of the surplus-value while another receives too
much, so that the deviations from the value which are embodied in the prices of production compensate one
another” (Marx 1894, Ch. 9).

But this mutual compensation of deviations of the prices of production of necessary vital means from
them values is carried out, agrees Marx, in an approximate manner. Thereof there is a rather small change
of rate of real wages.

8
 THE FINAL TRANSFORMATION OF PRODUCT VALUE IN PRODUCTION BRANCHES
INTO PRODUCTION PRICE

So, the original conversion of value into price of production is accompanied by infringement of
separate conditions of balance of simple reproduction. It is shown in the form of insignificant change of
rate of real wages. Whether saw Marx, what such transformation is not complete and, hence, contains
the contradiction? He not only saw and took into account this contradiction, but also has specified a way
of its sanction.
So, in "Theories of Surplus-Value" (IV volume of "Capital") Marx planned to consider the problem
on original conversion of value of the commodities into the price of production. He intended to switch
on in the text of the future job a number of theoretical rules, including following:
“Provided that in the different branches of production the length of the working—day (insofar as this is not
compensated by the intensity of labour, the unpleasantness of the work, etc.) is the same, or rather the surplus
labour is the same [as well as] the rate of exploitation, the rate of surplus-value can change only if wages rise
or fall” (Marx 1861, Ch. 22).

But then he comes to the following conclusion:

“Strictly speaking, all this hardly belongs to the discussion of the original conversion of values into
production prices and the original establishment of the general rate of profit, since it is much more a question
of how a general rise or fall in wages will affect production prices regulated by the general rate of profit”
(Marx 1861, Ch. 22).

If there is an original conversion values in the prices of production, it is possible to believe, that should
take place and final transformation.
Opportunity of final transformation of value of the commodities into price of production Marx has
presented in IІІ volume of "Capital" as follows. In the beginning he actually opens sense of the
contradiction, with which the original transformation is accompanied. He assumes, that after
transformation
“…the general rate of profit, and therefore the average profit, are expressed by money-value greater than
the money-value of the actual average surplus-value” (Marx 1894, Ch. 10).
In particular, such result is received in a considered example submitted in table 4 and 5.
Then Marx explains the following mechanism of the sanction of the contradiction:
“So far as the capitalists are concerned, it is then immaterial whether they reciprocally charge 10 or 15%
profit. Neither of these percentages covers more actual commodity-value than the other, since the overcharge
in money is mutual. As for the labourer (the assumption being that he receives its normal wage and the rise in
the average profit does not therefore imply an actual deduction from its wage, i.e., it expresses something
entirely different from the normal surplus-value of the capitalist), the rise in commodity-prices caused by an
increase of the average profit must correspond to the rise of the money-expression of the variable capital. Such
a general nominal increase in the rate of profit and the average profit above the limit provided by the ratio of
the actual surplus-value to the total invested capital is not, in effect, possible without causing an increase in
wages, and also an increase in the prices of commodities forming the constant capital” (Marx 1894, Ch. 10).

Therefore stage of final transformation can be executed with the help of the following system of the
equations:
C I x1  V I y  r C I x1  V I y   w1I x1  w2 y 
C II x 2  V II y  r C II x 2  V II y   w1II x 2  S 
 (8)
w1I x1  w1II x 2  C I x1  C II x 2 
r C I x1  V I y   r C II x 2  V II y   S 

9
 Where, x1 , x2 , y — unknown indexes of change of the appropriate magnitude C I , C II and V after
restoration of conditions of balance; C I and C II — cost-price (initial price of production) constant
capital accordingly in the first and second spheres of production; r — unknown new general rate of
profit; S — sum surplus-values.
At construction of system of the equations (8) is taken into account, that the initial prices of production
of the constant capital used in various spheres of production (see table 4), the differentiations are
subjected. Thereof the initial constant cost-prices C I and C II in separate spheres deviate in a different
degree not only from value of the appropriate means of production, but also from their valid average
price of production. That the average price of constant cost-price has appeared at its valid level, the
alignment of the prices of the constant capital of separate spheres of production in a uniform price of
production is necessary. You see in conditions of the advanced industry the same kind of the constant
capital is used in various spheres of production, but is made, as a rule, in one specialized branch.
Therefore process of transformation of value of the constant capital in the price of production should be
finished by an establishment of a uniform price of production. In this connection in system (8) indexes
of growth of the price of the constant capital in the first and second spheres of production and the
differentiations are subjected.
Having used the given table 4 and having solved system of the equations (7), we shall receive: x1 =
1,06667; x2 = 0,96626; y = 1,06667 and r = 0,25. With use of these data it is easy to express results of
table 4, and then and table 5 in the new prices of production (see table 6).
[Table 6]
The comparison of the data, submitted in table 5 and 6, shows the following. As Marx assumed, the
general nominal increase of profit and average profit rate is higher than a level determined by the relation
of valid additional value to all to the advanced capital, has caused increase of wages and price of the
constant capital. In a considered case nominal increases of wages with 300 up to 320 billion dollars. And
total price of the constant capital with 465,6 up to 480 billion dollars was required to restore rate of real
wages by means of the appropriate decrease general rate of return with 26,12 up to 25%.
From table 6 it can be seen, that after final transformation the workers on the general wages can buy
all consumer goods issued by the second branch in volume 320 billion dollars. Thus other conditions of
balance of simple reproduction (2) are carried out also. Therefore prices formed after final
transformation, it is expedient to name by the equilibrium prices of production.
After an establishment of the equilibrium prices of production the money estimation of the total
variable capital changes. Its value also is modified in costs-prices ( V  V  ), but the money estimation of
a total surplus-product in the form of the profit remains constant ( P  P  ). Therefore net domestic
product expressed in the equilibrium prices of production, nominally differs from its value. Hence, first
Marx’s postulate — after final transformation the sum of the profits in all spheres of production must
equal the sum of the surplus-values. The second postulate — the sum of the prices of production of the
total social product must equal the sum of its value, — loses the limiting meaning and is superfluous.
Now only sum of the profit of all branches of production, equal to the sum of their surplus-value, is
true expression of value. Value of other structural elements of a total social product appears deeply latent
because of presence of deviations of the prices of the goods and rates of wages from their value levels.
It is necessary to note, that use of algorithm of final transformation (8) gives the same numerical
solution, as well as use of system of the Bortkiewicz’s equations (3) at z  1 . Can be asserted, that
Bortkiewicz actually was the first who has carried out transformation values in the equilibrium prices of
production. But he did not use intermediate transformation stages, as he did not distinguish a condition
of original and final transformation. Therefore till now nobody sees interrelations of the Bortkiewicz’s
solution with Marx transformation concept. For the same reason economists and until now try to find out
distinction between average and general rates of profit (see Wells 2005).
10
 The authors of "new interpretation" close enough came to development of algorithm of initial
transformation. But they have passed a stage of education of general rate of profit in spheres of
production. They nor could correctly transform the initial prices of production in equilibrium.

THE INVERSE TRANSFORMATION OF COMMODITY PRICES OF PRODUCTION INTO

VALUES

In conditions of the equilibrium prices of production the sum of wages nominally deviates from valid
value of the variable capital. Because of this the exact calculation of a real surplus-product rate S / V
with the help given to numerical model submitted in the equilibrium prices of production is impossible.
For this purpose the inverse transformation of the prices of production in value is necessary.
For considered model (see table 6) the algorithm of return transformation is reduced to a presence of
indexes J c and J v from the following system of the equations:

c1 J c  v1 J v  v1 J v m   w1 J c 


c 2 J c  v 2 J v  v 2 J v m   w2 J v  (9)


m  P / V  J v  
Here J c — index of change of the equilibrium price of the constant capital after transition to its value;
J v — index of change of the equilibrium price of workers consumer goods after transition to their value;
m  — general rate of a real surplus-product.
Taking into account, that J v m   P / V  , the system of the equations (9) becomes simpler:
P 

1c J c  v J v  v   w1 J c 

1

1
V 
  (10)
 P
c2 J c  v2 J v  v2   w2 J v 
  

V 
Having substituted in system of the equations (10) numerical models, known parameters, from table
6 and having solved her concerning unknown, we shall receive: J c = 0,78125 and J v = 0,9375. After that
the general rate of a real surplus-product pays off: m   P  / V  J v  = [200 / (320  0,9375)] 100% =
66,67%. With the help of known magnitude J c , J v and m  model in the equilibrium prices of production
(see table 6) turns to initial value model submitted in table 1.
Thus, between branch value model and same model in the equilibrium prices of production there is a
unconditional internal interrelation. A link between system values and system of the prices of production
is the sum of the profit equal to the sum of surplus-value.
As it is visible from (10), return transformation of the equilibrium prices of production in value does
not need any preliminary information on genera rate of a real surplus-product. And, nevertheless, prices
of production can be transformed in value and to define thus general rate of a real surplus-product. It
means that the level of general rate of a real surplus-product is actually determined by system of the
prices of production. Therefore general rate of surplus-value admitted Marx as theoretical simplification,
actually is not only historical precondition of system of the prices of production established as a result of
a mutual competition of the capitals, but also practical consequence of existence of this system of the
prices. The system of the prices of production contains the information on a general rate of exploitation
of labour.3
Whether but have the value-prices any meaning, if in a reality the exchange goes for the prices varying
around of the prices of production?

11
 First, without understanding the essence of the prices appropriate values of the commodities, it is
impossible to open the mechanism of education of the prices of production, and then and real market
prices subject to influence of a supply and demand. For example, Marx marked the following:
“These particular rates of profit = s/K in every sphere of production, and must, as occurs in Part I of this
book, be deduced out of the values of the commodities.4 Without such deduction the general rate of profit (and
consequently the price of production of commodities) remains a vague and senseless conception” (Marx 1894,
Ch. 9).

Secondly, without preliminary definition of value of the goods it is impossible to learn an exact
proportion, in which the living labour between divisions of production of necessary and surplus-products
is distributed. The knowledge of this proportion, if not to mention essence of concept "exploitation of
labor", would have practical meaning. For example, at distribution of a public product (see Marx 1894,
Ch. 50), at accounts of optimum size of an surplus-product, which is distributed with the help of tax
system.
Thirdly, the meaning of full labour expenses per one goods unit (and consequently commodity values)
is proved due to practice of application in many countries of a method "input-output" Leontiev. The
magnitude of full expenses of labor proportional values are necessary for accounts of public productivity
of labour in various branches of production. Such accounts are required for a substantiation of structure
of public production and foreign trade in those countries, which is compelled use the world prices at an
estimation of results of national production. But even for the advanced countries the estimation of
complete expenses of labour has the large meaning, if, for example to recollect Leontiev’s paradox. He
has shown, that the economy of USA in the after war period specialized on export of those commodities,
which require more labour, than capital, and imported more capital-intensive commodities (Leontiev
1953/1966). The paradox was that everyone was sure in a return parity. The knowledge of similar nuances
is necessary to increase productivity of state regulation of the employment level.

CONCLUSION

The algorithm of transformation of value of the commodities in the price of production in volume ІІІ
of "Capital" by Marx is stated insufficiently full. Arisen thereof the "transformation problem" puts under
doubt existence of a rational basis of the economic theory, — labour value. In a course numerous and
long (more than 110 years) debate on a problem she actually is erected in a rank of the main problem of
classical political economy.
In article is shown, that for the full and comprehensive solution of a problem of transformation of
value of the commodities in their price of production it is required to pass a number of interconnecting
links or intermediate of transformation stages, namely:
1) Stage of education of average rates of profit and modification of value of the constant capital in
separate spheres making end-products;
2) Stage of original conversion of value of products of industrial spheres into price of production as a
result of alignment of average rates of profit in general rate of profit;
3) Stage of final transformation values of products of spheres and branches of production into
equilibrium prices of production owing to restoration of initial rate of real wages and respective alteration
of general rate of profit.
By the author for the first time is proved multi-links algorithm of transformation of value of the
commodities in the price of production. The link — stage of education of average rates of profit in
separate spheres of production is reconstructed missing in III volume of "Capital".
In clause the new elements of the economic theory are submitted: a way of modeling of spheres of
production on a basis of three-branch model of reproduction, method of transformation of individual
rates of profit in average rates, and average rates — in general rate of profit, and also method of return
12
transformation of the prices of production in value. With the help of this toolkit the presence of internal
dependence between values and equilibrium prices of production is proved. Thus, the transformation
problem comprehensive is solved in complete conformity with the Marx concept. A title of the theory of
labour value at the end is restored.

NOTES

1. Ladislaus von Bortkiewicz was born in St.-Petersburg in 1868, studied at the St.-Petersburg university, which
he graduated from in 1890. Michael Tougan-Baranovsky was born in 1865 in the village Soljanicovca of Kharkov
region (Ukraine). In 1888 finished simultaneously physical and mathematical and legal faculties of Kharkov
university.
2. Here this must mean the quantity of articles of first necessity, which are required by the laborers for food,
clothing, etc., and which they receive, irrespective of the commodity price, which that quantity comprises.
3. Thus it is supposed, that the hour rate of real wages in all branches owing to a competition of the workers
is shown to some average rate.
4. This transformation stage is not revealed in the published text of volume III of "Capital".

13
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16
 Table 1: Numerical model of reproduction (1), in value
Constant Variable Surplus- Output Net Rate of Rate of
Branch of Capital Capital Value Value product Surplus-Value Profit
Production
C V S C+V+S V+S S/V S/(C+V)
1 225 90 60 375 150 0,6667 0,1905
2 100 120 80 300 200 0,6667 0,3636
3 50 90 60 200 150 0,6667 0,4286
TOTAL 375 300 200 875 500 0,6667 0,2963

Table 2: Numerical model (1), distributed on spheres of production, in value

Sub-Branch, Constant Variable Surplus- Output Net Rate of Rate of
Branch, Sphere Capital Capital Value Value product Surplus-Value Profit
of Production C V S C+V+S V+S S/V S/(C+V)
Sphere I 250 180 120 550 300 0,6667 0,2791
Including:
Sub-Branch 1.I 150 60 40 250 100 0,6667 0,1905
Branch 2 100 120 80 300 200 0,6667 0,3636
Sphere II 125 120 80 325 200 0,6667 0,3265
Including:
Sub-Branch 1.II 75 30 20 125 50 0,6667 0,1905
Branch 3 50 90 60 200 150 0,6667 0,4286
TOTAL 375 300 200 875 500 0,6667 0,2963

Table 3: Result of public production after formation of average

profit rates in production spheres (rounded off)
Sub-Branch, Constant Variable Surplus- Output Net Rate of Rate of
Branch, Sphere Capital Capital Value Value product Surplus-Value Profit
of Production C V S C+V+S V+S S/V S/(C+V)
Sphere I 300 180 120 600 300 0,6667 0,2500
Including:
Sub-Branch 1.I 180 60 60 300 120 1,0000 0,2500
Branch 2 120 120 60 300 180 0,5000 0,2500
Sphere II 165,6 120 80 365,6 200 0,6667 0,2801
Including:
Sub-Branch 1.II 99,4 30 36,2 165,6 66,2 1,2078 0,2801
Branch 3 66,2 90 43,8 200 133,8 0,4863 0,2801
TOTAL 465,6 300 200 965,6 500 0,6667 0,2612

Table 4: Result of public production after formation

of general profit rate in production spheres
Sub-Branch, Constant Variable Output Net Rate of Rate of
Profit
Branch, Sphere Capital Capital Price product Surplus-Value Profit
of Production C V S C+V+S V+S S/V S/(C+V)
Sphere I 300 180 125,4 605,4 305,4 0,6966 0,2612
Including: 180 60 60 300 120 1,0000 0,2500
Sub-Branch 1.I
Branch 2 120 120 65,4 305,4 185,4 0,5449 0,2725
Sphere II 165,6 120 74,6 360,2 194,6 0,6217 0,2612
Including:
Sub-Branch 1.II 99,4 30 36,2 165,6 66,2 1,2078 0,2801
Branch 3 66,2 90 38,4 194,6 128,4 0,4263 0,2456
TOTAL 465,6 300 200 965,6 500 0,6667 0,2612

17
 Table 5: Result of public production in the production prices which has established in
separate branches after formation of general profit rate in production spheres
(primary transformation)
Constant Variable Output Net Rate of Rate of
Branch of Profit
Capital Capital Price Product Surplus-Value Profit
Production
C V P C+V+P V+P P/V P/(C+V)
1 279,4 90 96,2 465,6 465,6 1,0693 0,2606
2 120 120 65,4 305,4 305,4 0,5449 0,2725
3 66,2 90 38,4 194,6 194,6 0,4263 0,2456
TOTAL 465,6 300 200 965,6 965,6 0,6667 0,2612

Table 6: Result of public production after final transformation,

in the equilibrium production prices
Constant Variable Output Net Rate of Rate of
Branch of Profit
Capital Capital Price Product Surplus-Value Profit
Production
C V P C+V+P V+P P/V P/(C+V)
1 288 96 96 480 192 1,0000 0,25
2 128 128 64 320 192 0,5000 0,25
3 64 96 40 200 136 0,4167 0,25
TOTAL 480 320 200 1000 520 0,6250 0,25

18