Marx ’ s accounting solution to the ‘ transformation problem

Critics have argued for more than 100 years that in Volume 3 of Capital Marx failed to solve his ‘transformation problem’, failed to reconcile separate systems of values with prices, and simultaneously value inputs and outputs at closing prices, and doing so showed his solution was inconsistent, fatally undermining his labour theory of value. From the 1980s the ‘New Interpretation’ (NI), the ‘Simultaneous single-system interpretation’ (SSSI), and the ‘Temporal single-system interpretation’ (TSSI) challenged this standard interpretation to differing degrees. The paper supports their criticisms of its ‘dual system’ and ‘simultaneist’ interpretations by showing that they are inconsistent with Marx’s theory of capitalist accounting, but goes beyond them by arguing that it underlies his theory of value. It supports the NI’s focus on Marx’s core claim that only ‘socially necessary labour time’ adds money value to commodities, but reinforces the SSSI’s criticism of its dual-system accounting for constant capital. It supports the TSSI’s dismissal of charges of ‘inconsistency’ in Marx’s theory by rejecting both dual system and simultaneist readings, but qualifies and clarifies its ‘temporal’ accounting for input price changes. Accepting that Marx’s theory is logical, the paper argues that we can test its empirical validity by understanding it as a theory of capitalist control. Marx had no ‘transformation problem’ to solve as economists pose it, of transforming socially necessary labour times into prices of production to give all capitalists the general rate of profit, but an accounting problem. He solved the reverse of the economists’ problem, showed how capitalists transform the general rate of profit and prices of production into socially necessary labour time, eventually working out that capitalists’ did this by measuring ‘capital’ as the ‘money value of socially necessary labour time’, which is equal for identical use-values. The history of capitalism had solved the ‘transformation problem’ by requiring individual capitalists to take control of the valorisation process and pursue ‘cost-price’, what accountants today call ‘standard’ or ‘target’ costs. This discovery, the paper argues, explains Marx’s decisions to change the title of his project to Capital, and to begin by assuming that the price of a commodity equals the money value of the socially necessary labour time for its production. It argues that capitalist accounting practice supports Marx’s claim that the sum of the profits of all individual enterprises is society’s total surplus value; that an individual enterprise’s profit is a ‘fragment’ of society’s surplus value, challenging the view that we cannot use Marx’s theory to explain the prices of commodities and the profits of individual capitalist firms. It dissolves the apparently incorrigible problem of allocating joint costs, including fixed capital. It concludes that Marx’s Capital provides a testable theory of how capitalists use accounts to control enterprises collectively to produce, circulate, and simultaneously distribute, surplus value from the exploitation of labour, so that every capitalist gets an equal return on capital.