The Transformation Problem of Values into Prices of Production: Marx Errors or an Inattentive Reading of 'Capital'?
Authors: Kalyuzhnyi Valeriy 
Published: July 2021

The author presents the results of the discovery in Marx's works of the disparate elements of the theory of the original transformation of value into prices and the establishment of the general rate of profit. These results show:(a) Marx's tables in Chapter 9 of Volume III of Capital do not represent the usual interrelated branches of the economy, but particular spheres of production, exempt from the double-counting of profits and wages, and producing only final commodities. The total value of these commodities is equal to the net social product.(b) Marx carried out the original transformation of values into prices under the condition that wages remain unchanged. As a result, the first (chief) macroeconomic equality is fulfilled—the sum of the production prices for all net social products must be equal to the sum of its values. Also is fulfilled the second macroeconomic equality—the sum of profits of all sectors forming separate spheres of production must be equal to the sum of surplus values.(c) Marx assumed that the original transformation takes place in two stages: in the first stage, average rates of profit are formed in separate spheres of production, comprising two sectors of production: A and B. Sector A produced of constant capital for the sphere's own need. Sector B releases the final product for an exchange with other particular spheres. In the second stage, is established the general rate of profit in sectors B. A property of the original conversion is some change in the level of real wages, especially noticeable when using numerical models with a few spheres of commodity production. Therefore, Marx introduces the hypothesis of mutual compensation of positive and negative deviations of prices from the values of commodities. The hypothesis is fully confirmed under the conditions of the law of large numbers.(d) Marx also explains that non-equilibrium original prices of production, in which demand and supply of final goods do not coincide, can be transformed into equilibrium prices of production. For this to happen, corresponding changes in monetary wages, prices of constant capital, and the general rate of profit are necessary. However, the attainment of equilibrium prices was regarded by Marx as a secondary issue. At equilibrium prices, only the first (chief) macroeconomic equality is fulfilled.The author in developing alternative methods of transforming value into original and equilibrium prices of production uses all of the above elements of the theory of transformation of values into production prices. First, he restores the double counting of profits and wages in Marx's table. Second, he applies an iterative procedure of sequentially establishing the average and general rate of profit in the sectors and spheres of commodity production.The paper proposes new iterative calculation algorithms in the Excel program for the original and equilibrium transformation of values into production prices. The author tested the algorithms using the Wolfram Mathematica software. He also developed a method for converting the equilibrium production prices of goods back to their initial absolute values. This method refutes the well-known “eraser algorithm” by P. Samuelson. Ultimately, the author argues that Marx does not have the errors of transformation that his critics have attributed to him for so long.