The Determination of Prices Od Production, Paolo Guissani (1991-1992)

Paolo Giussani
of
The Determination
PricesofProduction
Sincetheturnofthecentury a multitudeofcriticisms havebeen

directedagainstthe so-calledtransformation of quantitiesof
commodity valueintoquantities ofprice,on theassumption ofa
uniform profitratefor all as
industries, setforth in chapter of
9
Marx'sCapital,volume3. Commontoall thesecriticisms is the
idea thatMarx'sprocedure lacksa transformation ofthequanti-
tiesofvalueofthemeansofproduction andoflabor(theinputs).
If thisdilemmais to be resolved - according -
to all thecritics
thetwofundamental equationsof theMarxiantransformation
(totalprice= total
value;totalprofits = totalsurplusvalue)can
no be
obviously longer simultaneously valid.The resultofthis
is thatthegeneralprofit ratecan no longerbe calculatedfrom
Marx'slaw ofvalue,andthevaluequantities themselves cease
toplayanyrolein thecalculationofpricesofproduction.
This resultstemsdirectlyfromthe assumptionthatthe
pricesof theproductsand thoseof the meansof production
mustbe determined simultaneously, an assumptionthathas
always been accepteduncritically by almosteveryone.This
has been trueeven of Marxists,especiallygiventhe accep-
tanceby "left-wing" economistsof Sraffa'stheoryof prices
and distributionof revenue.Yet thisresultis muchless obvi-
ous thanit may seem. Once the assumption(whichis not
foundin Marx)is provedto be irrational and is therefore dis-
carded, thecriticisms directed against the Marxian determina-
PaoloGiussaniis editorofthejournalPlusvalore.
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68 INTERNATIONAL
andtherateofprofit
tionofthepricesofproduction lose all their
force.
ofprices
determination
1. The simultaneous
Noneofthediscussions ofthepricesofproduction thathaveap-

pearedso far,andcertainly notSraffa's1960treatment,1 hastaken
thetrouble toprovidea theoretical for the
justification procedure of
simultaneous calculationofinputandoutput prices.Nevertheless,
there is a kindofreasoning prevailingamong so-calledexperts,
the
according towhich"pricesmustnecessarily be simultaneous prices,
sincethepricesof all commodities arebasednoton thecostsof
production (oronthelabor)sustained inthepast,at thetimewhen
thecommodities wereproduced, buton thecurrent costs(or the
of
quantity labor)." The astuteobserver willeasilyperceive thatthis
is an entirelycircular
argument. Ifpricesaredetermined bycurrent
costs,itis necessary to establishwhatthesecurrent costsare,but
sincethecurrent costsare thepricesthemselves (of thevarious
inputs), thewholething comesdowntosayingthat(current) prices
aredetermined by(current) prices.
Anotheridea, also expoundedby JoanRobinson,is much
moreelementary - almosttrivial.Sincethecommodities of the
sametypehavethesamepriceas outputandas input,thisargu-
mentgoes,thesamepriceforthosecommodities is placedonthe
leftandon therightsideoftheequationsusedforpricecalcula-
tion.Unfortunately, as we shallsee,thisargument forgetsthata
givencommodity cannotoperateas an inputandas an outputat
thesametime.In reality, theprocedure ofsimultaneous calcula-
tionof pricescannotbe givenanytheoretical foundation; it is
an
simply axiom, which works so
only long as itis not shown to
produceconsequences thatareabsurdand/or in plaincontradic-
tionwiththefacts.To findoutwhether thisis indeedso, letus
imaginea system ofproduction composedofthreeindustries (A,
B, C), each of whichuses onlyproductive inputscoming from
theothertwo,andin whichsectorC producesthegood serving
as thereal wages consumedby all theworkers. The material
WINTER1991-92 69
ofthissystem
structure is representedbymeansofthefollowing
schema:
(1) Ba + La -> A
Ab+ Lb - B
Ac+ Bc + Lc -> C
C = Ca + Ch+ Cc - La + Lb+ LC= L.
If,forconvenience,we nowsupposethatthesystem is repro-

ducedon an unalteredscale(simplereproduction),it shouldturn
outthatsectorA exchangesitstotalproduct A againsta portion
oftheproduct ofB andC, specifically,againstthequantity Ba +
Caywhilethecommodity B shouldbe exchanged againstAb + C¿>,
andthecommodity C-Cc withAc+ Bc.We therefore shouldhave
thefollowingseriesofequations(thelastbeinga simpleidentity,
sincethequantity Cc is consumedwithinthesame industry in
whichitis produced):
(2) A = Ba + Ca
B = Ab+ Cb
c-cc = ca+ cb.

As can be seen,thecommodities thatenterintotheexchanges
among the variousproductive sectorsareonlytheoutputs, thatis,
whatis foundon the rightside of expressions (1), whilethe
left
inputs(the side) have been exchanged in thepreviousperiod.
It is quiteobviousthatno outputcan be exchangedagainstan
input,sincetherecannotbe use valuesthatfunction simulta-
as
neously inputs and as commodities. If a particular
productive
use value(e.g.,oil) is playingtheroleofinput, thismeansthatit
is in theformofproductive capitalandtherefore cannotat that
timebe foundinthe(capital)commodity form.
Equations(2) represent directexchangesof commodities for
70 INTERNATIONAL JOURNAL OF POLITICAL ECONOMY
commodities;if we transform these barterexchanges into ex-

changes for commodity-money, the situationis worsened.The
outputs Ba + Ca, Ab + Cb, Ca + Cb mustnow all be computedfirst
andthenrealizedin money,thatis, say,difourthcommodity, before
theycan be used as productivecapital.The assumptionof the si-
multaneous calculationofinputand outputpricesin factimpliesthe
eliminationof thisnecessity,something justifiedat timesby the
that
pretext "purchases, sales,and productionalwaysoccursimulta-
neouslyforall sectorsandindividualcapitals,withoutinterruptions
makingpossible the passage fromone phase to the next."The
objectionis clearlyirrelevant,sinceifwe aremovingfromdipartic-
ular groupof inputsto a particulargroupof outputs,as in the
so-calledlinearmodelsof production, thephases of sale/purchase
and of production forthesegroupsobviouslycannotoccurat the
sametime.The variousproduction processesmusttakeplace at the
same timewithrespectto each otherin the varioussectors,and
afterthistheproductscan all be exchanged.2 To do away withthis
"minor"detailis basicallyequivalentto assumingthatcirculation is
nota constituent elementofthemarket or
economy, (analogously to
Ricardo'squantitative theoryof money)thatinputsenterthepro-
ductionprocesswithout pricesand leave it withprices,thatis, the
products do not have theformofcommodities.
2. The simultaneouslinear equations
The moderntheoryof pricesand distribution is clearlyforcedby

its own premisesto assume the simultaneousdetermination of
thepricesofinputsand outputs.If one wishesto obtaintheprices
of productionfromthe knowndata concerningthe production
technology, togetherwithknowledgeof one of theso-calleddis-
tributivevariables(e.g., thewage rate),withoutthe aid of other
unwelcomequantities(amongwhichthe"value" ofthecommod-
ities is obviouslyparamount),it is necessaryto adopt the same
temporalindexforthepricesoftheinputsand theoutputs,or else
itwillno longerbe possibleto determine therateofprofit.
To illustratethiselementaryfact,let us imaginea systemof
WINTER1991-92 71
A and B, each of whichproducesa productive

twoindustries,
input,withthecommodity B also beingusedas thewagegood.
Witha timespreadbetweenthepriceoftheinputsandtheprice
oftheoutputs bytheindicest andt + 1), the
(a spreadindicated
systemofproductionpriceswouldassumethefollowing form:
(3) + =
[Ba Bta]pbt(l+r) Apat + i
[^"«í+V»i](1+r)=l>p»í+r
The expressions in equation(3) forma systemof twolinear
first-order
difference equations,whosesolutionrequires prelimi-
naryknowledge ofthequantity r (therateofprofit),
whichwill
enterintothecoefficient 1+r. Alternatively,
ifwe treatr as an
unknown function oft (i.e.,r/+i),
a further
equationforthedeter-
minationof T/+1 is required,an equationthatcannotbe con-
structed
in theframework oftheSraffiantheory,thatis, without
theadditionofotherquantities.
3. The physicalsurplus
Economists oftheSraffian schoolrarelymissan opportunity to

assertthatthecategory of surplusvalueis unnecessary forthe
determinationoftherateandthevolumeofmonetary the
profits,
in
simplesurplus physical termsbeing sufficient for this. Not
without reason,theyliketodesignate theirowntheoretical orien-
tationas "one based on thesurplusapproach'' It is therefore
appropriateto investigate whether thisconceptof materialsur-
plusis indeeddefinedsufficiently to playtherolethatits sup-
portersassignto it.
Evenchildren knowthatthestrictconception of a surplusin
purelyphysicalterms is an absurdity,sincethequantity ofmatter
(and/orenergy) in the universe is constant,or at least can be
changedbythereis no knownforce.One musttherefore employ
a different of a
concept surplus, surplus thatis a quantity ofuse
valuesthatcan be utilizedbyhumanbeings,in excessof those

consumedeitherby individuals or byproduction. Buthow can
thisexcessbe measured? The matter seemssimple.On one side,
writethetotalofuse valuesthatareproductively consumed dur-
ing a givenperiod,and on the otherside,writethetotaluse
values producedduringthe same period:the difference be-
tweenthelatterquantity andtheformer is thephysicalsurplus
obtained.An attemptto carryout thisprocedure,however,
wouldquicklyshowthatit is impossible:thesubtrahend ele-
mentsare notfoundin theminuend, namely, all those natural
forcesandentities (theelementshiddenin theearth'scrust,for
example)thatare utilizableuse values,to all intentsand pur-
poses,andin factare absolutely indispensable,yetwhichcan-
not have a price because theyare not commodities.This
circumstance is enoughto explainwhytheconceptof a sur-
plus of use values is in and of itselfchimerical. It is therefore
necessaryto have recourseto a thirdand different conceptof
surplus or netproduct.
Inevitably,thereis no otheralternative thanthe surplus
formedby thedifference betweengroupsofgoodsthathave a
priceand thatare therefore theonlygoodsthatend up in the
calculationof thedifference betweengrossrevenuespocketed
by the capitalistproducersof commoditiesand production
costswhichthesesame individualsmustsustain.However,if
boththe outputsproducedand the inputsused changetheir
physicaland technicalcharacteristics over time,it will no
be
longer possible to calculate a surplusin materialterms
givenonlywhichgoodshave a priceand whichdo not,since
termswill appearon therightside oftheproduction equations
thatare nothomogeneouswiththoseon theleftside, whose
sole functionis to be replacedin successiveproduction cycles.
It followsthatthematerialsurpluscannotbe used as a basis
fordetermination of thepricesandtherateof profit. This is a
necessaryconsequence of thesimultaneous calculation of the
inputandoutputprices,because(as we haveseen)thistypeof
calculationimplicitly presupposesthattheuse values appear
WINTER1991-92 73
in thetwo positionsof commodity

simultaneously capitaland
capital,whichis animpossible
productive premise.
4. The mostrecent"solution"proposed
It is knownthatnoneofthesolutions proposedthusfarforthe
problem ofthetransformationofvaluesintopricesis compatible
withthe simultaneous validityof the two Marxianequalities
=
(totalvalue totalprice,totalsurplusvalue= totalprofit). Nor
have any of themsucceededin usingvalue quantitiesas the
essentialbasisforthedetermination ofthepricesofproduction.
However,a newsolutionrecently proposedbyDumenil,Foley,
andothers3 seemsto haveaccomplished an apparentquadrature
ofthecircle,obeying thetwoMarxianequalities bymeansofnew
definitions ofboththevalueoflaborpowerandthegroupofcom-
modities towhichthetotalofpricesandthetotalofvaluesrefer.
DumenilandFoleyopposethetraditional viewofthevalueof
laborpower(thevalueoftheconsumer goodsthatformthereal
wage ofthe workers),preferringto definethisvaluein termsof
tothesumofmoneyreceivedbytheworkers (valueofthenomi-
nal wages);theybase thispreference on theargument thatthe
workersmayspendthissum of moneyas theysee fit.If the
quantity, thetype,andthequalityofthecommodities consumed
bythewagelaborersvary,then,according to thefirst
definition
of thevalue of laborpower,theaveragerateof surplusvalue
shouldalso change,regardless of changesin productivity; ac-
cording to thesecond definition
of the value oflaborpower, the
rateofsurplus valueshouldbe constant.
Now,it is quiteevidentthat,withthisnewdefinition of the
valueoflaborpower,thevalueofthisparticular commodity will
notmerelychangeitscharacteristics, butwillendup by simply
disappearing. Insteadof the magnitude of value of a definite
of
group goods (the real wage consumed by theworkers), we
havea sumofmoney, without
established anylinktothevalueof
therealwageorto anything else. Becausethepricesofproduc-
tionofthecommodities arenotyetknownatthetimewhenthis
quantity ofmoneythatis torepresent thewagesis fixed,thereis

no guarantee that, once the prices set,thisquantity
are willactu-
allyenabletheworkers to purchasethegroupof commodities
comprising, at that time, thesociallyestablished level of con-
sumergoodsrequired the
by wagelaborers, and,therefore, make
possiblethereproduction oftheeconomicsystem. Thisallegedly
newdefinition ofwagesas simplya quantity ofmoneyis in no
way new,sinceit is in factexactlyequivalentto thenominal
wagethatwe findin Sraffa, whichcausesso manyproblems for
histheory. Thesameproblems cannotfailtoappearintheformu-
lationofDumenilandFoley.
On theotherhand,ifthissumofmoneythatis equivalent to
thewagesis fixedin relation to thepriceofthecomposite com-
modityconsumedby theworkers, we maywonderwherethis
pricecouldcomefrom,sincethepricesare supposedto be the
finalresultof thetransformation and surelynotits starting as-
sumption. In thissecondcase,we thusfindourselvesin thesim-
ple Sraffianformulation ofthesystem ofpriceswithrealwages,
to whichis added(quitearbitrarily) thestatement thatthetotal
nominalwages receivedby the workersand the value of the
commodities purchased bythelatter areoneandthesame.
Yet thenewdefinition ofthewageis necessary ifthecircleis
tobe squaredwithrespect tothetwofamousequations. In fact,it
is enoughto add thatthetotalproduct,corresponding to the
equationbetween thesumofvaluesandthesumofprices,cannot
be thegrossproduct, as was believeduntilnow,butrather thenet
product, if we are to avoid a possible double counting of com-
moditiesthatappearas inputsin a different, laterprocessof
production. Ifthesumofthepricesofthecommodities thatform
thenetproduct oftheeconomicsystem is equatedto thesumof
thevaluesofthesesamecommodities, we obtainonlyoneofthe
infinitepossiblenumeraires oftheSraffian systemofproduction
prices,andif(as followsfromthenewdefinition of wages)the
sumofthewagesis necessarily equal to the valueoftheaggre-
gate labor power, it is a trivial resultthat the sum of profits,or
thetotalprofit, shouldbe equal to thesumof surplusvalues,or
WINTER1991-92 75
thetotalsurplusvalue,since thenetproductis knownto be

dividedbetween wagesandprofits.
Notonlycouldall ofthisbe obtained andeasilyfrom
directly
theSraffian systemby the of
calculation thepricesofproduction,
using suitablead hoc without
definitions, havingto present the
factsas thougha mystery cloakedin secrecyforcenturieswere
finallybeingexplained,butalso thisoperation runstheriskof
defining a numeraire sinceit is notneutral
thatis unacceptable,
withrespectto relativeprices,as has beenbrilliantlyshownby
Stamatis(1990) in his demonstration thatthenumeraires com-
prisedin a compositecommodity cannot guaranteeinvarianceof
relativepriceswithrespectto thechoiceofthesamenumeraire
inso-calledlinearsystemsofproduction.
ofthepricesofproduction
5. The determination
If it is necessaryto introducea timelag betweenthepricesof

production oftheinputsandthepricesofproduction oftheout-
puts in orderto takethecirculationprocessinto - some-
account
thingthatwouldbe essentialevenin thecase of a commodity
circulation timeequalto zero4- assuming relations
input-output
identicalto thoseof equation(3), thesystemdetermining the
of
prices production would assume thefollowingform:
(4)
+ + i) =
[Ba ']Pbt(l+rt ¿Pot + i
As we have alreadynoted,thissystemof equationsof itself

does nothavea solution;in orderto be usefulforsomething,it
mustbe furnished withsupplementary equationsthatgivea pre-
cise meaningto thefactor1 + n + 1,thatis, thegeneralrateof
Thisis in factthepurposeof theMarxiantheoryof the
profit.
exchangevaluesofcommodities bythelabortime
as determined
necessaryfortheir
production.
The Marxiantheory declaresthatthemagnitude of thevalue
ofeverycommodity is determinedbythesumofthevalueofthe
meansofproduction consumedin itsproduction (fixedconstant
capitalconsumedpluscirculatingconstant
capitalconsumed) and
thevalueaddedby laborin thelaborprocess(whichis divided
intothevalueoflaborpowerandsurplusvalue).In thetermsof
thismeansthatthe value magnitudes
our formulation, of the
commodities A andB (whichwe denoterespectively XaandXb)
aredetermined the
by following system:
(5)
Now,substituting theproductionpricesattimet forthequan-

titiesof value at timet of theconstantcapitalemployedand
consumedin thesystem(5), we obtainthesystemof whatmay
be calleddirectprices(designatedby thequantitiesiia andtc¿>).
Thissystem if
is indispensable we areto derivetheequationfor
thegeneralrateofprofit:
(6)
The directpricesexpressthequantityof total(gross)value

in
created eachproduction bythepriceofthe
sector,constituted
capitalconsumedandthenewvalueadded,butnotyet
constant
amongthevarioussectorsin accordancewiththe
redistributed
WINTER1991-92 77
criterionoftheuniform temporal rateofprofit onthetotalantici-

patedcapital.These far
prices, from being a fictitious
quantity or
a merestepintheprocedure forcalculating thepricesofproduc-
themagnitudes
tion,constitute to whichthemarket pricesofthe
commodities wouldtendifthemechanism by which moneycapi-
talgoodsis continuallytransferred
fromoneproduction sectorto
another inthedirectionofthehighest rateofprofit shouldcease.5
Of course,thedirectpricesof thecommodities wouldcoincide
withthevaluemagnitudes ifthepricesof thecommodities that
appear as constant in
capital (6) were equal to thevalues ofthese
commodities.
At thispoint,it is quiteeasy to derivetheequationforthe
generalrateofprofit. Giventhestarting pricesofthecommodi-
ties thatformthe aggregatereal wages in the two sectors
(Biapbt+ Bibpbt)and thequantities of thenew valuescreated,
we obtaintheequationfortheuniform rateofprofit:
(7)
rt+ 1 + + + •
Abpat Baph Blapht Blapbt
whichwe mayinsert intoeachofthetwoequationsofthesystem

(4) toobtain pricesofproduction
the pö/+1and p/?,+1.6
It is obviousthatoursystemof equations(4)-(7) cannotyet
havea complete solution,as itstilllackstheestablishment ofan
initialconditionpao,pbo-It maybe thought thattheinitialcondi-
tionis givenbythevaluemagnitudes ofthecommodities at the
=
timet 0, oratthemoment ofthepassagefromsimplecommod-
to
ityproduction capitalist production, or it maybe thought as
given in someother way. Whatever itis,itis since
irrelevant, itis
easyto see that the behavior ofthe solution of a of
system type
(4), supplemented byequation(7), is entirely independent ofthe
establishment ofany condition.
initial This means, quitesimply,
thatthepricesofproduction can onlybe theredistribution ofthe
quantitiesof value (whichwe have heredesignatedla and k)

newlycreatedinthecourseofthecontinuous successionoflabor
processes overtime.
Whatever theinitialcondition chosenforthesystem(4)-(7),
thisis necessarily
equal tothat which is adoptedbythesystem of
values(5). Whether onestartsatthe dawn ofcommodity produc-
tion,orsetsoutfroma hypothetical transitionfromsimplecom-
modityproduction (directlyregulatedbythevaluemagnitudes)
to production based on capital,thepointof departure mustbe
commonto thethreesystems ofvalues,directprices,andprices
of production- thatis, systems(5), (6), and (4), respectively;
hence,thesumofthepricesin a givenperiodwillalwaysneces-
sarilybe identicalto thatofthevaluesin thesameperiod,as is
rather easyto verify fromthesolutionsofthethreesystems. In
each period,thequantity thatis distributedamongthevarious
(two,inourcase) capitalsis givenby:
(8)
^ +l»,-(B^+BOp»«f
where( Bia+ Bib) pbtcomprises thequantity of valueproduced
thatgoes to laborpower.Probablyit is exactlythislastmagni-
tudethatwill somewhatperplexthoseMarxistswho strongly
desiretorespecteverything thatMarxsaid.Butexpression (8) is
theonlywaytoremainwithin Marx'sowntheory ofthepricesof
production andofthevalueoflaborpower.
Thequantity designatedby( Bia+ Bib) pbtis thepriceofproduc-
tionofthetotalofthecommodities consumed bytheworkers (ag-
gregaterealwages)attimet,resulting (inturn)from a redistribution
ofquantity oflaborperformed inthepreceding periodonthebasis
ofthecriterion oftheequalrateofprofit forall typesofcapitalist
production; as such,itis thepriceofproduction oflaborpowerat
timer.It is thereforeappropriateto ask whatrole is playedbythe
magnitude of value of laborpower in thetransformationprocess:
doesitnotendup disappearing, sic etsimpliciterlThisvaluemag-
WINTER1991-92 79
nitudeplays the same role as all the magnitudesof value in the

generalprocess of productionand circulationof capital, being
continuouslyand unceasinglyredistributed among the various
capitals.The value and theprice of labor powermustbe consid-
ered not as the value and priceof some metaphysical entity,but
ratheras thevalueandpriceofa particular group ofuse values.It is
quiteobviousthatthetotalpriceof production of laborpower,in
in each period,fromthetotalvalue of
thegeneralcase, is different,
laborpower,as Marxhimselfnotesquitecarefully in hisdiscussion
ofthetransformation ofvaluesintoprices:
As forthevariablecapital,theaveragedailywageis certainly
al-
waysequal to thevalueproduct of thenumber of hoursthatthe
workermustworkinorder toproduce hisnecessary
meansofsubsis-
tence;butthisnumberofhoursis itselfdistorted
bythefact thatthe
productionprices of the necessarymeans of subsistencediverge
fromtheirvalues.[Marx1977c,p. 248; emphasisadded]
It is thereforepossiblethateven thecost-price of commodities pro-

ducedbycapitalsofaveragecomposition may differfromthesumof
valuesof theelementswhichmakeup thiscomponent of theirprice
of production. Supposetheaveragecomposition is 80c + 20v. Now,
it is possiblethatin theactualcapitalsof thiscomposition80c may
be greateror smallerthanthevalue of c, i.e., theconstantcapital,
because this c may be made up of commoditieswhose price of
productiondiffersfromtheirvalue. In the same way, 20v might
divergefromits value if the consumption of the wages includes
commodities whosepriceofproduction divergesfromtheirvalue; in
whichcase thelabourerwouldworka longer,or shorter, timetobuy
themback (to replacethem)and wouldthusperform more,or less,
necessarylabourthanwouldbe requiredofthepriceofproduction
ofsuchnecessaitiesof lifecoincidedwiththeirvalue. [Marx 1977c,
p. 253; emphasisadded]
In practice,Marx's statement meansthatthedifference between
themagnitude of value and thepriceofproductionof thetotalreal
wage is quiteirrelevant withrespectto thetransformationofvalues
intoprices.Since whattheworkeraccomplishesinthelaborprocess
is notto transferthevalue ofthemeansof subsistence to thevalue
of theproduct,butratherto re-createex novoa valueequal to that

ofthemeansofsubsistence thedivision
a surplus),
(plus,obviously,
oftheworking daybetween necessary laborandsurplus valueis
adjustedin eachperiodbyrespect to the of
price production ofthe
realwage,so thatanyquantitative differencebetweenthevalue
andthepriceofproduction oflaborpowerlosesall significance,
a circumstance in
expressed formula(8), whichgivesthetotal
amount ofthesurplusvalueproduced (andredistributable
among
thevariouscapitals)in a givenperiod.It followsautomatically
thatin each individual
period(circuitof capital)thesumofthe
surplus valuesproducedin thevarioussectorscan neverdiffer
from thesumoftheprofits receivedinthevarioussectors.
ofthesolutionsofthe
6. Characteristics
of of
system prices production
Although thesystem ofequations(4)-(7) is formally presented as

a nonlinear system, -
it is easyto linearizeand if we holdcon-
stantthetechnicalcoefficients and thequantities of laborcon-
-
sumed itssolutions (forthetwopricespat,Pbtandfortherate
of profitn) are all absolutely stableandconverge on a pointof
equilibriumreached from a certain
i,whatever the initial
conditions.7
Theinteresting factis thattheequilibrium solutionofoursys-
tem(4)-(7), exceptforitsindependence fromtheinitialcondi-
tions,looksidentical tothesolution ofthecorresponding Sraffian
system ofsimultaneous determination ofthepricesofinputsand
thepricesof outputs. Thiscircumstance mayeasilylead one to
thinkthatthetwotypesofsystemare,in theend,quiteequiva-
lent,and thatit is nottherefore worththetroubleto searchso
zealouslyforsomething new,in distinction to thealreadywell-
knownSraffian theory, which is so and
simple convenient. But
thiswouldbe a seriouserror.The twosystemsare equivalent
(and thisonlyundertheassumption of fixedtechnicalcoeffi-
cientsand quantity of labor)onlyafterthefixedpointof the
discretesystem(4)-(7) has beenreached8; in thepreviousperi-
ods,thenumerical valuesofthepricesofproduction in thetwo
WINTER1991-92 81
systems differ. Without theassumption of theconstancy of the

technicalcoefficients andthelaborinputs, andallowingthetech-
nologiesadoptedto vary,thetwosystems notonlycease to be
thesame,andthusto provideidenticalnumerical solutions, but
actually reveal themselves to be qualitativelydifferent. Our
discretesystemof thepricesof production and of therateof
profit(4)-(7) providesa clearandreliablewayofdetermining
thequantitiesof interest, movingfromone periodto another,
whilethe simultaneous systemof the Sraffiantype(intrinsi-
cally staticin its mathematical nature)mustultimately break
downintoas manynewsystemsas thereareperiodsoftechno-
logical changeconsidered, withoutprovidinga way to move
directlyfromone periodto the next,or fromone circuitof
productive capitalto another[P . . . P'], a movement mediated
bythecircuitofcommodity-capital .
[C. C]. andby ofthe
that
money-capital [M . . . M'].
Thisis clearfromthefollowing schema,whichputsthepro-
cess ofcapitalcirculation, as expoundedbyMarxin thesecond
volumeofCapital,in relation withourdiscretesystemof equa-
tionsofpricesofproduction:
m cl . . . p ... M' c' - P' . . .
^X ^T ^5--
c2
... APt + it (Apt + wPt)(l + rt) =Qpt + l ... ,
whereM standsformoney-capital; C' andCi indicatethecom-

modity-capitalservingas inputandthecommodity-capital thatis
theoutputof production, respectively; P is theproduction pro-
cess; and theapostrophe (') denotesthequantitative increment
withrespectto thepreviousperiod.In thebottomrow,A is an
indexfortheproductive inputs, andw is an indexfortheaggre-
gaterealwage,whileQ indicates theaggregate output.
A numericalexample of the effectsof a continuous in
variation
thetechniquesandinlaborproductivity willservemuchbetter than
a general
argument toillustratethisimportant fact.Keepinginmind
thesimultaneous(Sraffian)form ofsystem (4)-(7),whichis:
(9) (1+r) =A*>a

(*a +Bla)Pb
valuestothevariouscoef-
We mayassigntheseinitialnumerical
ficients:
A6=10; Ba = 5; 5^=10; 5£ =7; «a + «6 = £ = 20 .

Forthesegivenvaluesof thetechnical therela-
coefficients,
tive Sraffian prices and the relative
equilibrium pricesof the
system =
(4)-(7) areequaltopjpb 1.0686,andthecorresponding
rateofprofit tor = 1.2139. Ifwe nowletall thetechnicalcoeffi-
cientsvaryforthreeconsecutive periodsandcompare,foreach
the
period, prices and theratesof obtainedbyourdiscrete
profit
system (pat,pbt, n) withthosethatresultfromthestaticSraffian
system. Thesymbols A%pandA%rindicate, foreachperiod,the
percentage deviations inthediscretepricesandrateofprofitwith
respectto the static
pricesand rateofprofit.
1.
Ab= S; Ba = 4; B^
= 7 ; 5£ =7; « = 16.
= 1-0089 Pa/pb= 1.0427

Pa1/Pbl
ra = 1.4721 r = 1.6082
A%p = - 3.242%
A%r = - 8.463%
2.
Ab= 6 ; Ba = 3.5 ; B, = 7 ; B, = 5 ; I = 12 .
= L2670 Pa /Pb = im7
Pa2/í>62
WINTER1991-92 83
r2 = 2.2216 r = 2.3341
A%p = + 8.597%
A%r= -4.820%
3.
= 5 ; Ba = 3.5 ; = = I = 10 .
Ab B£a 5 ; B£b 4 ;
pa/pb= 1.0320 pa/p6= 1.1149

r3 =2.9903 r = 3.4326
A%p = -7.436%
A%r = - 12.885%
7. Conclusions
Thisarticlehasdemonstrated howMarx'stheory ofthepricesof
production, betterknown as the "transformation of valuesinto
prices,"notonlypresents no logicaldeficiency, butalso is dy-
namicallysuperior to Sraffa's widely circulated and accepted
formulation in
whenexpressed its corresponding mathematical
terms,whichcannotbe thosecustomarily usedbyeconomists of
thestatic-lineartradition.In thecontextof a discretedynamic
system,whichis essential ifwe aretoconsider thepartplayedby
circulationalongsideproduction, the quantitiesof laborper-
formed inthevariousproduction sectors(andthustheproduction
of value) are absolutelyessentialto definethegeneralrateof
This
profit. shows thatthe pricesofproduction arenothing more
thanvaluesredistributed overthevariousinvested capitals.The
factthattheequilibrium solutions a
of dynamical discrete system
andthesolutions ofa staticsystem areidenticalwhenthetechni-
areconstant
cal coefficients is ofverylittlepracticalimportance
andonlyshowsthattheSraffian systemofequationsamounts to
no morethanthestaticcase of Marx'stheoryof thepricesof
production.9
The discretesystemdefinedhere,however,is insufficient and

may stilllead to majormisunderstandings if its intrinsic
limitsare
notgrasped.The systemlacks a description of themechanismthat
continuously leads to the formationof a uniform -
rateof profit
whichis a mereassumption -
here fromthedifferent sectoralrates.
As a result,it is not possible to studythoroughly the effectsof
technological progressand increments in productivity achievedby
changesin themeansof production and in thecompositionof the
capitalwithintheindividualbranchesofthesocial production. Fu-
tureworkwillextendthemodelpresented heretothemechanismof
formation oftheuniform rateofprofitand to thevariationof labor
productivity in thevarioussectorsthrough theintroduction of new
andmoreadvancedmeansofproduction.
Notes
1. See Sraffa(1960). Here we are abstracting completelyfromthelogical

criticismsdirectedagainstthe Sraffatheoryby Marxisteconomists,although
this criticismhas demolishedthe mythof thattheory'scoherence.See, for
example,Savran(1979, 1980) and Stamatis(1990).
2. See Dumenil(1983), Foley (1982), and Glick-Ehrbar(1987).
3. Marx himselfimplicitlyrecognizes the need for a time spread in the
formulation of theprocessof formation of thepricesof productionon thebasis
of values when,in chapter9 of volume 3 of Capital, he mentionsa "quantita-
tive errorin thepast'*withrespectto thepossible variancebetweenthevalue
of theconstantand variablecapitalused in productionand itspriceof produc-
tion.See Marx (1977c), p. 252.
4. Recent statementsof thisargumentare to be foundin Freeman(1984)
and in Carchedi (1991). While Kliman and McGlove (1989), althoughadher-
ing to a viewpointrathersimilarto thatset forthin the presentwork on the
problemof thetransformation of values intoprices,do not explainwhya time
lag should be placed betweenthe prices of the inputsand the prices of the
outputs.These authorsinvoke the "dialectic" and the "dialecticalmethod"of
Marx, as opposed to thestandardmethodof thebourgeoiseconomists,butthis
is like the storyof Don Quixote and Sancho Panza, who saw the same phe-
nomena appear in very different formsdependingon the different attitudes
withwhichtheyapproachedtheadventure.
5. The importanceof what we have called here directprices follows di-
rectlyfromthe theoryof rent.Independentlyof differencesin the natural
fertilityof the various typesof land and the different amountsof capital in-
vested,thepricesof productssubjectto groundrentwill tendtowardthedirect
prices of equations (6), since privatepropertyhindersthe freecirculationof
WINTER1991-92 85
moneycapitals among the sectorswithrespectto land, whichis thepractical

mechanismthatleads to the equalizationof the various ratesof profitor the
redistributionof the social surplusvalue to thedifferent branchesof capitalist
production.The fact thatagriculturaland miningproductsare sold at direct
pricesof equations(6) generatesabsoluterent,whichis equal to thedifference
between the directprice of the commodityyieldinga rentand the price of
productionat whichthiswould be sold were thereno barrierto thecirculation
of capital among theproductionsectors.Disregardand ignoranceof the fact
thatthe magnitudesof value are determining factorsof prices have led the
neo-Ricardiansand Sraffiansto rejectabsoluterent,due to theimpossibility of
formulatinga theoryfor it, and have led many economistsof the "Third-
Worldist"tradition(Amin,Dos Santos) utterlyto confuseabsolute rentwith
monopolyrent.
6. Some readersmay doubtthatthenumerator of equation(7) constitutesa
sum of homogeneousterms,but theywould be wrong.In the entiresystem
(4)-(7), quantitiesprovidedwithindext are eitherunknownmagnitudes(func-
tions)or knownmagnitudes(functions).In systemsof thiskind,theunknown
magnitudes(functions), by thenatureof things,assumethequality(time,work,
weight,mass,etc.)of theknownmagnitudes whichin ourcase arethe
(functions),
quantitiesoflabor time la and & expendedin the twosectorsofproduction.
7. Upon requestthe authorwill providethe completemathematicaltreat-
mentof thediscretedynamicalsystempresentedhere,and itsrelationswiththe
staticsystemof theSraffiantype.
8. The essentialdifference betweenour discretesystemand thestaticSraff-
ian systememergeswithgreatclarityin thecase of productionwithouttheuse
of labor (fullyautomatedproduction),whichcorrespondsto zero value of the
quantitiesla and h. For la, theSraffiansystem(9) yieldspositivesolutionsfor
thepricesofproduction, whilethedifference
as foranyothervalue of la and 1¿>,
system(4)-(7) has no solutions.In the absence of humanlabor expended in
production,the two systems(with constanttechnicalcoefficients)no longer
convergeto the same equilibriumsolution.This circumstancecorrespondsto
thefundamental principleof theMarxiantheory,accordingto whichthecalcu-
lationof values is indissolublylinkedto theexistenceof thecommodityecon-
omy, which is incompatiblewitha fullyautomatedproduction.The discrete
systemdevelopedhere,however,shouldnot be confusedwitha simple itera-
tive calculationof the prices of productionfromvalues. It is a ratherwell
knownfactthattheSraffianpricesof productioncan eventuallybe obtainedby
using the same technicalcoefficients, startingwiththe quantitiesof value of
the commodities(or otherpositive quantities),and repeatingthe calculation
(see Shaikh, 1977). However, the iterativecalculationfromvalues is only a
numericalcalculationprocedurein whichtheintermediate values of theprices
(beforethefinalequilibriumvalue) do not count,since theyare purelyimagi-
naryquantities;in our system(also assumingfixedtechnicalcoefficientsand
amountof labor), every intermediate(not equilibrium)value counts as an
effectiveprice,since theequationsare builton the assumptionof thecircula-
tion of capital and the necessarysuccession of the threecircuitsof capital
JOURNALOF POLITICALECONOMY
86 INTERNATIONAL
(productive, commodity, andmoney)(see Marx,1977b,pp. 26-123),an as-

sumption in theSraffian
that,as can be seen,existsneither theory norin the
variousstaticMarxistderivations oftheofproduction prices.In thisworkwe
use thetermcircuitof capital(productive, commodity, or money)insteadof
thetermcycleof capitalused by Marxin thefirstchapters of volume2 of
Capitaltoindicate thevariousmetamorphoses ofcapital,inordertoavoidany
possibleconfusion withtheeconomiccycle,thatis,thecyclicaloscillationsof
capitalist
production.
9. Itis perhaps forthisreasonthat,whateveranyonesaid(e.g.,JoanRobin-
son),PieroSraffa declared:"Thelabortheoryofvalueis absolutelycorrect."
References
Carchedi,G. 1991. Marxand theImaginary Economy. Unpublished MS,
UniversityofAmsterdam, Amsterdam.
Dumenil,G. 1983. "BeyondtheTransformation Riddle:A LaborTheory
ofValue."ScienceandSociety, 47.
Foley,D. 1982."TheValueofMoney,theValueofLabourPowerandthe
Marxian Transformation Problem." ReviewofRadicalPolitical
Economics, 14.
Freeman,A. 1984. "The Logic of theTransformation Problem."In E.
MandelandA. Freeman (eds.),Ricardo,Marx,Sraffa. London:Verso.
Glide,M., andEhrbar, H. 1987. "TheTransformation Problem:An Obitu-
ary."Australian EconomicPaper,21.
Kelley,A.G.,andPeterson, A.G. 1991. DifferenceEquations.London:Ac-
ademicPress.
Kliman,A., and McGlove,T. 1989. "The Non Transformation Problem
andtheTransformation NonProblem." Capital& Class,no. 38.
Marx,K. (1977a)Capital,vol. 1. London:LawrenceandWishart.
. 1977b.Capital,vol.2. London:LawrenceandWishart.
. 1977c.Capitai vol.3. London:LawrenceandWishart.
. 1989. "MarginalNotes on Adolph Wagner'sLehrbuchder
PolitischenOekonomie." In K. Marxand F. Engels,CollectedWorks,vol.
24. London:LawrenceandWishart.
Savran,S. 1979. "On theTheoretical Consistency ofSraffa'sEconomics."
Capital& Class,7.
. 1980. "Confusions Concerning Sraffa(andMarx):Replyto Crit-
ics."Capital& Class, 12.
Shaikh,A. 1977. "Marx'sTheoryofValueandtheTransformation Prob-
lem.'" InJ.Schwartz, (ed.),TheSubtleAnatomy ofCapitalism.Goodyear.
. 1981"ThePoverty of Algebra."In I. Stcedman(ed.), The Value
Controversy.London:Verso.
Sraffa,P. 1960. Production of Commodities by Means of Commodities.
London:Cambridge University Press.
Stamatis,G. 1990. "The Impossibility of theReturn ofTechniquesin the
SraffianTheory." Plusvalore, 8.
Steedman, I. 1977. Marxafter London:Verso.
Sraffa.

The Determination of Prices Od Production, Paolo Guissani (1991-1992)

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The Determination of Prices Od Production, Paolo Guissani (1991-1992)

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Paolo Giussani

Sincetheturnofthecentury a multitudeofcriticisms havebeen

Noneofthediscussions ofthepricesofproduction thathaveap-

If,forconvenience,we nowsupposethatthesystem is repro-

c-cc = ca+ cb.

commodities;if we transform these barterexchanges into ex-

2. The simultaneouslinear equations

The moderntheoryof pricesand distribution is clearlyforcedby

A and B, each of whichproducesa productive

Economists oftheSraffian schoolrarelymissan opportunity to

valuesthatcan be utilizedbyhumanbeings,in excessof those

in thetwo positionsof commodity

quantity ofmoneythatis torepresent thewagesis fixed,thereis

thetotalsurplusvalue,since thenetproductis knownto be

If it is necessaryto introducea timelag betweenthepricesof

As we have alreadynoted,thissystemof equationsof itself

Now,substituting theproductionpricesattimet forthequan-

The directpricesexpressthequantityof total(gross)value

criterionoftheuniform temporal rateofprofit onthetotalantici-

whichwe mayinsert intoeachofthetwoequationsofthesystem

quantitiesof value (whichwe have heredesignatedla and k)

nitudeplays the same role as all the magnitudesof value in the

It is thereforepossiblethateven thecost-price of commodities pro-

of theproduct,butratherto re-createex novoa valueequal to that

Although thesystem ofequations(4)-(7) is formally presented as

systems differ. Without theassumption of theconstancy of the

... APt + it (Apt + wPt)(l + rt) =Qpt + l ... ,

whereM standsformoney-capital; C' andCi indicatethecom-

(9) (1+r) =A*>a

A6=10; Ba = 5; 5^=10; 5£ =7; «a + «6 = £ = 20 .

= 1-0089 Pa/pb= 1.0427

pa/pb= 1.0320 pa/p6= 1.1149

The discretesystemdefinedhere,however,is insufficient and

1. See Sraffa(1960). Here we are abstracting completelyfromthelogical

moneycapitals among the sectorswithrespectto land, whichis thepractical

(productive, commodity, andmoney)(see Marx,1977b,pp. 26-123),an as-

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