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Clearing up Marx and profit: ending the ‘Transformation Problem’ once and for all



Money and Totality, A Macro-Monetary Interpretation of Marx’s Logic in Capital and the End of the ‘Transformation Problem’
By Fred Mosely
Haymarket Books, 2016,
416 pp., $47.99


By Barry Healy


October 31, 2017 
— Links International Journal of Socialist Renewal — Karl Marx published Volume 1 of Capital in 1867. By the time of its second German edition, just six years later he wrote, in a postscript: “That the method employed in ‘Das Kapital’ has been little understood, is shown by the various conceptions, contradictory one to another, that have been formed of it.”[1]


If anything, the contradictory conceptions have grown worse since then with various, near-intractable debates raging within Marxist circles. One of the fiercest of those debates is over the so-called “Transformation Problem”.


The Problem revolves around Marx’s representation of the prices of production in Part 2 of Capital Volume lll – which was edited by Friedrich Engels out of Marx’s manuscript papers after Marx’s death.


Marx exposed the circuit of capital with his formula of:


• M, representing money capital, purchasing
• C, commodities used in
• P (production) manufacturing
• C’, commodities possessing increased value, which, when sold in the market return
• M’, increased money to the capitalist.


The circuit can be summarised: M – C…P – C’ – M’. It is a circuit in which money capital converts itself into other forms of value, the physical commodities required for production including payment for labour power. Marx termed those commodities used in production “constant capital” and “variable capital”.


Capitalists utilise constant and variable capital to produce new commodities containing increased value. The extra value is extracted via sale in the market place so that the capitalist has increased money. Capitalists don’t pay workers’ wages equal to the extra value that the workers create. The “surplus” of value between the wages paid and the price obtained in the market is the source of capitalist profit.


People planning to embark on reading Capital could well stop and read Fred Moseley’s second chapter in Money and Totality, A Macro-Monetary Interpretation of Marx’s Logic in Capital and the End of the ‘Transformation Problem’, which is an algebraic representation of the entirety of Marx’s method.


History of the Transformation Problem


Beginning with Russian economist Ladislaus Bortkiewicz in the early 1900’s, the criticism has been raised that Marx made a fundamental error. He said that Marx calculated constant and variable capital in terms of value but the resulting commodity was valued in terms of price of production.


He said that Marx had failed to “transform” the inputs of constant and variable capital into prices of production. He effectively said that Marx was talking value at one stage of his theory and price at another and had failed to connect the two. In the earlier volumes of Capital Marx is said to have been talking about individual workers and capitalists and then leaping to a system-wide view in Volume III.


Because of this Bortkiewicz said Marx’s method was insufficient to calculate relative prices and the general profit rate.


Given that Marx’s entire project was to explain exactly how capital obtains profit from the conversion of surplus value into money, this was devastating. Marx had dedicated himself to explaining the dialectical transformation of many things, so it is quite a claim that he misunderstood something as basic as how profit occurs.


Proponents of the Transformation Problem essentially argue that the analysis of capital in terms of value expounded in Volumes I and II is different to that in Volume III. However, Moseley demonstrates that there is no contradiction: the production of surplus-value theorised in Volumes I and II is assumed as a given in the theorising of competition in Volume III. It is via capitalist competition that the distribution of surplus-value into profit, interest and rent occurs.


Many significant theorists have followed in Bortkiewicz’s footsteps and attempted to fix the Problem. Among them are Paul Sweezy, Piero Sraffa, Anwar Shaikh, Duncan Foley, Gerard Dumenil, Andrew Kliman, Ted McGlone, Richard Wolff, Bruce Roberts, Antonio Callari, Ben Fine and Alfredo Saad-Filho – all of them major Marxist thinkers and quite capable of sharp debate.


Among them there are a myriad of conflicting interpretations and solutions to the Problem. There has been much polemical heat and considerable confusion.


Moseley is a participant in this polemical cockpit but in this volume, he comes not just to explain the Transformation Problem and its various solutions – he comes to bury it. Moseley says that there never was a Transformation Problem to begin with.


There are a lot of academic Marxists with a career stake in the continuation of the debate so Mosely demonstrates courage in stating that he has “come to the surprising and disappointing conclusion that Marx’s theory has been fundamentally misunderstood for most of the 20th century”.[2]


Moseley’s approach


To make his case Moseley divides his text into two major sections.


The first five chapters explain why there is no transformation problem. Moseley uses a “macro-monetary interpretation” stressing Marx’s logical method. He displays extensive textual evidence, especially drawn from recently available sources brought to light via the expanded Marx-Engels Collected works project – the so-called MEGA2.


In making his case that the Transformation Problem is fatuous, Moseley highlights three of the new MEGA2 publications. One is the complete Manuscript of 1861-63 (about two-thirds of which had previously been published as Theories of Surplus-Value). Another is the full, original manuscript of Capital Volume III (known as the Manuscript of 1864-65) and also segments of the draft of Capital Volume I that are in the Manuscript of 1864-65. He also digs through the Grundrisse.


He shows that in Parts One and Two of Capital Volume III, Marx demonstrates the dialectical transformation from the category of value to that of price of production. Marx had to do that because different capitals have different ratios of constant capital to variable capital (which he called “organic composition”). They also have different turnover rates.


The price of production is the cost price (the sum of constant and variable capital) plus profit (the cost price multiplied by the average rate of profit). If capitalists sold their wares at their (individual) values that would contradict the formation of a general rate of profit.


Even though in the real market place sale prices diverge from individual prices of production (but always oscillate around them), and profits deviate from individual surplus values, the total sum of production prices equals the sum of values. And the total of profit, interest and rent equals the sum of surplus values.


Moseley’s critique


In the second section Moseley summarises and critiques the leading contributions to the literature on the Transformation Problem. This is of enormous value to anyone new to the subject. Moseley is at pains to respectfully elucidate his opponents’ ideas, producing what is effectively a text book on what he calls the Problem’s “standard interpretation”.


He takes up Bortkiewicz and Sweezy’s approach; Shaikh’s “iterative interpretation”; Foley, Duménil and Mohun’s “New Interpretation”; the “Temporal Single System Interpretation” (TSSI) of Kliman and McGlone; the Rethinking Marxism interpretation developed by Wolff, Roberts and Callari; and the “Organic Composition of Capital” interpretation of Fine and Saad-Filho.


Moseley dissects each of them at length, respectfully. If it were not for the polemical atmosphere that has clouded this issue for so long his approach would be regarded as tedious. But, given the state of play, Moseley needs to patiently explain every detail.


In answer to all of them, Moseley says that there never was a Transformation Problem because the total surplus-value produced in the economy as a whole is determined logically prior to the division of the total surplus-value into individual parts. In Volumes I and II Marx wrote in terms of individual capitals and individual workers, but these were illustrative of the entire capitalist system.


The constant and variable capital Marx referred to in Volume I are prices of production for the entire system, not individual values. However, Marx did not explain that clearly until Volume lll - and unfortunate editorial decisions by Engels did not help.


Marx did not write a theory of value in Volumes I and II and a theory of prices in Volume III. “Marx’s theory in all three volumes of Capital is about a single system, the actual capitalist economy”[3], Moseley says and reiterates on nearly every page.


The only difference between Volume I and Volume III is the level of aggregation. In Volume III, the individual quantities of constant capital and variable capital advanced in each industry are taken as given, in addition to the total constant capital and variable capital that are taken as given in Volume I’s macro theory of surplus-value.


Where does profit come from


So where does profit ultimately come from? Moseley is very certain:


According to Marx’s theory, all the individual parts of surplus-value come from the same source - the surplus labour of workers in production. Therefore, the total surplus-value must be determined prior to its division into the individual parts, and the total surplus-value is determined by the total surplus labour, and nothing else[4]


The predetermination matches the Hegelian method that aided Marx in writing Capital. In Hegelian dialectics the universal precedes the particular and the singular follows from the particular.


In Marx, the universal is capital in general creating surplus value, the particular is the competition of many capitals and the singular is the individual ways in which profit is expressed.


Marx followed that theoretical format in writing Capital. He first demonstrated the most general form of capital and surplus value; then he wrote about competition between particular capitals; and finally got down to the level of profit, rent and interest.


Moseley has performed a great service in clarifying these issues. He has tackled some of the thorniest questions in this book and dealt with them with refreshing precision.




[1] Capital, Volume 1, Afterword to the Second German Edition,


[2] Fred Mosley, Money and Totality, Haymarket 2016, p. 373


[3] Fred Mosley, Money and Totality, Haymarket 2016, p. 6


[4] Fred Mosley, Money and Totality, Haymarket 2016, p. 5


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