Analytical Political Economy

10VALUE, PRICE, AND EXPLOITATION: THE LOGIC OF THE TRANSFORMATION PROBLEM

Simon Mohun

School of Business and Management Queen Mary University of London

Roberto Veneziani

School of Economics and Finance Queen Mary University of London^*

1. Introduction

When economic activity is organized through markets, the notion of price is central. In the neoclassical individualist tradition, price and value are synonyms; prices emerge in competitive markets from the interaction of optimizing individual households and firms with given endowments, preferences, and technology, and in that sense, the theory of value is subjective. In the Marxian tradition, value is distinct from price and only labor creates value. Such a labor theory of value is objective, and prices are long-run centers of gravity around which market prices fluctuate. The relation between labor value and long-run price is the content of what has become known as the “transformation problem.”

The outcome of the last wave of major debates in the 1960s and 1970s has led to the view that the classical-Marxian labor theory of value is logically inconsistent and so irremediably flawed. And even if some of the insights of Marx's theory of value can be salvaged, they are irrelevant for any meaningful positive or normative purposes: as Paul Samuelson (1971) famously put it in his “blackboard theorem,” price magnitudes and value magnitudes are independent of each other, with a relation of mutual irrelevance. A similar negative judgment ...