The relationship between ‘value’ and ‘price’ of commodities has been an important issue of investigation in the classical-Marxian tradition for more than two centuries. By ‘value’ we mean, as in the previous chapters, the socially necessary abstract simple labour directly and indirectly needed to produce a commodity, and by ‘price’ we mean prices of production, that is, the set of prices that can ensure a uniform rate of profit in all industries (see section 5.1). The transformation problem refers to attempts to offer consistent conceptualizations of the relationship between value and price, as defined here.

Along with the literature on the impact of technical change on the rate of profit, which we discussed in the previous chapter, the literature on the transformation problem is arguably one of the largest in Marxist political economy. In this chapter, I reinterpret the vast literature on the transformation problem as consisting of attempts to provide meaningful answers to two questions.

• • Can a set of prices of production be calculated consistently that avoids mistakes made by Marx?

• • If a consistent set of prices of production can be calculated, is there any role left for value magnitudes? Are value magnitudes redundant?

The first question relates to the computation of a set of prices of production that avoids some mistakes Marx made. The second question relates to the nature of possible relationships between value and price magnitudes, given that the latter can be calculated in a consistent manner. In this chapter, I provide both a brief survey of the existing literature on, and detailed treatments of two approaches to, the transformation problem by organizing the discussion around these two questions. I will discuss how these two questions emerged and how the Marxist tradition addressed the questions.

The two approaches I take up for detailed treatment are the Standard Interpretation (SI) and the New Interpretation (NI). The SI was the traditional approach to the transformation problem until the 1970s. It emerged in the early 1900s in the work of the German statistician-economist Ladislaus von Bortkiewicz, and was popularized by Paul Sweezy and beautifully formalized by scholars like Nobuo Okishio, Michio Morishima and John Roemer.