Value, Price, and The Neo-Ricardians: An introductory note[1]

by David Yaffe

In recent times it has become fashionable on the left to 'correct' Marx with the help of the work of the neo-Ricardian L von Bortkiewicz. Indeed a radical form of Ricardianism has, in the work of many claiming to be in the Marxist tradition, replaced Marxian critique of political economy both in content and method. Recent examples include the work of Glyn and Sutcliffe, Hodgson and Steedman.[2] What all these contributions have in common is a rejection of certain of the basic propositions of Marx's Capital and a substitution of others having more in common with the work of Ricardo. The justification for this change is an appeal to the 'facts', to empirically given real processes. So that the falling rate of profit is not connected with the rising organic composition of capital but with a falling rate of exploitation due to rising wage costs or some other phenomena. The proof of this is in the 'facts' of modern capitalism whether taken from Mage's or Gillman's statistics for the American economy or Glyn and Sutcliffe's 'facts' of the British economy. Ernest Mandel .has correctly pointed out the weaknesses of Mage's calculations and a similar .criticism can be directed against the .calculations of Glyn and Sutcliffe.[3] Similarly, in arguing for the rejection of Marx's solution to the 'transformation problem' the neo-Ricardians appeal to the fact that the capitalist bases his investment decisions on the magnitude of the rate of profit in price terms and argue for the priority and reality of this rate of profit if our intention is not to construct empty tautologies. In all the cases mentioned we are dealing with a rejection of Marx's method and a substitution of 'empiricism' of one variety or the other.

What is forgotten is the fact that value relations for Marx are the expression of definite social relations of production and are not mere quantities. Further it is just the money-form of the world of commodities that actually conceals the social character of private labour and the social relations of production as well as the laws of motion of capitalist production. The value categories of Capital have no direct empirical counterpart, yet the value analysis is essential if we are to penetrate the 'veil of appearances' to understand the laws of motion of capitalist production. Far from accepting the immediate reality of the rate of profit in price terms it is just this which needs to be explained on the basis of the value analysis. Marx makes this point very clearly:

‘The final pattern of economic relations as seen on the surface, in their real existence and consequently in the conceptions by which the bearers and agents of these relations seek to understand them is very different from, and indeed quite the reverse of, their inner but concealed essential pattern and the conception corresponding to it’.[4]

It is just the method Marx adopts that enables him to grasp the essential relationships of capitalist production and it is precisely the rejection of this method that leads the neo-Ricardians to reject as dogma some of the basic propositions of Marx’s critique of political economy.


It is the particular form which social relations take under capitalist production, their fetishistic form, which makes it necessary for political economy to start from simple (abstract) conceptions such as labour, division of labour, need, exchange-value and move by a process of increasing concretisation to grasp the concrete reality. 'The method of advancing from the abstract to the concrete is only the way in which thought appropriates the concrete, reproduces it as concrete in the mind'.[5] This method is regarded as the scientifically correct method and the structure of Capital clearly conforms to this. In Volume I the nature of value and the origin of surplus-value are discussed and developed. This is followed by the examination of capital, of value which generates surplus-value (value in process[6]), which presupposes a definite historical relationship, the wage-labour relationship (labour power as a commodity). Throughout the analysis it is assumed that commodities exchange at their values and the General Law of Capitalist Accumulation is developed on this basis. Similarly, in the analysis of the process of Circulation of Capital in volume II and in particular in the reproduction schema the same assumption is made. It is only in Volume III of Capital that Marx begins to 'locate and describe the concrete forms which grow out of the movements of capital as a whole' ... and ... 'thus approach step by step the form which they assume on the surface of society, in the action of different capitals upon one another, in competition, and in the ordinary consciousness of the agents of production themselves'.[7] It is here that the categories of price of production, profit and the average rate of profit become central in beginning the explanation of the concrete forms of capitalist production. To confuse any intermediate stage of the analysis with the concrete empirical reality, as Rosa Luxemburg did in the case of the reproduction schema or, as I shall argue, the neo-Ricardians do in the case of prices of production, is to make a fundamental methodological mistake.

If commodities do not exchange at their value but as a first approximation at their prices of production which are quantitively different from values then this fact has to be explicable on the basis of the value analysis. Whereas bourgeois economics takes this fact as datum Marx points out that prices of production must themselves be deduced from values. 'Without such a deduction the general rate of profit (and consequently the price of production of commodities) remains a vague and senseless conception'.[8]  If this is agreed, then as Marx points out total value of commodities must be equal to total price and total surplus-value equal to total profit. Anything else makes nonsense of Marx's theory of value. What remains is to show where the neo-Ricardians are mistaken and the roots of their mistake.


A price of production for Marx is a modified value. It is the cost price of a commodity, the quantity of paid labour contained in it, plus a share of the unpaid labour, of the annual average profit on the total capital invested in its production.

‘When a capitalist sells his commodities at their price of production, therefore, he recovers money in the proportion to the value of the capital consumed in their production and secures profit in proportion to his advanced capital as the aliquot part in the total capital. His cost prices are specific. But the profit added to them is independent of his particular sphere of production.’[9]

That we are only dealing with modified values is even clearer in this passage;

‘In Books I and II we dealt only with the value of commodities. On the one hand, the cost price has now been singled out as a part of this value, and, on the other, the, price of production of commodities has been developed as its converted form.’[10]

The reason why inputs are not converted into prices of production in the transformation of values into prices is that it is the value of the capital consumed in production that is decisive. Likewise, the capitalists receive a share of profits according to the aliquot part their capital represents in the total capital. Capital is a social relationship, not a mere quantity. This is fundamental to the whole value analysis. The secondary disturbances relate to the cost price of a commodity in any particular sphere, and the value of the means of production consumed.[11] They relate to the secondary changes within the circulation process of commodities. Certainly they would alter the relationships and distribution of commodities between the two or more departments of the reproduction schema. These schema are concerned, as anybody with the slightest familiarity with Volume II of Capital will know, with the circulation process of capital. But they do not change anything so far as the reproduction of value and surplus value in the period discussed is concerned. The average rate of profit is the result of the complex process of redistribution of surplus value. Its limits are determined by the production of value and surplus value. The Ricardian confusion, therefore, between the value of capital consumed in production, and value of the means of production consumed (they are not the same thing) is a confusion between the process of production of value and surplus value, M-C-M', and that of the circulation of commodities, C-M-C.[12] It is because the neo-Ricardians have no concept of capital as a social relation that they fall into these errors. As Rowthorn has correctly put it, the neo-Ricardians regard capital as 'a social relationship only when it concerns the appropriation of the product, or as they put it ‘the distribution of income’. For them all social relations are focussed in the process of circulation.'[13] Despite their protestations to the contrary, they merely assume exploitation as a 'direct experience' but they do not explain it in any scientific manner. It is for this reason that they do not see that the attempt to explain the average rate of profit and prices of production on the basis of the value analysis is either necessary or desirable. It is not surprising that they neither accept Marx's transformation of values into prices of production, nor realise the significance and importance of this stage in the analysis.

The first major mistake of the neo-Ricardians is to confuse prices of production with money prices and the general rate of profit with the empirically given rate of profit. To begin to explain the empirically given rate of profit would require a further process of concretisation, taking into account many other factors in the real world such as the existence of merchant capital, rent and banking capital. The price of production is an 'intermediate link’ in the process of explaining the empirically given reality on the basis of value relations and the law of value. Marx did speak of the price of production being the centre around which the daily market prices fluctuate,[14] but he, unlike the neo-Ricardians, did not stop there. At this stage of the analysis merchant capital had been left out of consideration[15] and so had banking capital and rent.

Merchant capital, for example while creating no new value, participates in levelling surplus-value to average profit. The general rate of profit therefore contains a deduction from surplus-value due to merchant's capital, and therefore a deduction from the profit of industrial capita1.[16] Marx indicates very clearly his method;

‘In the course of scientific analysis, the formation of a general rate of profit appears to result from industrial capitals and their competition, and is only later corrected, supplemented, and modified by the intervention of merchant's capita1.’[17]

Similar considerations would be involved with rent and banking capital including the production of the money commodity itself. The process of analysing the actual intrinsic relations of capitalist production is a very complicated matter'[18] and it is only the kind of method adopted by Marx that can lead to any deep understanding of the real concrete relations. A necessary stage in this analysis is the transformation of values into prices of production and surplus-value into average profit. The method Marx adopted is the only one which makes it possible to grasp the fact of a general rate of profit on the basis of the value analysis developed in volume I of Capital.

‘If the limits of value and surplus-value are given, it is easy to grasp how competition of capitals transforms values into prices of production and further into mercantile prices, and surplus-value into average profit. But without these limits, it is absolutely unintelligible why competition should reduce the general rate of profit to one level instead of another, eg make it 15% instead of 1,500%. Competition can at best only reduce the general rate of profit to one level. But it contains no element by which it could determine this level itself.’[19]

The second error of the neo-Ricardians is in thinking that the definition of the price unit is an arbitrary matter. They forget what money is, ie the universal equivalent of exchange value.[20] The neo-Ricardians confuse the content of money with its nominal value. By merely regarding money price as an index of exchange they deny to money its real content ie as a socially recognised symbol of labour-time as such.[21] In this they follow L von Bortkiewicz but inexplicably fail to draw the logically necessary consequences of this approach. Price for von Bortkiewicz is, like value, the index of an exchange relationship and both are purely theoretical structures. Marx was in error because he did not pay the slightest regard to the conditions of production of the good serving as the measure of values and prices. His assertion that total price equals total value is therefore not only unproven but false.[22] But then von Bortkiewicz draws the obvious conclusion which clearly the neo-Ricardians do not want to accept; we are thus driven to reject Marx's derivation of price and profit from value and surplus-value.[23] To reject von Bortkiewicz's conclusions is to reject his method. That means to accept Marx's method. It is their failure to understand the method of the Marxian critique of political economy, as we have indicated above, that leads the neo-Ricardians to their erroneous conclusions.


[1] From the Bulletin of the Conference of Socialist Economists Autumn 1973 pp42-47 with minor edits.

[2] A Glyn and B Sutcliffe, British Capitalism Workers and the Profits Squeeze, Penguin, 1972, G Hodgson, 'The Permanent Arms Economy', International, Vol 1 no 8 pp54-66 and 'Marxism: Science or Dogma? - A Reply to Ernest Mandel', International, forthcoming issue. Also, Ian Steedman's and Geoff Hodgson's written and verbal contributions to the Value Conference held at Brighton June 1973. I shall refer to this school of thought as Neo-Ricardian in this article. In general I shall not refer specifically to their writings but to the general point of view they represent. They might have differences in emphasis on a whole number of issues, but it is what they share in common that is the concern of this article.

[3] E Mandel, 'Value, Surplus Value, Profit, Prices of Production and Surplus Capital - A Reply to Geoff Hodgson', International, Vol 2 no1 p64. For a critique of Glyn and Sutcliffe see my article in New Left Review 80, July-August 1973, 'The Crisis of Profitability: A critique of the Glyn-Sutcliffe Thesis’. Mage criticised Gillman's statistics in his, The Law of the Falling Tendency of the Rate of Profit, its place in the Marxian theoretical system and relevance to the US economy, Columbia University PhD 1963, University Microfilms Inc, Ann Arbour, Michigan.

[4] Karl Marx, Capital Vol III, Moscow Ed 1962, p205. This does not mean to say that Marxists reject empirical evidence. On the contrary, it is the way they critically examine and explain such evidence that distinguishes them from bourgeois economists.

[5] Marx, Grundrisse, Penguin, 1973, pp100-101.

[6] Capital, Vol I Moscow, 1961, p154.

[7] Capital, Vol. III op cit p25 (Italics in original).

[8] Ibid p155.

[9] Ibid p157.

[10] Ibid p161 (italics in original).

[11] Ibid p162.

[12] Mage (S.H.) op cit p 239-243.

[13] Conference of Socialist Economists Bulletin Spring 1973 p9.

[14] Capital Vol III op cit p176.

[15] Ibid p204.

[16] Ibidp281.

[17] Ibid p282.

[18] Ibid p207.

[19] Ibid p308. For an excellent analysis of Value and Price and Crisis in Marx, see; Henryk Grossmann, 'Die Wert-Preis-Transformation bei Marx und das Krisenproblem' in Aufsaetze zur Krisentheorie, Archiv sozialistischer Literatur 20, Verlag Neue Kritik, Frankfurt,

[20] I am treating money here as commodity money.

[21] Marx, Grundrisse, op cit p144. This section on money in the Grundrisse is really very instructive and shows how wrong it is to regard the 'symbol of labour time as such' as merely arbitrary. Marx brings out very clearly the contradiction in a particular commodity representing the general commodity, and indicates the real difference and contradiction between money-price and value, op cit pp136-153.

[22] L von Bortkiewicz, 'Value and Price in the Marxian System', International Economic Papers 2, 1952, p6, p11.

[23] Ibid p13.