The resistance of many Marxists towards assimilating the theoretical developments of the so-called ‘Cambridge School’, and particularly the theory of prices developed by Piero Sraffa,footnote¹ may be explained by the fact that a certain confusion reigns between the meaning of the word ‘value’, as used by Marx in different parts of Capital, and as used by Ricardo in his Principles. Value has two basic meanings: (a) the quantity of labour directly or indirectly incorporated in a commodity; (b) the power a commodity has to be exchanged for other commodities, i.e. its ability to buy other commodities.

Ricardo developed his theory of value as a means of supporting his theory of profits. As originally presented,footnote² Ricardo’s rate of profits is the ratio between two homogeneous quantities (two quantities of corn); it is therefore unambiguously determined, given the technical conditions of production and the real wage measured in corn. When he wishes to complicate the model, by introducing more than one good, Ricardo needs some measure that allows him to treat a heterogeneous collection of objects as if they were a homogeneous good. This must be applied before the rate of profit is determined, since variations in the rate of profit produce variations in relative prices, following the well known ‘Ricardo effect’ (when the rate of profit goes up and real wages down, the prices of goods produced with a high organic composition of capital go up—and vice versa). Ricardo solves this problem by using as a measure the ‘value’ of commodities as defined under (a). In his model, it is essential that the rate of exchange of commodities more or less corresponds to their relative value; i.e. prices of production more or less correspond to values. If prices do not correspond to values, at least approximately, his theory about the rate of profit is undermined; maybe this is the reason why Ricardo, to the last day of his life, strove to find a perfect measure of value (here the word value means price of production, or ‘natural’ price as Adam Smith called it). For Ricardo value, as defined under (a) above, has no ‘cause’ whatsoever. The quantity of labour incorporated in a commodity is not the cause of value; it is nothing but a measure that allows Ricardo to treat a heterogeneous collection of objects as if they were a homogeneous commodity.

For Marx value has meaning (b) indicated above. Therefore, we must find a cause that explains value. It is by no means obvious that objects, ‘use values’, must have value, i.e. become commodities. The capitalist mode of production is the cause of value (although values can exist in other modes of production); it is in the capitalist mode of production that use values become ‘. . . an immense accumulation of commodities . . .’.footnote³ Thus for Marx, value—the existence of values as defined under (b)—necessarily reflects the dominance of a given set of social relations of production: first, the private property of capital; second, the existence of a free labour force; finally, all the other social relations that make possible the exploitation of labour power by capitalists. It is with this meaning of the word value that Marx develops the general theory of the capitalist mode of production in Volume I of Capital.

Marx also uses the word value as defined under (a), when he discusses the value of labour power. There, he wants to measure the value of labour power in order to develop the theory of the mechanism that allows the generation of surplus-value in the process of production, excluding the complications that arise when we analyse distribution and circulation, which determine the prices of production. Very naturally, he adopts Ricardo’s measure, but this use of Ricardo’s measure is not essential to sustain the validity of his theory of exploitation. In effect, it is not necessary to measure the value of labour power in that way, in order to develop the theory of surplus-value. Following Sraffa’s model, we can imagine an economic system whose net output is a vector of wage-goods, and where each component of the vector is a multiple of the quantity of each commodity that appears in the basket that workers in effect consume. If then labour power is a commodity, and therefore has value as defined under (b), it can be bought by capitalists with a fraction of the net product of the system. The measure of the value of labour power is simply a fraction of the vector that constitutes the net product of the system; the rate of surplus-value is just one minus that fraction, divided by that fraction.footnote⁴

In Volume II of Capital, when he discusses the problem of capital accumulation, Marx again uses the word value as defined under (a). Here, this use is eminently legitimate; in effect, the quantity of labour incorporated in the production of a commodity is the measure and ‘cause’ of the physical rate of transformation of one commodity into another, in the absence of technical change and accumulation. This proposition is still valid, if we include the possibility that technical change exists; but work incorporated in the past on the means of production represents, in terms of present work, the original amount increased by interest accumulated at a compound rate equal to the rate of technical change.footnote⁵ If we analyse the process of accumulation, the physical rate at which a commodity can be transformed into another is an essential datum; therefore value as defined under (a) is an essential concept.

In Volume III of Capital, Marx discusses prices of production. Prices of production are the measure of value as defined under (b). It is not at all essential to Marx’s theories that the measure of value (b) be deduced from value (a); in other words, it is not essential that Ricardian ‘value’ be the determinant of prices of production (which are the measure of Marxist value). Again, it is not essential that value be the determinant of the measure of ‘value’. In fact, of course, Marx thought that it was so; i.e. that prices of production could be derived from values. It has been shown by Sraffa that we can determine prices, have a theory of prices, without using values at all; by Mediofootnote⁶ that prices can, however, be derived from values, if we introduce some modifications to Marx’s schemes and are prepared to follow him in a laborious set of equations.

What can we conclude from this? Firstly, that definition (a) of the word value is essential in the Ricardian model, but is not at all important in the general theory of Marx about the capitalist mode of production, where it is used with definition (b). Secondly, that definition (a) is important in any model of accumulation, and in this context, Marx uses the concept adequately. Thirdly that definition (a) is not really important in a theory of prices of production, and that here Marx tries incorrectly to derive prices of production from values, but: 1. he correctly gives the concept of the price of production, as the price that covers the total cost of production, including in cost the average rate of profit of capitalists; 2. his incorrect derivation of prices from values can—if one insists in doing something that, as I have tried to show, is not very important—be corrected, as Medio does, using Sraffa’s analytical developments.