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.