The Transformation Problem of values into prices: from the law of value to economic planning

Abstract

The controversy about the transformation problem of values into production prices can be understood as a long debate in the history of economic thought that departs from the law of value and arrives at the socialist planning. In order to defend this view, the paper distinguishes and describes three phases of the debate: the Engels Challenge from 1885 to 1906, the Traditional Transformation Problem from 1906 to 1971 and the Critique of Redundancy from 1971 onwards. It shows how the topic formally began and explains how each phase developed into the next. A table summarizing the main aspects of each phase is presented for illustration. Opposing the common idea that the controversy on the transformation problem does not advance, this paper argues that the debate originated from the challenge of the conciliation of the law of value with an equal average rate of profit, shows evolution in the long run because it forces Marxist and non-marxist economic schools to confront the quality side of value in theory and to develop abstract models of planned economy in practice.