Transformation problem

Pricing problem in Marxism

In 20th-century discussions of Karl Marx's economics, the transformation problem is the problem of finding a general rule by which to transform the "values" of commodities into the "competitive prices" of the marketplace. This problem was first introduced by Marxist economist Conrad Schmidt and later dealt with by Marx in chapter 9 of the draft of volume 3 of Capital. The essential difficulty was this: given that Marx derived profit, in the form of surplus value, from direct labour inputs, and that the ratio of direct labour input to capital input varied widely between commodities, how could he reconcile this with a tendency toward an average rate of profit on all capital invested among industries, if such a tendency exists?

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