ABSTRACT
This chapter deals with explaining prices. At the time Marx studied political economy "classical" economists, most notably Adam Smith and David Ricardo, used a "labor theory of value" to explain prices. To make the Sraffian explanation of relative prices and the rate of profit determinate all one has to do is stipulate a given real wage rate. There is a major difference between the Sraffian and Marxian theories of prices under capitalism. The "transformation problem" is this: If profits come only from part of financial capital one advances to hire labor power, if capitalists in different industries distribute portion of capital they advance between labor power and produced inputs they purchase from other capitalists differently, and if goods sell at their values. Labor values may well be a useful way to understand relative prices in some non-capitalist economy under some very stringent and unrealistic assumptions, even if they are not helpful for understanding price formation in capitalist economies.
