THE “NEW SOLUTION” TO THE TRANSFORMATION PROBLEM:  
A SYMPATHETIC CRITIQUE

by Fred Moseley
Universidad Autonoma Metropolitana - Iztapalapa (Mexico City)
Mount Holyoke College (Massachusetts)

	In the 1970s, the “neo-Ricardian” or “Sraffian” interpretation of Marx’s theory, as represented by the works of Meek, Dobb, Morishima, Steedman, etc. came to be the dominant, most widely accepted interpretation.  By the “neo-Ricardian” interpretation, I mean primarily that: (1) the fundamental givens in Marx’s theory are assumed to be the physical quantities of the technical coefficients of production and the real wage and (2) the rate of profit is determined simultaneously with prices of production and both are derived from the above physical quantities.  
	Since the early 1980s, there have been a growing number of challenges to this dominant neo-Ricardian interpretation of Marx’s theory.  The first, and still the best known and most important, of these challenges to the neo-Ricardian interpretation has been the so-called “new solution” to the transformation problem, which was first introduced independently by Duménil (1980 and 1983-84) and Foley (1982 and 1986), and has since been followed by Lipietz (1982), Glick and Ehrbar (1989), Devine (1990), Mohun (1993), Campbell (1997) and others.  This paper presents a “sympathetic critique” of the “new solution” interpretation, from the perspective of my own “macro-monetary” interpretation of Marx’s theory.  The paper is “sympathetic” in the sense that I think that the “new solution” is a very important first attempt to break away from the dominant neo-Ricardian interpretation, but it remains a critique in the sense that I think that the “new solution” has been only partially successful in making this break.  The paper will concentrate on the works of Foley, Duménil, and Mohun.  The first section presents a brief summary of my own interpretation of Marx’s theory, as the perspective from which the “new solution” is considered.  Special emphasis will be given to the determination of the inputs of constant capital and variable capital, since this is the key issue in the debate of Marx’s “transformation problem”.

1.   “MONETARY” INTERPRETATION OF THE INITIAL GIVENS IN MARX’S THEORY
	The central concept of Marx’s theory is the concept of capital, as the title of the book suggests.  The concept of capital is defined by Marx in Chapter 4 of Volume 1 of Capital as money that makes more money, i.e. as M - C - (M+	M).   The key point to emphasize here is that Marx’s key concept of capital is defined in terms of money, not in terms of labor-time.  Capital is clearly and emphatically defined in terms of money in all the various drafts of Capital, including the Grundrisse (pp. 250-71) and the “1861-63 Manuscript” (Marx and Engels 1988, pp. 9-20), as well as the final published versions of Volume 1.  The title of Part 2 of Volume 1 is “The Transformation of Money into Capital.”  The two chapters of the Grundrisse are entitled “Chapter on Money” and “Chapter on Money as Capital.”  Of course, according to Marx’s theory, all money represents abstract labor-time, and so do these quantities of money capital.  However, the specific phenomena to which Marx’s concept of capital refers are flows of money capital.  In discussing the circulation of capital, Marx continually refers to the capital “thrown into circulation” and the capital “withdrawn from circulation.”  Clearly Marx is talking here about quantities of money capital advanced into and withdrawn from circulation.  Money is not here merely an “illustration” of quantities of labor-time.  Marx is not talking about the labor-time embodied in the means of production or the means of subsistence thrown into and withdrawn from circulation. 
	Similarly, the concept of surplus-value is also defined by Marx in Chapter 4 (and the various drafts of this chapter) in terms of money, as the increment of money, 	M, that emerges in the final phase of the circulation of capital.  The main question addressed by Marx’s theory of surplus-value in Volume 1 is the origin and magnitude of this increment of money that is characteristic of capital.  In Chapter 7 of Volume 1, Marx succinctly stated the conclusion of his theory of surplus-value as follows:  “The trick has at last worked: money has been transformed into capital.”  (p. 301; emphasis added)   
	Constant capital and variable capital are then defined in Chapter 8 of Volume 1 as the two components of the money capital (M) that initiates the circulation of capital.  In other words, 
M = C + V.  The key point to be emphasized again is that constant capital and variable capital, like the general concept of capital of which they are component parts, are also defined in terms of money.  Constant capital is the money capital used to purchase means of production and variable capital is the money capital used to purchase labor-power.  Constant capital is not defined as the labor-time embodied in the means of production and variable capital is not defined as the labor-time embodied in the means of subsistence.  Although these latter definitions are probably the most commonly accepted definitions of constant capital and variable capital, these definitions ignore Marx’s own definitions of the general concept of capital and its two component parts - all of which are clearly defined in terms of flows of money capital. 
	Therefore, it seems clear that Marx’s key concepts of capital, constant capital, variable capital, and surplus-value are defined in terms of money, not in terms of labor-time.  The further question to be addressed now is: how are the quantities of money constant capital and money variable capital, the two components of the initial money capital M, determined, first in Marx’s theory of surplus-value in Volume 1 and then in his theory of prices of production in Volume 3.  
I argue that these quantities of constant capital and variable capital are taken as given in both of these stages of Marx’s theory.  The same quantities of constant capital and variable capital are taken as given in both of these stages.  The only difference is that in Volume 1 the aggregate amounts of constant capital and variable capital for the economy as a whole are taken as given, and in Volume 3 the disaggregated amounts for each industry are also taken as given.  The sums of the individual amounts taken as given in Volume 3 are equal to the aggregate amounts iin Volume 1.  Therefore, these amounts of constant capital and variable capital remain “invariant” in the transition from Volume 1 to Volume 3 - because the same amounts of constant capital and variable capital are taken as given at both stages of this analysis.  We will now review in greater detail each of these two stages of Marx’s analysis.
a.   Marx’s theory of surplus-value
	To begin with, it should be briefly mentioned that another important aspect of my interpretation, which I have discussed at length elsewhere (Moseley 1993, 1997a and 1998) is that I argue that Marx’s theory is based on the methodological principle that aggregate magnitudes are determined prior to the determination of individual magnitudes.  This premise means that Volume 1 of Capital applies to the capitalist economy as a whole and is primarily about the determination of the total amount of surplus-value produced in the total economy.  This total amount of surplus-value is determined prior to the division of this total amount into separate, individual parts.    The general rate of profit is also determined by this aggregate analysis prior to the determination of individual prices, as the total surplus-value divided by the total social capital.  The individual component parts of surplus-value are then determined in Volume 3, with the predetermined total amount of surplus-value and the general rate of profit taken as given.  Marx expressed this assumed order of determination between aggregate magnitudes and individual magnitudes in terms of the distinction between “capital in general” and “competition” (or “many capitals”) (see Rosdolsky, pp. 41-50 and 367-75).  
	In Marx’s aggregate theory of surplus-value in Volume 1, I argue that the aggregate quantities of money constant capital and money variable capital are taken as given, as the initial  quantities of money capital used to purchase means of production and labor-power in the first phase of the circulation of capital.  Marx’s theory of surplus-value explains how this the initial quantity of money (M) is transformed into a greater quantity of money, and is thereby transformed into capital.  Contrary to the prevailing neo-Ricardian interpretation, the initial givens in Marx’s theory of surplus-value are not the physical quantities of the technical conditions of production and the real wage.  Marx did not take these physical quantities as his initial givens and then derive constant capital and variable capital from these given physical quantities.  Marx’s question is not:  how do given means of production and means of subsistence produce commodities that have a price greater than their cost?  Marx’s question is rather: how is the given quantity of money transformed into capital by increasing its magnitude?  The neo-Ricardian interpretation attributes to Marx’s theory the logical method of Sraffa’s theory, i.e. the method of linear production theory.  But Marx was writing 100 years before Sraffa and employed an entirely different logical method from Sraffa’s linear production theory.  
	I offer the following arguments and textual evidence to support this monetary interpretation of the initial givens in Marx’s theory of surplus-value:
	To begin with, the general analytical framework for Marx’s theory of surplus-value is the circulation of capital, which as we have seen is expressed symbolically by the general formula for capital, M - C - M’.    This general formula itself suggests that the starting-point of Marx’s theory is M, the initial sum of money invested as capital to purchase means of production (constant capital) and labor-power (variable capital).  The purpose of Marx’s theory of surplus-value is to explain how this given initial sum of money is increased in magnitude through the purchase, production, and sale of commodities.   
	Secondly, my interpretation is further supported by the logical relation between Parts 1, 2, and 3 of Volume 1 of Capital.  In Part 1, money is derived as the necessary form of appearance of the value of commodities.  In Part 2, as we have seen, capital is defined in terms of this previously derived concept of money:  as money that becomes more money, i.e. as M- C- M’.  Part 3 then analyzes the origin of the increment of money that is characteristic of capital, with the initial money-capital taken as given.  Marx did not suddenly in Part 3 ignore the prior logical development of money and capital in Parts 1 and 2 and introduce out of nowhere the technical conditions of production and the real wage as the initial givens in his theory.  Instead, Parts 1 and 2 provide the logical presuppositions (the “givens”) for Marx’s theory of surplus-value in Part 3 and beyond.  The neo-Ricardian interpretation, on the other hand, has no explanation for Marx’s analysis in Parts 1 and 2 or for the logical relation between these two parts and the theory of surplus-value in Part 3.  These key parts of Volume 1 are simply ignored by this interpretation, and Marx’s theory is turned into Sraffa’s theory, starting with the technical conditions of production and the real wage.  
	As part of this analysis of the transformation of money into capital, Marx referred repeatedly to money as “the first form of appearance” of capital.”  In other words, Marx’s analysis of the circulation of capital begins with money, the “first form of appearance” of capital, and with a specific quantity of money that is invested to purchase means of production and labor-power.   
Marx never said anything like “the first form of appearance of capital is the means of production or the means of subsistence.”
	Another related aspect of the logical structure of the first three parts of Volume 1 is that Parts 1 and 2 are about the “sphere of circulation” and Part 3 begins Marx’s analysis of the “sphere of production” (with the famous passage at the end of Part 2 about moving from the “noisy sphere of circulation” to the “hidden abode of production” marking the transition between these two stages of the analysis).  Marx argued that, in his theory of capital, the analysis of circulation is a necessary prelude to the analysis of production because capital appears first in the sphere of circulation.  Capitalist production is preceded by the investment of a given amount of 
money capital in the sphere of circulation proper.  Marx’s analysis of the sphere of circulation provides the logical presuppositions (the “givens’) for his analysis of the second phase of the circulation of capital in the sphere of production.  Again, the neo-Ricardian interpretation of Marx’s theory completely ignores this initial phase of the circulation of capital in the sphere of circulation, and implicitly assumes that capital first appears, not in circulation, but in production, as the physical inputs to production.  This is clearly not Marx’s logical method in the first three parts of Volume 1.  The initial quantities of money capital that provide the givens in Marx’s theory of surplus-value come from circulation, not from production.  
	Thirdly, my interpretation is also supported by Marx’s general methodological principle of “historical specificity”, according to which the explanatory concepts of a theory of capitalism should refer to those features which are historically specific to capitalism, and should not refer to the general features which capitalist production shares with all form of social production (Korsch 1938, Chapter 2; Rosdolsky, pp. 77-80).  Marx argued that these historically specific features are the determining factors in the development of capitalism, and therefore a theory of capitalism should focus on these determining factors (Marx, 1973; pp. 83-108).  The technical conditions of production and the real wage are general features of social production, and thus cannot be the fundamental explanatory concepts of Marx’s theory.  On the other hand, the concept of money-capital refers to specific features of capitalism and is therefore a fundamental explanatory concept in Marx’s theory.
	Finally, my interpretation is also textually supported by the numerous passages throughout the various drafts of Capital in which Marx referred to the money-capital which initiates the circulation of capital as the “presupposed capital” or the “postulated capital” or the “starting point” or the “point of departure” for his analysis of the circulation of capital.  These references are especially prominent in Chapter 4 of Volume 1 of Capital, and the earlier drafts of this chapter in the Grundrisse (Marx 1973, pp. 250-64) and in the “1861-63 Manuscript” (Marx and Engels 1987, pp. 501-07; Marx and Engels 1988, pp. 9-20).  (This “second draft” of Capital  has only recently been published in English and is very interesting.)  There are also numerous similar passages in the “Results of the Capitalist Production Process” manuscript, published in the Penguin edition of Volume 1.  One especially clear passage is the following:
Here, where we are concerned with money only as the point of departure for the immediate process of production, we can confine ourselves to the observation: capital exists here as yet only as a given quantum of value = M (money), in which all use-value is extinguished, so that nothing but the monetary form remains...
If the original capital is a quantum of value = x, it becomes capital and fulfills its purpose by changing into x + 	x, into a quantum of money or value = the original sum + a balance over the original sum.  In other words, it is transformed into the given amount of money + additional money, into the given value + surplus-value.
...   As a given sum of money, x is a constant from the outset and hence its increment = 0.  In the course of the process, therefore, it must be change into another amount which contains a variable element.  Our task is to discover this component and at the same time to identify the mediations by means of which a constant magnitude becomes a variable one.  (Marx 1977, pp. 976-77; emphases in the original)

Nowhere did Marx refer to the “presupposed means of production” or the “postulated means of “subsistence.”  Either Marx, who it should be remembered had a Doctorate degree in Philosophy and paid a great deal of attention throughout the various drafts of Capital to questions of  logical method, was extremely sloppy in these many passages or Marx intended the usual methodological meanings to the terms “given,” “postulated,” “presupposed,” etc., i.e. that they are the initial data with which his theory begins.
	Therefore, I conclude that the logical arguments and the textual evidence to support my “monetary” interpretation of the initial givens in Marx’s theory of surplus-value are much stronger than the arguments and the textual evidence to support the prevailing neo-Ricardian interpretation.  Indeed, arguments and textual evidence are almost never presented to support the neo-Ricardian interpretation.  This interpretation is simply asserted, and unfortunately accepted uncritically by most Marxists.  
	The initial money-capital that Marx took as given in his theory was assumed to be the objective “form of appearance” of abstract social labor.  This function of money as the necessary form of appearance of abstract labor is the main conclusion of Marx’s analysis of commodities and money in Part 1 of Volume 1.  This important conclusion is then presupposed in the remainder of Capital, and in his theory of surplus-value in particular.  Thus the aggregate money- capital taken as given in his theory of surplus-value, like any other quantity of money, is assumed to represent a definite quantity of abstract social labor.  The precise quantity of abstract social labor represented by a given quantity of money depends on the value of money, which Marx also took as given (Marx 1977, pp. 214, 683).   The precise quantity of abstract labor represented by the given money constant capital is equal to (C*vm), where  vm is the given value of money.  Similarly, the precise quantity of abstract labor represented by the given money variable capital, or the “necessary labor-time” required to produce the money equivalent of variable capital, is equal to (V*vm).  These quantities of abstract labor represented by the constant capital and the variable capital will be equal to the labor-times embodied in the means of production and the means of subsistence only if prices of the means of prodcution and means of subsistence are proportional to their respective labor-values, i.e. in general they will not be equal (more on this point below).
	In the aggregate theory of surplus-value in Volume 1, the two initial givens constant capital and money capital play entirely different roles in the determination of the aggregate price of commodities and thus in the determination of the aggregate amount of surplus-value.  The quantity of constant capital becomes one component of the aggregate price of the output.  In other words, the constant capital is “transferred” to the price of the output.  The amount of value transferred from the constant capital to the price of the output cannot be greater than the value of the constant capital.  Hence the constant capital component of the price of commodities cannot be a source of surplus-value.  On the other hand, the variable capital does not become a component of the price of the output.  Instead, the variable capital is replaced by current labor, and this current labor produces new-value, which becomes the second component of the price of the output.  This new-value component of the price of commodities both replaces the variable capital invested in labor-power and provides the surplus-value of capitalists.
	Marx’s theory of the determination of the aggregate price of commodities can thus be summarized algebraically by the following equations:
(1)	P   =   C   +   MVA
(2)	MVA   =   mL
where P represents the aggregate price of commodities, C the constant capital, MVA the money value added produced by current labor, L the quantity of current abstract labor, and m is the “monetary expression of value,” or the rate at which current abstract labor produces new-value per hour (which is equal to the inverse of the value of money and was taken as given by Marx; e.g. 0.5 shillings per hour).  The givens in this theory of aggregate price are: C, m, and L.  Note that the first component of the price of commodities, the “value transferred” from the means of production to the price of the product, is equal to the given money constant capital consumed in the production of the commodities, whether or not this money constant capital is proportional
to the labor-time embodied in the means of production (more on this point below).
	From this theory of aggregate price, Marx derived the aggregate amount of surplus-value (S) produced within a given period of time.  This derivation may be briefly summarized algebraically as follows:
(3)	S   =   P   -   K
	     =   (C + MVA)   -   (C + V)
	     =   MVA   -   V
	     =   mL   -   mLn
	     =   m(L  -  Ln)(4)	
	S   =   mLs
where K represents the cost price of commodities (= C + V), Ln the necessary labor-time or the time required for current labor to reproduce the equivalent of variable capital (= V/m), and Ls the surplus-labor time.  
	The main points about this derivation for our purposes are the following: (1) the givens in this theory are C, V, L, and m, as discussed above;  (2) the aggregate amount of surplus-value is derived as a function of the aggregate amount of surplus-labor; and (3) this aggregate amount of surplus-value is then taken as given in Marx’s subsequent analysis of the distribution of surplus-value and prices of production in Volume 3 of Capital, to be discussed below.
	In the above theory, the given quantities of money constant capital and money variable capital are identically equal to the price of the means of production and the price of labor-power, respectively.  Therefore, whether or not constant capital and variable capital are proportional to the labor-time embodied in the means of production and the labor-time embodied in the means of subsistence depends on whether or not the prices of the means of production and means of subsistence are proportional to their respective labor-values.  Marx provisionally assumed in Volume 1 that the prices of the means of production and the means of subsistence are proportional to their respective labor-values, because there was no basis for any other assumption consistent with the labor theory of value, since the determination of individual commodities, or subsets of commodities such as the means of production and means of subsistence, are not considered in Volume 1.  Strictly speaking, this exact proportionality between price and labor-time applies only to the aggregate commodity product.  However, this provisional assumption plays no essential role in Marx’s theory of surplus-value in Volume 1.  The magnitudes of constant capital and variable capital are not determined as the labor-times embodied in the means of production and means of subsistence; i.e. they are not derived from given means of production and means of subsistence.  The physical quantities of means of production and means of subsistence play no role in Marx’s theory of surplus-value.  Instead, the magnitudes of constant capital and variable capital are taken as given (“presupposed”) as the quantities of money-capital that initiate the circulation of capital.  The constant capital transferred to the price of the output is equal to the money used to purchase the means of production, whether or not this money constant capital is proportional to the labor-times embodied in the means of production.  Similarly, surplus-value is equal to the difference between the new-value produced and the variable capital used to purchase labor-power, whether or not this money variable capital is proportional to the labor-times embodied in the means of subsistence. 
b.     Theory of prices of production
	As discussed above, the main subject of Volume 3 is the division of surplus-value into individual component parts and among individual capitalists.  In other words, Volume 3 is concerned with the distribution of surplus-value, as subsequent to the production of surplus-value.  Part 2 of Volume 3 analyzes the distribution of surplus-value among the individual branches of production and Parts 4-6 analyze the further division of surplus-value into industrial profit, merchant profit, interest, and rent.  In this analysis of the distribution of surplus-value, the total amount of surplus-value is taken as given, as determined in the prior analysis of capital in general in Volume 1 (see Moseley 1997a and 1998).
	The “transformation problem” is of course concerned with the distribution of surplus-value among individual branches of production.  Since the distribution of surplus-value among branches of production is accomplished by means of the prices of production of individual commodities, this aspect of the distribution of surplus-value necessarily involves the determination of these individual prices of production.  In this analysis of individual prices of production, the general rate of profit is taken as given, as determined by the prior analysis of capital in general in Volume 1, and as equal to the total surplus-value divided by the total social capital.  
	Also taken as given in Marx’s theory of prices of production are the same quantities of constant capital and variable capital that are taken as given in his theory of surplus-value in Volume 1.  The only difference is that in Volume 3, not only are the aggregate quantities of constant capital and variable capital are taken as given, but also the disaggregate quantities of these two components of money- capital for each industry (the sum of the latter is obviously equal to the former).  This is the key reason why constant capital and variable capital do not change, or do not have to be transformed, in the transition from the aggregate analysis of surplus-value in Volume 1 to the disaggregate analysis of prices of production in Volume 3 - because the same quantities of constant capital and variable capital are taken as given in both of these stages of the analysis.  The magnitudes of constant capital and variable capital are not first determined as the values of the means of production and the means of subsistence, and then later transformed into the prices of these same means of production and means of subsistence, as in the neo-Ricardian interpretation.  In his theory of prices of production, Marx did not suddenly adopt a different logical method, and take the physical quantities of means of production and means of subsistence as his initial givens.  Instead, he continued to take as given the same quantities of money-capital used to purchase the means of production and labor-power that he took as given in Volume 1, except in disaggregated quantities.  These given quantities of money capital “remain invariant” in the transition from the aggregate theory of surplus-value to the disaggregate theory of prices of production.
	The sum of constant capital and variable capital is defined by Marx as the “cost price” of commodities, i.e. k = c + v.  “Cost price” is a key concept in Marx’s theory of prices of production, and is introduced in Chapter 1 of Volume 3 in order to lay the necessary groundwork for the theory of prices of production presented in Part 2.  Since, as we have seen above, constant capital and variable capital are defined in terms of money, their sum, the cost price of commodities, is also defined in terms of money, not in terms of labor-time.  This cost price is referred to in Chapter 1 and in earlier drafts of this chapter as the money capital “presupposed” or “postulated” in the first phase of the circulation of capital.  “Profit” is also defined by Marx in this same Chapter 1 of Volume 3 as the excess of the money realized at the end of the circulation of capital over and above the “presupposed” cost price.  In the more Hegelian language of the Grundrisse, Marx defined profit as “the presupposed capital, relating to itself” (G. 762, emphasis added).  
	In the earlier draft of Chapter 1 in the 1861-63 manuscript, Marx explicitly made the connection between the initial money capital M taken as given in his theory of surplus-value and the cost price k taken as given in this theory of prices of production, both of which are equal to the sum of constant capital and variable capital, M for the total economy and k for each industry.  Marx commented:
We have seen that the general form of capital is M-C-M’.  In other words, money, an amount of value, is thrown into circulation in order to extract from it a larger amount.   ...

We now return, therefore, to the point of departure from which we proceeded in considering the general form of capital.   ...

Profit therefore = the excess of value of the product or rather the amount of money realized in circulation for the product ... above the value of the capital which entered the formation of the product.   (Marx and Engels 1991 , pp. 78-81)

Marx then defined the “value of the capital which entered the formation of the product” as the “cost of production” of the commodity, which is the term Marx was using at this time for what he later called the “cost price”, i.e. the sum of constant capital and variable capital.
	In Part 2 of Volume 3, Marx stated explicitly several times (including algebraically and with numerical examples) that the cost price that is taken as given in the determination of the price of production of commodities is the same as the sum of constant capital and variable capital that is taken as given in the determination of the value of commodities.  The first such discussion is on pp. 263-65 of the Penguin edition.  The first paragraph of this discussion (p. 263) states:
If we take it that the composition of the average social capital is 80c + 20v, and the annual rate of surplus-value s’ = 100 per cent, the average annual profit for a capital of 100 is 20 and the average annual rate of profit is 20 per cent.  For any cost price k of the commodities annually produced by a capital of 100, their price of production will be k + 20.  In those spheres of production where the composition of capital is (80-x)c + (20+x)v, the surplus-value actually created within this sphere, or the annual profit produced, is 20+x, i.e. more than 20, and the commodity value produced is k + 20 + x, more than k + 20, or more than the price of production.  In those spheres of production where the composition of capital is (80+x)c + (20-x)v, the surplus-value or profit annually created is 20-x, i.e. less than 20, and the commodity value therefore is k + 20 - x, more than k + 20, or more than the price of production.  Leaving aside any variation in turnover times, the production prices of commodities would be equal to their values only in cases where the composition of capital was by chance precisely 80c + 20v.  
(emphasis added)

Here Marx is clearly saying that the cost price (k) is the same for both the value and the price of production of commodities.  The only difference between the value and the price of production of commodities is the difference between the surplus-value and the profit that is added to the cost price for any given commodity.  In the case of a commodity produced by a capital of average composition, the surplus-value added to the cost price is equal to the profit added to this same cost price, and hence the price of production of such an “average” commodity will be equal to its value.  Marx repeated the same points in the next paragraph (pp. 263-64) and gave a simple numerical example.  
	The next paragraph (pp. 264-65) is a well-known paragraph in which many critics claim that Marx “admitted his error” of failing to transform the inputs of constant capital and variable capital from values into prices of production.  Let us look again at this famous paragraph, within the context to the paragraphs just discussed:
The development given above also involves a modification in the determination of a commodity’s cost price.  It was originally assumed that the cost price of a commodity equaled the value of the commodities consumed in production.  But for the buyer of a commodity, it is the price of production that constitutes its cost price and can thus enter into forming the price of another commodity.  As the price of production of a commodity can diverge from its value, so the cost price of a commodity, in which the price of production of other commodities is involved, can also stand above or below the portion of its total value that is formed by the value of the means of production going into it.  It is necessary therefore to bear in mind this modified significance of the cost price, and therefore to bear in mind too that if the cost price of a commodity is equated with the value of the means of production used up inn producing it, it is always possible to go wrong.  Our present investigation does not require us to go into further detail on this point.  It still remains correct that the cost price of commodities is always smaller than their value.  For even if a commodity’s cost price may diverge from the value of the means of production consumed in it, this error is the past is a matter of indifference to the capitalist.  The cost price is a given precondition, independent of his, the capitalist’s, production, while the result of his production is a commodity that contains surplus-value, and therefore an excess value over and above its cost price.
(Marx, 1981, p. 265; emphasis added)

	It seems to me that this passage says: (1) In Volumes 1 and 2, it was originally assumed that the prices of the means or production and the means of subsistence are equal to their respective values.  (2) However, once the prices of individual prices have been determined, we see that the prices of production of the means of production are in general not equal to their values.  (3) Therefore, if the price of the means of production is equated with their value, this would be a mistake.  (4) (Most importantly for our purposes) even if the cost price of the means of production is not equal to the value of the means of production, it is this cost price that is taken as given (a “given precondition”) in the determination of value and surplus-value (i.e. in Volume 1).  Surplus-value is the difference between the value of commodities and this cost price, or value is the sum of this cost price and the surplus-value produced.  Therefore, I argue that this passage, instead of being an “admission of error,” actually supports my interpretation that constant capital and variable capital are taken as given as sums of money-capital that initiate the circulation of capital.
	Marx noted just prior to these paragraphs on pp. 263-65 (including the missing paragraph) and just after these paragraphs that one component of the cost price is the price of production of the means of production, which in general is not equal to the value of the means of production.  But in these paragraphs Marx emphasized nonetheless that the same cost price is an element of both the value and the price of production of commodities.  In other words, Marx was saying that the fact that the prices of production of the means of production are not equal to their values does not affect the cost price of these commodities, because this cost price is taken as given, both in the determination of both the value and in the determination of  the price of production of these commodities.
	In Chapter 12 of Volume 3, Marx returned briefly to the point that the price of production of an “average” commodity is equal to its value:
It is quite possible, accordingly, for the cost price to diverge from the value sum of the elements of which this component of the price of production is composed, even in the case of commodities that are produced by capitals of average composition...

Yet this possibility in no way affects the correctness of the principles put forward for commodities of average composition.  The quantity of profit that falls to the share of these commodities is equal to the quantity of surplus-value contained in them.  For the above capital, with its composition of 80c + 20v, for example, the important thing as far as the determination of surplus-value is concerned is not whether these figures are the expression of actual values, but rather what their mutual relationship is; i.e. that v is one-fifth of the total capital and c is four-fifths.  As soon as this is the case, as assumed above, the surplus-value v produced is equal to the average profit.  On the other hand, because it [the surplus-value; FM] is equal to the average profit, the prices of production = cost price + profit = k + p = k + s, which is equal in practice to the commodity’s value. (Marx, 1981, p. 309; emphasis added)

It seems to me that this passage says:   (1) Cost price diverges from value even in the case of commodities these produced with capitals of average composition.  (2) However, the profit included in the price of these commodities is equal to the surplus-value contained in these commodities.  (3) Most importantly for our purposes,  the cost price of these commodities (which is not equal to the values of the means of production and means of subsistence) is one component both of the price of production of these commodities and of the value of these commodities.  Again, this key point is indicated algebraically by the fact that, in Marx’s equations,  the same k (the cost price of commodities) is added both to the surplus-value to obtain the value of these commodities and is also added to the profit to obtain the price of production of these commodities.  (4) Since the cost price is the same in the determination of both the value and the price of production of these commodities, and since profit is equal to surplus-value for these commodities, the price of production of commodities of these commodities is equal to their value. 
	Further textual evidence for this interpretation has been discovered recently by Alejandro Ramos-Martinez (and discussed on the OPE email network).  Marx’s original manuscript of Volume 3 (written in 1864-65) has recently been published in German for the first time in the authoritative Marx Engels Gesamtausgabe (MEGA) (this particular volume has not yet been translated into English or any other language and unfortunately will not be included in the 50-volume Marx-Engels Collected Works, which is being published by International Publishers).
Ramos examined Marx’s original manuscript, and discovered that, for some inexplicable reason, Engel’s version of Volume 3 left out a crucial paragraph which comes immediately prior to the paragraphs quoted above on pp. 263-65 of the Penguin edition.  In this omitted paragraph, it is clearly stated both in words and algebraically that the cost price of commodities is the same for both the value and the price of production of commodities:
	value = cost price + surplus-value					V = K + s
	...
	price of production = cost price + average profit 			P = K + p’

We can see that the same K is added to the surplus-value on the one hand and to the average profit on the other hand to obtain respectively the value (V=K+s) and the price of production (P=K+p’) of commodities.  The only difference between the value and the price of production of a given commodity is the difference between the surplus-value contained in it and the average profit alloted to it.  If the surplus-value is greater (less) than the average profit, then the value is greater (less) than the price of production.  
	Therefore, I conclude from the above textual evidence that Marx did not “fail to transform the inputs of constant capital and variable capital from values into prices of production,” as his critics claim.    Instead, Marx’s theory takes as given the same quantities of constant capital and variable capital as sums of money-capital, in both the theory of value and the theory of price of production.  
Constant capital and variable capital do not have to be transformed from value magnitudes to price magnitudes because constant capital and variable capital are not determined first as the value of the means of production and wage-goods and then later determined as the price of these given bundles of goods.  Instead, the same quantities constant capital and variable capital are taken as given sums of money, in both the Volume 1 aggregate analysis of surplus-value and the Volume 3 disaggregate analysis of prices of production, regardless of whether or not the prices of the means of production and wage-goods are proportional to their values.  
	Therefore, Marx’s theory of prices of production of commodities can be summarized algebraically by the following equation (see Marx 1981, p. 265):
(5)		pi =  ki   +  r ki
where pi stands for the price of production of each commodity, ki for the cost price of commodities in each industry (equal to the sum of constant capital and variable capital), and r for the general rate of profit (ignoring here the distinction between the stock and flow of capital).  In this equation, ki is taken as given sums of money, as the initial presuppositions of Marx’s theory, 
and r is taken as given as determined by the prior analysis of capital in general in Volume 1.
	Finally, it can easily be shown that, if this interpretation is accepted, then Marx’s two aggregate equalities (total gross price = total gross value and total profit = total surplus-value) are both true simultaneously, as Marx himself concluded (see Moseley 1993 for a simple demonstration of these two aggregate equalities).

2.   FOLEY’S INTERPRETATION
	The version of the “new solution” most similar to my “macro-monetary” interpretation is that presented by Duncan Foley (1982, 1986).  Foley’s interpretation is similar to my interpretation, first of all, in its general emphasis on money and the monetary nature of Marx’s theory.  Foley emphasizes that the general analytical framework of Marx’s theory is the monetary circuit of capital, represented by the familiar formula M - C ... P ... C’ - M’.  This circulation of capital corresponds to the flows of money capital which are recorded in the bookkeeping accounts of capitalist enterprises.  
A capitalist firm begins with value in money form and uses it to buy commodities, which are combined in production to yield a new commodity, one that is sold for more money than the capitalist advanced to begin with.  Marx represents this motion in the diagram M - C ... P ... C’ - M’...   This diagram of capitalist circulation corresponds directly to the income, or profit and loss statement, of a capitalist firm.  (1986, p. 33)

Consistent with this emphasis, Foley defines the key variables in Marx’s theory of surplus-value - constant capital, variable capital, value added and surplus-value - in terms of money, as the flows of money capital within the general framework of the circulation of capital (1982, p, 38; 1986, Chapter 3).  Foley also defines the key variables in Marx’s theory of prices of production - profit and prices of production - in terms of money (1982, p. 40; 1986, Chapter 6).
	Another important similarity between Foley’s interpretation and my interpretation is its general emphasis on the methodological principle of the prior determination of aggregate magnitudes.   Foley expresses this point as follows:
In this paper I suggest ... viewing the labor theory of value as the claim that the money value of the whole mass of the net production of commodities expresses the expenditure of the total social labor in a commodity-producing economy ...   This path begins with the global value produced by the expenditure of labor, the value embodied in the whole mass of the net commodity product, and then asks how this value comes to be realized in the prices of particular commodities.  The concept of value as a property of the whole mass of the net commodity product in this approach is analytically prior to the concept of price, the amount of money a particular commodity brings on the market.  (1982, p. 37; emphasis added).

In (1986), the first chapter on Marx’s method emphasizes that the fundamental determinations of capitalism are the aggregate magnitudes of the system as a whole and that these magnitudes are “conserved” in the more concrete stages of the analysis. And in Chapter 3, Marx’s theory of surplus-value in Volume 1 of Capital is presented as a theory of the total amount of surplus-value produced in the capitalist economy as a whole.  

	Another important similarity is that Foley’s interpretation assumes that variable capital it taken as given in terms of money, as the money wage paid to workers, rather than derived from a given quantity of wage goods, as in the neo-Ricardian interpretation.  This given quantity of money variable capital remains invariant in the transition from the theory of surplus-value in Volume 1 to the theory of prices of production in Volume 3, as in my interpretation.  
	Foley’s justification for this interpretation of variable capital is not presented in terms of Marx’s general logical method, or the general nature of the givens in Marx’s theory, but is instead based on the specific nature of the relation between capitalists and workers in capitalist society.  It is argued first of all that taking variable capital as given in terms of the money wage is a more accurate representation of the actual exchange relation between capitalists and workers.  
Workers in capitalist society do not bargain for, or receive, a bundle of commodities as payment for the labor power, they receive a sum of money, the money wage, which they are then free to spend as they wish ...  (1982, p. 43)

	Foley also argues that this interpretation also provides a better understanding of the specific nature of exploitation in capitalism and of the nature of the class struggle between capitalists and workers.  He argues that this interpretation enables one to perceive that capitalist exploitation is not identical with the existence of a surplus product and that the goal of workers’ struggles should not be the elimination of the surplus product per se, but should instead be the elimination of the social relations of capitalism in which the surplus product is appropriated by capitalists in the form of surplus-value.
	However, and here is where our differences begin, Foley’s interpretation treats constant capital differently from variable capital, and hence treats constant capital differently from my own interpretation.  Constant capital is not taken as given in terms of money, as the quantity of money used to purchase means of production, as in my interpretation.  Instead, constant capital is derived from given physical quantities of means of production (i.e. the technical conditions of production), as in the neo-Ricardian interpretation.  As a result, constant capital changes in the transition from the theory of surplus-value in Volume 1 to the theory of prices of production in Volume 3.  In Volume 1 constant capital is equal to the value of the given means of production, and in Volume 3 constant capital is equal to the price of production of the same given means of production.  
	Therefore, I argue that there is a key methodological inconsistency in Foley’s interpretation between the determination of constant capital and the determination of variable capital.  Variable capital is taken as given in money terms, but constant capital is derived from given physical quantities.  Foley does not provide a rationale for this inconsistent treatment of constant capital and variable capital.  I argue that because constant capital and variable capital are specific forms of the general concept of capital, and are the two components of the initial money capital (M), they should both be determined in the same way.  Either they should both be taken as given in terms of money or they should both be derived from given physical quantities.  Similarly, constant capital and variable capital are the two components of the cost price of commodities in Marx’s theory of prices of production, suggesting again that they should be determined in the same way.  Marx often wrote or expressed the determined the equation for the determination of prices of production as the sum of the cost price plus the average profit (k + rk), thereby leaving no possibility for different determinations of the two components of the cost price, constant capital and variable capital.  Nowhere in Marx’s writings is there a suggestion that constant capital and variable capital are determined in different ways,   I have argued above that there are strong reasons for assuming that constant capital and variable capital should be taken as given, as the two components of the money capital (M) or the cost price (k) that initiates the circulation of capital.
	In one passage, Foley seems to suggest that Marx took as given the entire money capital invested in capitalist enterprises - both the constant capital and the variable capital - rather than deriving these components of capital from given physical quantities.  
One striking difference between Marx’s treatment of the problem and later treatments is that Marx describes the two economies solely in terms of the accounts of the capitalist firms; he does not specify the actual production and distribution of use-values.   Later treatments, perhaps in the name of theoretical rigor, describe both economies in terms of the production and distribution of particular use-values, and derive the accounts of the capitalist firms from this assumed data on production and distribution.  when one holds constant the production and distribution of use-values, it turns out that ... aggregate value added and aggregate profit cannot both be the same in the two [economies].

I want to suggest that Marx had good theoretical reasons for describing the two economies in terms of the accounts of the capitalist firms rather than in terms of the production and distribution of use-values.  The social facts relevant to struggle and change in a capitalist society concern the production and distribution of value itself, and the actual production, distribution, and consumption of use-values that follow form these struggles take a secondary place.  (1982, p. 44; first emphasis added)
It seems to me that Foley’s argument could be applied to constant capital as well as to variable capital.  However, Foley applies this argument only to variable capital, thus resulting in the inconsistent treatment of constant capital and variable capital.  
	Foley’s inconsistent treatment of constant capital and variable capital leads him to the following erroneous conclusions regarding Marx’s theory of prices of production, which will be discussed further below: (1) Marx made a partial error in his determination of prices of production in Volume 3.  Contrary to the standard interpretation, Marx did not fail to transform variable capital, because the same variable capital is taken as given in money terms in both Volume 1 and Volume 3.  However, as in the standard interpretation, Marx did fail to transform constant capital, because constant capital is derived from given means of production, first as the value and then as the price of production of these given means of production.  (2) The total price of commodities also changes from Volume 1 to Volume 3, so that the total price is no longer equal to the total value of commodities.  (3) The rate of profit also changes from Volume 1 to Volume 3, i.e. the “price” rate of profit is not equal to the “value” rate of profit.  
	Another important difference between Foley’s interpretation and my interpretation is the nature of the determination of the rate of profit, just mentioned.  Foley agrees with the neo-Ricardian interpretation that there are two rates of profit in Marx’s theory - the “value” rate of profit determined in Volume 1 and the “price” rate of profit determined in Volume 3 - and that these two rates of profit are in general not equal, so that the rate of profit changes as a result of the transformation of values into prices of production.  Foley also agrees with the neo-Ricardian interpretation that the “price” rate of profit is determined simultaneously with prices of production, and is derived from the given physical quantities of the technical conditions of production and the real wage.  In contrast, I have argued above that there is only one rate of profit in Marx’s theory - the “price” rate of profit - and that this rate of profit is determined prior to the determination of prices of production by the analysis of capital in general.  Foley provides no justification for his interpretation, presumably because this interpretation has been the generally accepted interpretation.   However, in my view, Foley has accepted the erroneous neo-Ricardian interpretation on this crucial point.  
	It also seems to me that the simultaneous determination of the rate of profit is inconsistent 
with the general methodological principle emphasized by Foley of the prior determination of 
aggregate magnitudes.  According to Foley, the prior determination of aggregate magnitudes 
applies only to the following magnitudes:  value added, variable capital, and surplus-value.  It does 
not apply to the following other variables: total price, constant capital, and the rate of profit.  
Instead, these latter variables are determined simultaneously with individual prices of production.  
It seems to me that this is another important methodological inconsistency in Foley’s interpretation.
	Another difference between Foley’s interpretation and my interpretation is that Foley redefines the aggregate price-value equality which Marx emphasized from the gross price of commodities to the net price of commodities, or the value added component of the gross price of commodities.  Foley assumes  that the aggregate net price-value equality is satisfied, i.e. it is assumed that the aggregate value added (after the determination of prices of production) is proportional to the total current labor.  In his system of equations that determine prices of production, this aggregate net price-value equality is the (n+1)st equation; it is assumed as a “conservation principle” or an “invariance postulate”.  This invariance postulate is essentially an expression of the methodological principle of the prior determination of aggregate magnitudes.  It is assumed that the aggregate value added is determined Volume 1 and is taken as given in the determination of prices of production in Volume 3.  The determination of prices of production affects only the distribution of this given, predetermined amount of the aggregate value added.  
	From this assumption, and the assumption discussed above that variable capital is taken as given as the money wage and remains invariant in the transformation, the other aggregate equality - that the aggregate profit is equal to the aggregate surplus-value - follows as a matter of simple algebra.  However, according to Foley’s interpretation, the aggregate gross price-value equality will in general not be satisfied because the constant capital component of the gross price of commodities will in general not be equal to the labor time embodied in the means of production.
	Foley’s justification for this redefinition of the aggregate price equality seems to be that what is most important in Marx’s theory is the relation between value added and current labor, because surplus-value is one part of the value added.  This is the key relation that is assumed to be invariant in the transformation.  The relation between the gross price and the total labor is much less important.  
	I agree in part with Foley’s argument on this point.  I agree that the most important point of Marx’s labor theory of value is that value added is determined by current labor.  I also agree that the aggregate value added remains invariant in the transformation and that the aggregate net price-value equality will be satisfied simultaneously with the aggregate profit-surplus value equality.  However, I also argue (as above) that constant capital is determined in the same way as variable capital and therefore is determined in a different way from Foley’s interpretation.  Constant capital is not derived from given means of production, but is instead taken as given in terms of money and remains invariant in the transformation,  just like variable capital.  On the 7basis of this interpretation of constant capital, the aggregate gross price-value equality is also satisfied simultaneously with the aggregate profit-surplus value equality, as Marx concluded, and as has been shown above.  
	In sum, the most important difference between Foley’s interpretation and my interpretation is the nature of the determination of constant capital.  According to my interpretation, constant capital is determined in the same way as variable capital - both are taken as the given quantities of money capital that initiate the circulation of capital.  According to Foley’s interpretation, constant capital is determined differently from variable capital.  Variable capital is taken as given as a quantity of money capital, as in my interpretation, but constant capital is derived from given physical means of production, as in the neo-Ricardian interpretation.  Thus, I argue that Foley only goes “half way” in breaking away from the neo-Ricardian “physical quantities” interpretation of Marx’s theory.  If Foley were to accept my “monetary” interpretation of constant capital, then all our other differences would disappear.  We could then agree that: (1) Marx’s theory of prices of production in Volume 3 is logically complete and consistent (i.e. Marx did not commit a “logical error”, even a partial one, in the determination of prices of production); (2) the rate of profit would not change as a result of the determination of prices of production; and (3) the aggregate gross price-value equality is also satisfied simultaneously along with the aggregate net price-value equality and the aggregate profit-surplus value equality, as Marx concluded.  These conclusions are more consistent than Foley’s prior conclusions with the important methodological presuppositions discussed in the beginning of this section: the monetary nature of  Marx’s theory and the prior determination of aggregate magnitudes.

3.   DUMÉNIL’S INTERPRETATION
	The next version of the “new solution” to be considered is that presented by Gerard Duménil (1980, 1983-84, 1986).  Duménil’s interpretation is similar to Foley’s in the following general respects:  (1) Duménil also takes the money wage as an initial given, rather than the real wage;  (2) Duménil also redefines the aggregate price-value equality from gross to net terms; and (3)  Duménil also argues that Marx made a partial error in his determination of prices of production - that Marx forgot to transform constant capital (but not variable capital) from values to prices of production.   Duménil also concludes that the aggregate net price-value equality is satisfied simultaneously with the aggregate price-surplus value equality, but that the aggregate gross price-value equality is not satisfied, and that the rate of profit changes in the determination of prices of production.  There are also several differences between Duménil’s and Foley’s interpretations, which will now be discussed in turn.  
	One minor difference is that Duménil’s justification for taking the money wage rather than the real wage as an initial given is somewhat different from Foley’s.  Duménil presents similar justifications as Foley - that capitalists actually pay workers a money wage (not a real wage) and that capitalist exploitation should be defined in relation to this money wage (not in relation to the real wage).  In addition, Duménil also presents additional arguments for taking the money wage as given and for the different methods of determination of constant capital and variable capital.  With respect to the latter poing, Duménil argues:
In contrast with what is often contended, Marx does not treat constant and variable capital identically.  Indeed, it is true that the capitalists buy constant capital, and the price of production must be used to evaluate this transaction.  But capitalists do not buy the consumption goods of workers, but pay them wages.
(1986, pp. 15-16)
	This argument is very brief and seems to be missing several steps, but the argument seems to be that, because capitalists directly buy means of production and do not directly means of subsistence, constant capital must first be evaluated as the value of the means of production and then transformed into the prices of production of these means of production.  On the other hand, because capitalists do not buy means of subsistence directly, but rather pay workers money wages, variable capital is both initially and finally evaluated in terms of the money wage, or prices of production.  
	But this argument is a non-sequitur.  The fact that capitalists buy means of production directly does not mean that constant capital must be derived from given means of production, first as their value and then as their prices of production.  Capitalists just as surely pay money to purchase means of production as they pay money workers to purchase their labor-power.  Constant capital could also be taken as given as this sum of money capital paid by capitalists to purchase means of production, just as variable capital is taken as given as the sum of money capital paid by capitalist to purchase labor-power.  Indeed, as argued above, there are good reasons in favor of such a consistent, parallel determination of constant capital and variable capital.  Since both constant capital and variable capital are specific forms of the general concept of capital, they should both be determined in the same way, and, specifically, they should be taken as given as the two components of the initial money capital (M) that begins the circulation of capital.  
	Duménil then presents the following textual evidence to support his interpretation:This fundamental difference is quite explicitly expressed in Capital.  Concerning constant capital, Marx writes:

“The development given above also involves a modification in the determination of a commodity’s cost price.  It was originally assumed that the cost price of a commodity equaled the value of the commodities consumed in its production.  
But for the buyer of a commodity, it is the price of production that constitutes its cost price and thus enters into forming the price of another commodity.  (...)
Our present investigation does not require us to go into further details on this point.”  (Marx 1981, pp. 264-65)

However, Duménil argues, Marx’s discussion of variable capital is quite different:

“As for variable capital, the average daily wage is certainly always equal to the value product of the number of hours that the worker must work in order to produce its necessary means of subsistence; but this number of hours is itself distorted by the fact that the production prices of the necessary means of subsistence diverge from their values.”  (Marx 1981, p. 261) 

	The first passage above is interpreted by Duménil to be only about constant capital.  But this interpretation is incorrect.  The passage is about the cost price of commodities.  We have seen above that cost price is defined by Marx in Chapter 1 of Volume 3, and used consistently throughout, as the sum of both constant capital and variable capital.  It is true that this passage mentions specifically only the means of production (in a part not explicitly quoted by Duménil) and does not mention the means of subsistence.  However, in several other similar passages in which Marx discussed the “modified significance of the cost price,” both constant capital and variable capital are explicitly mentioned (Marx 1981, pp. 261 and 308-09; Marx 1971, p. 167). Therefore, these passages are about the cost price, which is the sum of both constant capital and variable capital, and whatever interpretation applies to constant capital also applies to variable capital.  Either they are both taken as given as quantities of money capital or they are both derived from given physical quantities.  These passages are certainly not arguments for different determinations of constant capital and variable capital.
	This passage and the other similar passages cited above do not state or imply that the constant capital and the variable capital are first determined as the value of the means of production and the means of subsistence and then are then later have to be transformed into the prices of production of these given physical quantities of goods.  Rather, this passage says that, although it was originally assumed that the prices of the means or production and the means of subsistence are equal to their respective values (as discussed in the first section above), this provisional assumption has nothing to do with the determination of constant capital and variable capital.  Constant capital and variable capital are taken as given as the quantities of money used to purchase means of production and means of subsistence, whether or not the price of these means of production and means of subsistence are equal to their values.  Once it is determined that the prices of the means of production and means of subsistence are in general not equal to their values, this does not change the magnitude of the given constant capital and variable capital.  Nor is the quantity of surplus-value affected, which remains the excess of the price of commodities over their cost price, or over the sum of the given quantities of constant capital and variable capital.  
	My interpretation is supported by the continuation of the first passage quoted by Duménil above:
For even if a commodity’s cost price may diverge from the value of the means of production consumed in it, this error is the past is a matter of indifference to the capitalist.  The cost price is a given precondition, independent of his, the capitalist’s, production, while the result of his production is a commodity that contains surplus-value, and therefore an excess value over and above its cost price.
(Marx 1981, p. 265)

Thus we see that, even if the cost price of the means of production and the means of subsistence are not equal to their values, this cost price is still taken as given (a “given precondition”) in Marx’s theory of surplus-value, and surplus-value is still the excess of the price of the product over this given cost price.  
	The second passage above quoted by Duménil (Marx 1981, p. 261) also does not support his interpretation that variable capital is determined differently from constant capital.  The paragraph quoted by Duménil begins as follows:
Apart from the fact that the price of the product of capital B, for example, diverges from its value, because the surplus-value realized in B is greater or less than the profit added in the price of the products of B, the same situation also holds for the commodities that form the constant part of capital B, and indirectly, also, its variable capital, as means of subsistence for the workers.  As for the constant part of capital is concerned, it is itself equal to cost price plus surplus-value, i.e. now equal to cost price plus profit, and this profit can again be greater or less than the surplus-value whose place it has taken.   (emphasis added)

This passage then continues with the part quoted by Duménil (and above)

As for the variable capital ...   	(emphasis added)

We can see that constant capital is discussed in a completely parallel fashion in the sentences immediately prior to the sentences on variable capital quoted by Duménil.  Marx is not suggesting in this paragraph that constant capital and variable are determined differently.  Rather, he is saying that both the constant capital and the variable capital, as the two components of the cost price, are now seen to be equal to the price of production of the means of production and the means of subsistence, rather than to the values of these goods, as originally assumed.   However, as already discussed, these inequalities do not affect the determination of either constant capital and variable capital.  Both of these components of the cost price continue to be taken as “given preconditions,”  as the sums of money capital consumed in the production of commodities.
	Duménil also provides additional arguments for taking the money wage as an initial given, rather than the real wage.  Duménil argues that if the real wage is taken as given, as in the neo-Ricardian interpretation, then:   (1) it is necessary to assume that all workers consume the same goods; (2) the magnitude of surplus-value is affected by whether or not workers save; and (3) the rate of profit depends only on the conditions of production in basic goods industries, and does not depend on the conditions of production in luxury goods industries, which is contrary to Marx’s theory.  I agree in general with all three of these additional arguments for taking the money wage as given.  However, these arguments do not imply that constant capital should be determined differently, i.e. should be derived from given means of production.  I have presented above substantial general methodological arguments and textual evidence to support the interpretation that constant capital and variable capital should be determined in consistent, parallel fashion, and that both should taken as given as the two components of the money capital (M) that initiates the circulation of capital.  Duménil’s more specific arguments relating to variable capital do not negate these general arguments for the parallel determination of constant capital and variable capital in terms of given quantities of money capital, but rather reinforce these more general arguments in the specific case of variable capital.  
	Duménil also provides an additional argument to support the redefinition of the aggregate price-value equality from gross to net terms, besides the general argument emphasized by Foley that the relation between value added and current labor is the most important aspect of Marx’s labor theory of value.  The additional argument is that the gross price-value equality involves “double-counting.”  The argument seems to be that, as an expression or measure of current labor, the gross price of commodities involves “double-counting”.  This statement is clearly true.  However, this obvious statement does not alter the fact that Marx presented a theory of the gross price of commodities, not just a theory of the net price of commodities, and that Marx clearly stated many times that the gross price-value equality is satisfied simultaneously with the profit- surplus value equality.  I have shown above that, if constant capital is taken as given as the money expended to purchase means of production, as I argue Marx did, then Marx’s conclusion regarding the gross price-value equality is correct.     
	Duménil acknowledges Marx’s many statements of the gross price-value equality, but he argues that Marx was confused in these passages, because he had not yet written Volume 2, and in particular had not written Part 3 of Volume 2 on the reproduction schemes (1983-84, p. 449; 1986, p. 43).  According to Duménil, the main point of the reproduction schemes was to clarify the distinction between the gross price and the net price of commodities.  If Marx had written Volume 3 with this clarity in mind, he would have emphasized the net price-value equality, instead of the gross price-value equality.  
	In a general sense, I agree that the main point of the reproduction schemes was to clarify the distinction between the gross price and the net price of commodities.  However, Marx’s more specific point was essentially the opposite of what Duménil suggests.  The reproduction schemes are primarily a critique of  “Smith’s dogma,” according to which the entire gross price of commodities “can be entirely resolved into revenue,” i.e. into wages plus profit plus rent, or into the value added or the net price of commodities.  Marx argued that Smith’s dogma ignores the constant capital component of commodities.  If Smith’s dogma were true, then capitalists would not be able to recover the constant capital consumed in the production of commodities, and hence would also not be able to repurchase and replace the consumed means of production.  Therefore, Marx’s analysis of the reproduction schemes emphasizes that the reproduction of capital cannot be analyzed solely in terms of the value added (or “revenue”) component of the price of commodities, but must instead by analyzed in terms of the gross price, including the constant capital component.  (See Moseley 1997b for an extensive discussion of Marx’s reproduction schemes and his critique of Smith’s dogma.)
	This main point of the reproduction schemes was already clearly in Marx’s mind when we was writing Volume 3 in 1864.  Marx had first developed these ideas during the early stages of the 1861-63 manuscript, while writing about Adam Smith (Sections 8-10 of Chapter 3 of what we know as Volume 1 of Theories of Surplus-value).  In a very interesting and important letter written by Marx to Engels in July of 1863, Marx presented his first sketch of the reproduction schemes (Marx and Engels, 1975, pp. 132-35).  In this letter, Marx explicitly stated and emphasized that the main point of the reproduction schemes was to refute “Smith’s dogma.”  Therefore, Marx’s analysis of the reproduction schemes provided no reason for him to change his many statements regarding the gross price-value equality to statements regarding the net price-value equality.  If anything, this analysis provides additional reason for continued emphasis on the gross price equality.  
	Duménil (1983-84, pp. 448-49) also provides the following textual evidence from Chapter 9  of Volume 3 to support his interpretation that Marx was aware of the problem of “double counting” of constant capital and that he even suggested that “net price” should be used instead of “gross price” in the aggregate price-value equality:  
And in the same manner, the sum of prices of production for the commodities produced in society as a whole - taking the totality of all branches of production - is equal to the sum of their values.  

This seems contradicted by the fact that the elements of productive capital are generally bought on the market in capitalist production, so that their prices include an already realized profit and accordingly include the production of one branch of industry together with the profit contained in it, so that the profit in one branch of industry goes into the cost price of another.
(Marx, 1981, pp. 259-60)

Then Duménil quotes the following sentence from the next paragraph:

To apply this method of reckoning to the total social product, we have to make certain rectifications, since, considering the whole society, the profit contained in the price of flax, for instance, cannot figure twice, not as both part of the price of th linen and as the profit of the flax producers.  (Marx, 1981, p. 260).

	However, the “double counting” that Marx is discussing here is the double counting of profit, not the double counting of constant capital, as in Duménil’s interpretation.  Marx says nothing here (or elsewhere) about using the “net price” instead of the “gross price” in the aggregate price-value equality in order to avoid “double counting”.  Rather, the “rectification” that Marx is talking about is made clear by following sentences which are in between the two passages quoted by Duménil:
If a certain sum p goes into the cost price of a commodity for the profit of the producers of the means of production and on this cost price a profit of p1  is added, the total profit P = p + p1.  The total cost price of the commodity, discounting all protions of the price that counts toward profit, is then its own cost price minus P.  Using the symbol k again for this cost price, it is evident that k + P = k + p + p1.

It is this “method of reckoning” that needs to be “rectified”:  If one considers a single commodity, then the total profit contained in it could be considered as P = p + p1 (e.g the profit in the flax plus the profit in the linen).  But if one consideres the whole economy (including the flax producers), this type calculation cannot be used, because this would count the profit in the flax twice.  In this sense, a “rectification” has to be made in the calculation of the total profit.  In calculating the total profit in the whole economy, the entry for each industry should be only the profit received by that industry.  In this way, there will be no double counting of profit.  This passage does not support Duménil’s interpretation in any way.  Nothing is said about the “rectification” being the use of the “net price” instead of the “gross price” in the aggregate price-value equality.  The “gross price” is still used.  Marx is simply clarifying that, in the aggregate equality total profit = total surplus-value equality, the total profit should be calculated in the above way.  Marx restated the aggregate price-value equality a few pages later (at the beginning of Chapter 10) and it is very clearly in “gross” terms:
The sum of the profits for all the different spheres of production must accordingly be equal to the sum of surplus-values, and the sum of prices of production for the total social product must be equal to the sum of its values.  (Marx 1981, p. 273)
	Finally, we come to the most important difference between Duménil’s and Foley’s interpretations.  Unlike Foley, who argues that the key concepts in Marx’s theory (constant capital, variable capital, surplus-value, profit, prices of production, etc.) are defined in units of money,  Duménil argues that these concepts, even including the Volume 3 concepts of profit and “prices” of production, are defined in units of labor-time.  Duménil argues that Marx’s analysis of prices of production has to do with the reallocation of social labor, which is a different process altogether from the expression of social labor-times as prices (1986, Chapter 1, “Reallocated values and prices of production”; 1983-84, pp. 436-41).  “Prices” of production are defined as “redistributed labor-times”, i.e. as the labor-times distributed to individual branches of production according to the equal profit rate rule, as opposed to labor-times distributed according to the surplus-value produced rule.  Profit is defined as the “surplus labor” that is received in each branch of production according to the equal profit rate rule.  Constant capital and variable capital are also defined in units of labor-time; constant capital as the labor-time embodied in the means of production and variable capital as the labor-time represented by the money wage.  
	This aspect of Duménil’s interpretation obviously raises very important and fundamental issues, a full discussion of which is clearly beyond the scope of this paper.  However, I argue that this is a fundamental misinterpretation of Marx’s theory and of the concepts in Marx’s theory.  I have presented above a very different interpretation, which emphasizes that the key concepts of Marx’s theory are defined in terms of money, starting with the general concept of capital which is clearly defined as money that becomes more money.  I have argued that Volume 3 is mainly about the distribution of the total amount of surplus-value (or the total increment of money) that has already been determined by the aggregate analysis in Volume 1.  Part 2 of Volume 3 is about the distribution of this total increment of money across individual branches of production by means of price of production.  Price of production is the sum of the cost price of commodities and the average profit.  Cost price and profit are clearly defined in Chapter 1 of Volume 3 in terms of money, and their sum, the price of production of commodities is also clearly defined in Chapter 9 in terms of money.
	Parts 4-6 of Volume 3 then analyze the further distribution of the total increment of money into the component parts of industrial profit, commercial profit, interest, and rent.  All these components of surplus-value are clearly defined in terms of money.  A part of the increment of money that is received in each branch of production has to be “shared” with commercial capital and with creditors as interest.  In agriculture, a part of this increment of money has to be shared with landlords as rent.    To define prices of production and profit in terms of labor-time is to miss completely the phenomena that Marx was trying to explain in Volume 3 (the distribution of the total increment of money) and to lose the ctx14400“As for variable capital, the average daily wage is certainly always equal to the value product of the number of hours that the worker must work in order to produce its necessary means of subsistence; but this number of hours is itself distorted by the fact that the production prices of the necessary means of subsistence diverge from their values.  (Marx 1981, pp. 261) 
Duménil then argues:
As a preliminary remark, Marx is referring here to a “wage” which is measured in labor time.  It is therefore clear that all the amounts considered in this analysis are also measured in this unit: values, wages, prices of production.  (1986, p. 52).

	I argue that Duménil’s misinterprets this passage.  The wage is referred specifically here to the equal of the “value product” of a certain number of hours.  Duménil interprets this “value product” in units of labor-time.  If Duménil’s interpretation is accepted, then this sentence is redundant and nonsensical, i.e. it would mean the “number of hours that are the product of a certain number of hours.”  However, I argue that the “value product” here refers to the money value added by a certain number of hours.  In other words, “value” here refers to the “monetary expression of value,” a shorthand that Marx used throughout the three volumes of Capital.   According to Marx’s labor theory of value, each hour of labor produces a certain amount of money value added (for example, in Marx’s illustration of his theory of surplus-value in Chapter 7 of Volume 1, Marx assumed that each hour of labor produces a “value product” of 0.5 shillings). 
	Furthermore, even if Duménil’s interpretation of this passage is accepted, is spite of the above argument to the contrary, this one passage from Volume 3 would be a very slim basis for Duménil’s sweeping generalization that all of Marx’s key concepts are defined in units of labor-time, especially with all the evidence to the contrary that I have summarized above (starting with the fundamental concept of capital as money that becomes more money).  
	It seems to me that Foley would agree with me that the key concepts of Marx’s theory (e.g. capital, etc.) are defined in units of money and that these concepts correspond in principle to quantities of money entered in capitalists’ bookkeeping accounts.  These sums of money, like all sums of money, represent quantities of labor-time.  But the concepts themselves are defined in units of money that circulate as capital in the real capitalist economy.
	In summary, the differences between Duménil’s interpretation and my interpretation are greater than my differences with Foley’s interpretation.  In addition to the key difference regarding the determination of constant capital (and also the redefinition of the aggregate price-value equality from gross to net terms), there is also the even more fundamental difference with regard to whether the key concepts of Marx’s theory refer to units of money or to units of labor-time.  I have argued that, although Duménil presents more arguments for the different treatments of constant capital and variable capital (and also for the redefinition of the aggregate price-value equality), these additional arguments are also unsatisfactory and no more convincing than Foley’s arguments.  I have also argued that Duménil’s interpretation of the key concepts of Marx’s theory in terms of labor-time is a fundamental misinterpretation of the phenomena which Marx’s theory, including his theory of prices of production, is intended to explain.  

5.   CONCLUSION
	I have argued that the “new solution” interpretation of Marx’s theory is an important advance in Marxian scholarship, especially in Foley’s version.  However, even Foley has been only partially successful in breaking away from the dominant neo-Ricardian interpretation of Marx’s theory.  Foley rightly emphasizes the monetary nature of Marx’s theory and this leads him to assume that variable capital is taken as given as the money wage and not derived from the given means of subsistence.  However, Foley continues to assume that constant capital is derived from given means of production, as in the neo-Ricardian interpretation, and therefore ends up with inconsistent methods of determination of constant capital and variable capital.  Also, Foley rightly emphasizes the macroeconomic nature of Marx’s theory of surplus-value in Volume 1, and this leads him to assume that the aggregate value added is determined prior to its division into individual parts.  However, Foley continues to assume that the rate of profit is determined simultaneously with individual prices, as in the neo-Ricardian interpretation, and therefore does not consistently adhere to the principle of the prior determination of aggregate magnitudes.  
	I have presented above and in other recent work arguments to support my interpretation that both constant capital and variable capital are determined in the same way and that both are taken as given as the two components of the money capital (M) that purchase means of production and labor-power in the first phase of the circulation of capital.  These arguments are:  (1) the general formula for capital which begins with M and which therefore suggests that the starting point of Marx’s theory of capital is this initial money capital; (2) the logical structure of Parts 1, 2, and 3 of Volume 1 of Capital, according to which the analysis of money and circulation in Parts 1 and 2 provide the logical presuppositions for Marx’s theory of surplus-value in Part 3 and beyond; (3) the methodological principle of historical specificity, according to which the key concepts of a theory of capitalism should refer to its historically specific features (e.g. money, capital, etc.) and not to the general features that capitalism shares with all modes of production (e.g.  means of production); (4) the many passages throughout the various drafts of Capital that refer to the initial money capital (M) in the circulation of capital as “given”, “presupposed”, etc..
I would appreciate it very much if the proponents of the “new solution” would respond to these specific arguments and show how they are wrong, or perhaps lead to further difficulties.  Because if these arguments are correct, then the “new solution” remains inconsistent and has not gone far enough in breaking away from the dominant neo-Ricardian interpretation.
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ENDNOTES