81Iber. hist. econ. thought. 9(2) 2022: 81-94 A model of values and prices based on a solution to the transformation problem and the redefinition of key categories of the Marxian labor theory of value Marcelo Andrés Verbeke1 Recibido: 26/04/2022 / Aceptado: 30/08/2022 Abstract. This article presents a comprehensive values and prices formation model based on Marx’s (1992, 1993) labor theory of value within a Temporal Single-System Interpretation (TSSI) framework. This model bases on a new interpretation of the Marxian Fundamental Theorem (FMT) and the Monetary Expression of Labor Time (MELT). If the modification in the dialectical sequence of the formation of the categories and the introduction of the dual determination of socially necessary labor time are accepted, the transformation problem encounters solution in the interpretation of Carchedi and de Haan (1996). Likewise, contemporary approaches reveal the need for a redefinition of key categories of the Marxist labor theory of value to develop a logically coherent model. Thus, the proposed model includes the dimension of the realization problem that commodities face in the market and introduce analytical categories for both production and realization periods. Finally, value category is redefined. Keywords: Karl Marx; labor theory of value; transformation problem of values into prices; realization problem; category; exploitation. JEL classification: B14, B24, B51 [es] Un modelo de valores y precios basado en una solución al problema de la transformación y la redefinición de categorías clave de la teoría del valor trabajo marxista Resumen. Este artículo presenta un modelo integral de formación de valores y precios basado en la teoría del valor trabajo de Marx (1992, 1993) dentro de un marco de la Interpretación Temporal de Sistema Único (TSSI). Este modelo se basa en una nueva interpretación del Teorema Fundamental Marxiano (TFM) y de la Expresión Monetaria del Tiempo de Trabajo (MELT). El problema de la transformación encuentra una solución en la interpretación de Carchedi y de Haan (1996) al aceptarse una modificación en la secuencia dialéctica de la formación de las categorías e introducirse la determinación dual del tiempo de trabajo socialmente necesario. Del mismo modo, enfoques contemporáneos revelan la necesidad de una redefinición de categorías clave de la teoría del valor trabajo marxista para desarrollar un modelo lógicamente coherente. Así, el modelo propuesto incluye la dimensión del problema de realización que enfrentan las mercancías en el mercado e introduce categorías analíticas para los períodos de producción y realización. Finalmente, se redefine la categoría valor. Términos clave: Carlos Marx; teoría del valor trabajo; problema de la transformación de valores a precios; problema de la realización; categoría; explotación. [pt] Um modelo de valores e preços baseado na solução do problema da transformação e na redefinição de categorias-chave da teoria marxista do valor-trabalho Resumo. Este artigo apresenta um modelo abrangente de valor e formação de preços baseado na teoria do valor-trabalho de Marx (1992, 1993) dentro de uma estrutura da Interpretação de Sistema Único Temporal (TSSI). Este modelo é baseado em uma nova interpretação do Teorema Fundamental Marxiano (TFM) e da Expressão Monetária do Tempo de Trabalho (MELT). O problema da transformação encontra solução na interpretação de Carchedi e de Haan (1996) ao aceitar uma modificação na sequência dialética da formação das categorias e introduzir a dupla determinação do tempo de trabalho socialmente necessário. Da mesma forma, as abordagens contemporâneas revelam a necessidade de uma redefinição das categorias-chave da teoria marxista do valor-trabalho, a fim de desenvolver um modelo logicamente coerente. Assim, o modelo proposto contempla a dimensão do problema de realização enfrentado pela mercadoria no mercado e introduz categorias analíticas para os períodos de produção e realização. Finalmente, a categoria de valor é redefinida. Palavras-chave: Carlos Marx; teoria do valor trabalho; problema da transformação de valores em preços; problema de realização; categoria; exploração. 1 CITECDE, Instituto de Estudios en Ciencia, Tecnología, Cultura y Desarrollo, Universidad Nacional de Río Negro. marceverbeke@gmail.com https://orcid.org/0000-0001-7244-1989 ARTÍCULOS Iberian Journal of the History of Economic Thought ISSN-e: 2386-5768 https://dx.doi.org/10.5209/ijhe.81690 mailto:marceverbeke%40gmail.com?subject= https://orcid.org/0000-0001-7244-1989 82 verbeke, m. iber. hist. econ. thought. 9(2) 2022: 81-94 It would be a mistake to base the whole analysis on textual evidence only, if one cannot provide some independent justification, either theoretical or empir- ical (Basu, 2021, p. 337) 1. Theoretical framework In the disciplinary field of economic science, the labor theory of value is the only objective theory providing a conceptual framework that overcomes the problem of circularity (Astarita, 2004). However, within studies of the history of economic thought, the labor theory of val- ue continues to be subject of controversy given Marx’s unfinished work, Das Kapital, and especially due to the inner complexity of exchange relations, it aims to ex- plain. Over time, several volumes have been written about what Marx “really meant”, being Moseley’s (2016) compendium the most recent example of exege- sis. Instead of presenting an exegetical study, this article seeks to integrate heterogeneous contributions2. Hence, citations of Marx’s work have been reduced to a mini- mum. Furthermore, one of the most controversial issues in the history of economic thought is the so-called trans- formation of values into prices of production. Its origins go back to the writings of Ricardo (2004) who tried to explain the long-run relationships between labor values, natural prices and average profits. To do this, Ricardo tried to reconcile the law of value with the law of equal- ization of profits, the so-called transformation problem. Ricardo (2004) argued that, in general, the prices of pro- duction deviate from the labor values, but still values can approximate the behavior of the prices of produc- tion. However, Ricardo could not explain certain issues 2 The author is aware of contemporary debates concerning Marxist labor theory of value (including among others: Potts and Kliman (2015) simultaneist-temporalist debate compendium, Mohun and Veneziani (2017) axiomatic review and Kliman and Moseley sev- eral comments entries (between 2016-2019) available on http:// www.marxisthumanistinitiative.org/ [accessed: 19 August 2022]). In regard, debates are fruitful if they push arguments to demonstrate inner coherence. Nonetheless, instead of clarification some debates may seed confusion and misunderstanding. Precisely, when argu- mentation becomes a “science-disguised-weapon” to attack other contributors, nothing good can come out of it. Sadly, contemporary Marxism is plagued of such “argumentation method”. This bias led to call into question the assumption of positive prices in a capitalist economy (for Mohun and Veneziani’s absurd criticisms and Freeman and Kliman’s reply see Potts and Kliman (2015: chapters VII and VIII). Instead of looking for agreement points, prevails (unfounded) disagreement, which leads to “branch” Marxism and generate tons of approaches. While it is not a novelty, it does not mean it would not need to change. This article comprises a humble attempt towards integration. regarding categories definitions (Marx, 1992). Ricardo even doubted about the one and only value-creating sub- stance (Shaikh, 2007). Under this context, Marx inherit- ed the transformation problem. Nonetheless, before Marx (1992, 1993) writings the problem was not clearly defined. Then, applying a rigorous method, Marx man- aged to expose it clearly and give it intensive treatment. However, Marx did not present a definitive solution but only a partial one. Furthermore, the way the solution was presented, and the unfinished nature of Marx’s work allowed for the most diverse interpretations. Let us now examine the most relevant interpretations. Based on Ver- beke (2019), it has been grouped the inquiries that deal with the transformation problem3 in two great interpre- tative currents. On the one hand, traditional interpreta- tions hold that in three volumes of Das Kapital, the dia- lectical process followed by elementary categories is not enough to explain market prices formation. However, as concrete phenomenal determination, market prices would be explained indirectly through prices of produc- tion, reminding the latter are governed by values (Bortk- iewicz, 1907; Moszkowska, 1929; Sweezy, 1942; Win- ternitz, 1948; Meek, 1956, 1975; Okishio; 1963; Rubin, 1973; Desai, 1974). On the other hand, non-traditional interpretations affirm Marx’s work shows enough indi- cations for developing the theory of prices which is nec- essary to explain the most concrete determinations, and so, market prices. Within this heterogeneous group there are diverse proposals, premises and conclusions (May, 1948; Morishima, 1973; Shaikh, 1977; Foley, 1982, 1986; Freeman, 1991, 1996; Carchedi, 1991, 1996; Mo- seley, 1993, 2016; Carchedi and de Haan, 1996; McGlone and Kliman, 1996, 2007; Kliman and McGlone, 1999). This group of authors share the neces- sity for a reinterpretation of some key categories origi- nally outlined by Marx. Parallel advances made by Morishima (1973) and Shaikh (1977) established prece- dent for linking values and prices in temporal frame- works. Additionally, Shaikh’s (1977) treatment on the conversion measure between labor time units and mon- etary units led to what Foley (1982, 1986), Lipietz (1982) and Duménil (1984) developed and named as Monetary Expression of Labor Time (MELT)4. The founders of the New Interpretation (Foley, 1982; Lipie- tz, 1982; Duménil, 1984) and its contemporary expo- nents (Mohun and Veneziani, 2017; Yoshihara, 2017; Basu, 2021) point out that NI has three differences from previous solutions to the transformation problem. First, the solution is based on the net product and not the gross 3 Exclusively those inquiries from the Marxist labor theory of value. 4 In Foley’s (1986) work, the MELT is called the Monetary Expression of Value (MEV). Sumario. 1. Theoretical framework. 2. The model. 2.1. Socially necessary labor time. 2.2. Transformation of values into prices. 2.3. Social confirmation and the realization problem. 2.4. Exploitation, surplus value and profit. 2.5. Fundamental Marxian Theorem. 2.6. Cost price and capital destruction. 3. Concluding remarks. References. Cómo citar: Verbeke, M. (2022). A model of values and prices based on a solution to the transformation problem and the redefinition of key categories of the Marxian labor theory of value, en Iberian Journal of the History of Economic Thought 9(2), 81-94. http://www.marxisthumanistinitiative.org/ http://www.marxisthumanistinitiative.org/ 83Verbeke, M. Iber. hist. econ. thought. 9(2) 2022: 81-94 product. Second, there is a peculiar conception of the value of money (and the MELT) based on the net prod- uct. Third, there is a new definition of the value of labor power. Beyond agreeing or not with the NI, it must be recognized these conceptual advances encouraged new contributions in several unexplored topics within Marx- ism (Basu, 2021). On the other hand, a contemporary “outlier” work deserves special attention: the non-deter- ministic approach of Farjoun and Machover (1983). Chaos theory is in the antipodes of determinism, where the transformation debate sustains. Nevertheless, this approach aims to reveal background dynamics. These authors emphasize the degree of complexity of val- ue-price formation system in a capitalist economy and criticizes the uniform rate of profit and thus the forma- tion of the prices of production. Farjoun and Machover’s approach serves to remember market’s changing and anarchic nature, and to note the difficulty of reducing systemic inherent complexities (Verbeke, 2019). In re- gard, the prevailing context establishes the conditions for commodities realization. To what extent this context is auspicious or inconvenient depends on market vicissi- tudes (Marx, 1993). Again, among deterministic ap- proaches, Freeman (1991), Carchedi (1991), Freeman and Carchedi (1996), Kliman and McGlone (1999) and Kliman (2007) offer decisive contributions for arising the Temporal Single-System Interpretation (TSSI). This approach presents a common structure that establishes a single system for values and prices as well as a temporal or sequential order of presentation of Marxian catego- ries. Furthermore, these authors say capital inputs, namely, the cost price components, may differ between the production and circulation processes. Another rele- vant contribution comes from the so-called Macro-Mon- etary approach developed by Moseley (1993, 2016). In regard, Moseley (2016) offers an alternative reading of Marx’s writings given they have been commonly misin- terpreted5. Thus, Moseley proposes to solve the transfor- mation problem setting a value-price system based on the circuit of money capital. The Macro-Monetary ap- proach argues that the capitalist system operates on money, that is, Marxian categories should focus on mon- ey relations. Finally, among non-traditional interpreta- tion proposals, Carchedi and de Haan (1996) stands out for its original approach to the transformation problem focusing on the process of market prices formation6. Within a TSSI framework, Carchedi and de Haan’s (1996) proposal contains two implicit premises that con- stitutes fundamental pillars in their model. The first one refers to the change of the dialectical sequence in the determination of Marxian categories. According to Marx, the dialectical process of elementary categories is as follows: value, direct price, price of production and market price. Meanwhile, for Carchedi and de Haan, these categories follow a different dialectical path: val- 5 TSSI and Macro-Monetary approaches point out Marx did not make mistakes, but Das Kapital has been misinterpreted. 6 Surprisingly, the TSSI approach of Carchedi and de Haan (1996) has been excluded from most recent reviews on the transformation prob- lem like Moseley (2016), Mohun and Veneziani (2017) and Basu (2021). ue, direct price, market price and price of production. According to Carchedi and de Haan (1996), the transfor- mation process operates from direct prices to market prices, and once reached the market prices from these to production prices. Therefore, to know the market prices it is not necessary to establish the production prices first. The second premise lies on a new interpretation of So- cially Necessary Labor Time (SNLT). Following Carchedi and de Haan, commodity comprises SNLT es- tablished in two periods. Both production and realiza- tion conditions set SNLT. Initially, for the individual producer, commodity acquires potential value in corre- spondence to individual expended labor time. However, there is no socially labor time involved. Then, SNLT find its first social determination and tentative approxi- mation to actual values once modal production condi- tions set market values. Thus, Carchedi and de Haan implicitly assume individual producer is the modal pro- ducer so (individual) potential values are (social) market values. Hence, individual labor time is equal to labor time given by the modal production conditions. Finally, SNLT find its second social determination and definitive approximation to actual values once realization condi- tions set realized values. Once commodity sells, it ac- quires realized value given by validated labor time. 2. The model The proposed system of equations is composed of var- iables belonging to the periods of production and reali- zation7. The potential, market and realized features obey to the specific instance commodity goes through. Poten- tial feature refers to an individual category while both market and realized features refer to social categories. By introducing the novelty of the new determination in- stance, the traditional system of equations has seen mul- tiplied its number of variables. Additionally, new cate- gories related to capital losses arise: loss and loss rate. 2.1. Socially necessary labor time Dual interaction between production and circulation processes determines labor time. Firstly, the Abstract, Social and Expectedly Necessary Labor Time (ASEN- LT), dictated by modal production conditions configures the first social determination (Astarita, 2004) and ten- tative approximation to actual values. In other words, it constitutes the “supply side” labor time8. This first so- 7 Before going any further, let us clear some notions. First, models are useful abstractions developed to explain a fraction of reality. Models base on coherent theoretical frameworks, general rules, and categor- ical relations. Hence, the proposed model is like any other. Second, those readers who connect the term model to complex mathematical relations and sophisticated equations will be disappointed. This ar- ticle aims to define and redefine categories focusing on theoretical aspects rather than mathematical formalization. Accordingly, the im- portance of the model does not rely on numerical results but focus on establishing the relations within the categories of the labor theory of value to understand exchange relations under capitalism. 8 Modal production conditions set abstract, social, and expectedly nec- essary labor time, where the unknown to elucidate under realization is its necessary feature, not its social or abstract feature. 84 verbeke, m. iber. hist. econ. thought. 9(2) 2022: 81-94 cial determination of necessary labor time results from labor time expended by most diffused and/or influenc- er technology across the sector (i.e., modal producers’ technology). Secondly, the Abstract, Social and Actually Necessary Labor Time (ASANLT), determined by reali- zation conditions, constitutes the second social determi- nation (Astarita, 2004) and definitive approximation to actual values. In other terms, it constitutes the “demand side” labor time. This second social determination of necessary labor time results from labor time set by com- modity’s realization9. The coefficient l indicates the re- lationship between the ASANLT and the ASENLT, and it measures how much labor time of the modal produc- tion conditions validates under realization conditions (ASANLT/ASENLT). The labor time incorporated into the commodity during an individual production process measures as individual value . In money terms, the form of expression of individual value is the potential value . Following Shaikh’s (1977) transformation procedure let us assume potential value manifests itself as direct price of the individual value, i.e., potential value expresses itself as price directly proportional to individual value. Then, at the end of every individual production process, commodity comprises potential value. Nonetheless, commodity still must face dialecti- cal negations through both social determinations. Thus, modal production conditions arise market value . Hence, to determine productivity levels, it seems neces- sary to verify the relation between (individual) potential value and (social) market value10. In other terms, it is relevant to identify how much of expended labor time is expected to realize under normal exchange conditions, as producers exactly satisfy social need (Rubin, 1973). Next step consists in the realization of the commodity in the market. Society determines the realized value . Thus, through the dual determination of labor time, re- alized values emerges and commodity gives its critical leap (Marx, 1992). Once commodity is produced its in- dividual labor time is ready to go through two instances of social confirmation (Astarita, 2004). In first instance, the individual labor time faces the social labor time of the production conditions, that is, it faces the first deter- mination of the SNLT (the ASENLT). Individual pro- ducers compare their own levels of productivity against the modal producers’ respective levels of productivity. Because of this comparison, the innovator, modal or backward producer emerges. In second instance, indi- vidual labor time faces social labor time of the realiza- tion conditions, that is, it faces the second determination of the SNLT (the ASANLT). However, this comparison is not direct but through the social labor time of the pro- duction conditions. Producers compare (social) expect- ed labor time with (social) realized labor time. Then, through the sale of the commodity, necessary labor time establishes as realized value and realized surplus value arise. From such comparison arises one of the follow- ing realization scenarios: i) superprofit, ii) expected, 9 Dussel (1985, p. 191) affirms realization is the act by which some- thing reaches its fulfillment. 10 In order to develop social categories individual categories are strictly necessaries (Umpiérrez, 2020). or iii) realization problem. Allowing the subsistence of backward producers, those relatively unproductive pro- ducers who use backward technology (Marx, 1993, p. 279), favorable realization conditions may occur. On the contrary, preventing innovator producers from ob- taining extraordinary profits, unfavorable realization conditions may occur. In fact, realization conditions can turn so adverse null profit would not allow distinguish- ing between the innovator, modal or backward producer. This possibility is absent in Marx’ original scheme. In Das Kapital, Marx assumes supply conditions are cor- respond to demand conditions (Rubin, 1973, p. 177). As a result, there is absence of the realization problem. Ad- ditionally, this assumption leads to accept the conditions of production univocally determine the necessary labor time. That is, Marx assumes necessary labor time equals the labor time of modal producers, the labor time of the “supply side”. As mentioned, it constitutes the first step towards the configuration of necessary labor time. This is the labor time from realization conditions, the labor time of the “demand side”. In this sense, Carchedi and de Haan’s (1996) approach introduces demand con- ditions as variable factor, for which a new instance of social confirmation of labor time emerges. In regard, a higher degree of analytical complexity achieves. Then, dual determination of labor time establishes sequential or temporal categories according to the periods of pro- duction and circulation. Here, potential value, market value and realized value define. Individual producer’s labor time sets potential value. Modal producers’ labor time sets market value. Finally, through labor time val- idation, realization conditions establish realized value. Let us examine each of value components. Potential value composes of potential constant capital , potential variable capital , and potential surplus value . Market value composes of market con- stant capital , market variable capital , and market surplus value . Realized value composes of realized constant capital , realized variable cap- ital , and realized surplus value . (1) (2) (3) 2.2. Transformation of values into prices Let us examine the process of transformation of values into prices. The first conversion of values into direct prices operates through the MELT. The value of mon- ey and the MELT are the two sides of the same coin and express the relation between units of labor time and monetary units. Properly, Foley (1986, p. 15) defines the MELT as “how much value in monetary units an hour of labor time creates”. This definition is appropriate and fits into the proposed model. The MELT Foley (1986) defines is the one market establishes once price arises, i.e., once demand validates certain amount of labor time as necessary. This MELT links individual value and 85Verbeke, M. Iber. hist. econ. thought. 9(2) 2022: 81-94 realized value. Hence, if it refers to the same concept it could be called “actual MELT” or just MELT. This MELT is unique and bases upon the ASANLT. In oth- er words, the “actual MELT” is the one finally counts because it results from realization conditions. Nonethe- less, before the commodity arrives to the market every producer defines for the latter a tentative price. In fact, every commodity needs to carry a (tentative) price on all over the road until realization. Moreover, the produc- er pursuits the validation of labor time expended in the individual production process. Consequently, every in- dividual production process comprises a conversion of (potentially necessary) labor time into (potential) mon- etary units. There must exist some monetary expression for individual value before commodity faces realization conditions (Dussel, 1985, p.204). Through the conver- sion of value into (potential) monetary units, individual value links potential value. The conversion factor may be called as “tentative MELT” or other way, as long its concept refers to tentative (potential), not definitive (realized), units. The “tentative MELT” bases upon po- tentially necessary labor time. The “tentative MELT” is merely an individual approximation to the “actu- al MELT”, and it may not coincide at all. Divergence grows as (individual) potential value withdraws from (social) realized value. In the end, convergence between both MELTs depends upon individual production con- ditions are correspond to social production conditions and social need11. The “tentative MELT” is useful for explaining tentative prices that arises between periods of production and realization12. Paradoxically, once real- ization occurs tentative MELT becomes anecdotic, but it is important given it comprises the first conversion from values into direct prices. As Shaikh (1977) holds, the transformation of values into direct prices13 involves the first step in the process of transformation of values into prices of production. Through the tentative MELT, indi- vidual values convert into potential values and manifest as direct prices. This process transforms labor time units into (potential) monetary units. Subsequent categories express on money. Individual value corresponds to the category developed by Marx (1992, pp. 434-436; 1993, pp. 279-285) and its magnitude is measured by the labor time expended during the individual production pro- cess. Here, seems appropriate to clarify methodological issues regarding the transformation process. Firstly, it is clear that value cannot be an asocial category (Rubin, 1973). Value definition relies on the interaction between producers and buyers. Both categories individual value and potential value acquire sense only when they com- pare to social categories, that is, when they compare against the market value or realized value. Once again, dialectics involves the interaction. If individual value 11 Let us take the case of the modal producer. If realization conditions are equal to modal production conditions, then tentative and actual MELTs are equal. 12 Contemporary approaches skip the “between periods” time-lapse. This is the sub-period when the produced commodity is awaiting for realization (Dussel, 1985, pp. 203-4), and where tentative MELT exists. 13 It is worth noting Shaikh’s values are individual values as well as direct prices are potential values here. and private labor separate from market validation, they become meaningless categories. Social value and social labor must arise as their respective and necessaries ne- gations. In other words, individual production finds two instances of negation in the (modal) production condi- tions and in the realization conditions (Astarita, 2004). Consequently, if individual value is far from realization and until it does not pass-through social determinations not a single shadow of value creates. Individual labor time must face both instances of social confirmation. Secondly, according to Cámara Izquierdo (2003), value has three core characteristics: substance, magnitude and form. The latter establishes the form of appearance of value is price. Therefore, the form of manifestation of value as monetary price necessarily occurs in the mar- ket (Shaikh, 2007). It explains why prices cannot appear out of nowhere, but they are constituted by values. As Shaikh (1977) clarifies, the transformation process does not start from values but actually goes from some prices to other prices. Consequently, it should not be correct to frame the matter as the “transformation of values into prices of production”, because values always appear in the form of prices. On the contrary, the necessary form of manifestation could be confused with some particular conversion of prices into prices (Moseley, 2016). Fol- lowing Carchedi and de Haan (1996), the second step in the process of transformation of values into prices of production is the transformation of direct prices into market prices. Conversion operates through the realiza- tion of commodities. Thus, demand conditions establish the ASANLT and market prices arise, as commodities sell. The third and last step in the process of transforma- tion of values into prices of production is the transfor- mation of market prices into prices of production. Thus, once market prices define, the prices of production can calculate. Prices of production establish as tendential prices (Carchedi, 1996; Carchedi and de Haan, 1996). This manner concludes the process of transforming val- ues into prices of production through the stages of for- mation, conversion, and validation of potential values into realized values to, finally, estimate prices of produc- tion from market prices. Clearly, under this conceptual framework, market prices are under the spotlight. When the first metamorphosis of the commodity is introduced, Marx says commodity separates from money by the special leap called the “commodity’s salto mor- tale” (Marx, 1992, p.200). However, even though Marx- ist theory of labor value emphasizes the unpredictability feature of market realization and explains the roots of crisis under capitalism, there is a void in model formu- lation and in the explanation of market prices formation (Freeman and Carchedi, 1996). 2.3. Social confirmation and the realization problem As seen above, both instances of social confirmation in- teract so market prices appear. The first instance of so- cial confirmation occurs as commodity faces modal pro- duction conditions. Let us assume there are three pro- ducers each of them with different levels of productivity, namely, the innovator, the modal, and the backward pro- 86 verbeke, m. iber. hist. econ. thought. 9(2) 2022: 81-94 ducer. Thus, the innovator expends less labor time than the one given by market value , the modal producer employs the exact labor time according to the market value , and the backward producer takes more labor time than expected . Un- der the assumption of competition, none of three indi- vidual producers can set price above market value. Still producers could reduce the price of their commodities14. In fact, despite productivity differences producers seek to realize their commodities at the market value (Rubin, 1973, pp. 188-9). In the case of the innovator producer, the labor time expended by innovator production pro- cess is below the ASENLT. Here, potential cost price is below market cost price , so potential val- ue is below market value. At respect, the innovator could set a lower price. However, if technology does not dif- fuse, there is no need to do it. Consequently, in the short term, if the innovator technology does not generalize, the innovator can appropriate an extraordinary surplus value or superprofit. The difference between market cost price and potential cost price emerges extraordinary sur- plus value. At this level of abstraction, there are neither changes in social need nor commodities production var- iations15. Accordingly, if innovator’s cost price is below mar- ket cost price , there is only one way to satisfy potential value equals market value , that is, in presence of extraordinary surplus value . In the case of modal producer, the labor time expended by the individual producer equals the ASENLT. Potential cost price is equal to market cost price ; potential surplus value equals mar- ket surplus value , so that potential value and market value are identical . In the case of the backward producer, the labor time expended by the individual producer is above the ASENLT. Potential cost price is above market cost price and potential value is above market value . Nevertheless, no producer has enough power to increase price, which is why potential value can be lower but not higher than market value. In fact, here market value op- erates as social limit to validate individual potential val- ue. Therefore, as same as the innovator, the backward producer takes market value as the top limit to set poten- tial value. In relation to potential surplus value, the backward producer starts an individual production pro- cess where potential surplus value is equal to, higher or lower than market surplus value. The only condition to define the backward producer is that potential cost price is above market cost price. As mentioned for the innova- tor’s case, the realization clarifies the scheme by estab- lishing the quantitative relation. In summary, this is merely the first instance of social confirmation. Conse- quently, given the sale of the commodity is still pending, all conclusions must be considered as partials. The sec- 14 Here seems more appropriate using product instead of commodity category because the latter implies a specific type of social context, and as long as the market validation is still pending, the individual producer would not have produced a commodity yet (Marx, 1992). Nonetheless, adding that distinction along the text could generate confusion. 15 Supply and demand are customary (Marx, 1993, p. 286). ond instance of social confirmation presents once com- modity realizes. Realization depends on the vicissitudes of the market. Commodity acquires social confirmation as society establishes its necessity as use value and value by validating certain quantity of abstract, social, and necessary labor time. According to Marx analysis, pro- ducers exactly satisfy social need. Given this assump- tion, average production conditions determine univocal- ly the SNLT16. This assumption implies to consider only one possibility to obtain superprofit as well as only one possibility of potential value non-validation, that is, in the case of the backward producer. Under this point of view, variations on production conditions focus exclu- sively on costs structures. Accordingly, once modal con- ditions set price, the capitalist appropriates equal to, more or less than expected profit. However, as produc- tion conditions change costs, market vicissitudes lead to change prices. At respect, despite absence of deep in- quiry, in chapter X of volume III of Das Kapital, Marx (1993) analyze realization conditions and particularly explains the realization problem. Precisely, Marx (1993, p. 297, emphasis added) affirms “the problem therefore is to sell commodities, and this is a minimum require- ment, at prices which deliver the average profit”. None- theless, even accepting Marx did study realization con- ditions, as shows Rosdolski (1977), there is a void in explanation of realization conditions under the labor theory of value. This bias obeys to different reasons. Roll (1973) affirms the formation of ideas and economic concepts directly correlates to the degree of complexity of societies. Accordingly, society’s advances should en- courage new theoretical advances to explain inner com- plexities. In sum, economic categories need to find their own place within some coherent framework. Hence, as labor theory of value is the only objective theory who skips the problem of circularity it offers a suitable frame- work for new theoretical advances. Then, let us now mention some studies on realization. On the one side, Rosdolski (1977) studies the realization problem from Marx’s reproduction schemes and emphasizes the ele- ments of capital production that condition and limit val- orization. Thus, the purchasing power and the type of commodities consumed by capitalist and workers is the fundamental piece to sustain the “valorization equilibri- um”. Likewise, the contradictions that lead to the break- down of equilibrium are found in the capital-labor rela- tionship itself. On the other side, Dussel (1985) focus on devaluation process as the valorization process oppo- site. Capital is condemn to a “death principle” of contin- uous metamorphosis in order to increase itself (Dussel, 1985, p. 192). In doing so, disequilibrium and crisis ap- pear as natural movements. Now, both contributions are compatible with the proposed model. To prove it, let us introduce changes in some Marxian categories, by ac- cepting changes in SNLT. Properly, in the situation of “shortage” when the mass of products is not enough to satisfy social need, the market validates an ASANLT 16 Marx (1993, p. 283) explains in which specific case is correct assum- ing the average is the best approximation to socially necessary labor time. Instead of the average, for the proposed model modal condi- tions are chosen following Carchedi (1991) and Astarita (2015). 87Verbeke, M. Iber. hist. econ. thought. 9(2) 2022: 81-94 above the ASENLT. Commodities sell above the market value and social need absorbs smaller than expected quantities (Rubin, 1973; Shaikh, 2007). On the contrary, in the situation of “abundance” when the mass of prod- ucts exceeds the social need, the market validates an ASANLT below the ASENLT. Commodities sell below the market value and society absorbs larger than expect- ed quantities (Rubin, 1973; Shaikh, 2007). Additionally, in the latter situation if total realization problem arises, there would be no realization, as the ASANLT would take null expression. Consequently, since realization conditions are unknown, there are three alternatives real- ization scenarios. First, under the superprofit realization scenario, the ASANLT is above the ASENLT, realized value is above market value , and realized surplus value is above market surplus value . Second, under the expected realization scenario, the labor time of modal producers, the ASENLT, and the la- bor time of realization conditions, the ASANLT, are identical, realized value is equal to market value , and realized surplus value equals market surplus value . Third, under the realization problem scenario, the ASANLT is below the ASENLT, realized value is below market value , and realized surplus value is below market surplus value . Although the superprofit realization sce- nario in terms of extraction of extraordinary surplus val- ue has been extensively studied (Sweezy, 1942; Gill, 2002; Shaikh, 2007), still the introduction of new cate- gories leads to examine new questions. One situation that requires special analysis is the case of the realiza- tion problem. This situation occurs when the commodity realizes at a lower level than expected value. There arise two alternatives: the realization problem can be partial or total. The partial realization problem arises when the commodity realizes below its market value, so it may cover expected production costs completely or partially. In this case, realized surplus value is below market sur- plus value and, even, it might be null. Anyhow, under this circumstance, commodity sells. Instead, the total realization problem occurs when commodity does not realize at all, so that expected production costs are not even partially covered. In this case, realized value and realized surplus value are both null. In regard, under the circumstance where potential value cannot change its potential feature, seems interesting to wonder about what defines the category of value. If value cannot ma- terialize at any price, is it there value? Otherwise, given its natural feature, is potential value a value incomplete category and merely configures one precondition for re- alization? In other sense, does the absence of realization destroy value? Eventually, does value wrongly identify with another yet undefined category? Indeed, last ques- tion summarizes the previous ones. If the answer is pos- itive, it should be necessary to redefine the category of value as well as identifying the undefined category. For now, potential value occupies the undefined category’s place. Regardless of proper conceptualization, the reali- zation problem surges as real possibility in the process of capital circulation and specifically as a threat for sur- plus value realization. In fact, surplus value realization is decisive for the accumulation process as capitalists seek to realize the highest rate of surplus value (Shaikh, 2007). Accordingly, the rate of surplus value follows three determination states. The individual production process arises potential rate of surplus value . However, they must face modal production conditions, which arises market rate of surplus value . Finally, the realized rate of surplus value shows the pro- portion of surplus value that capitalists validate. (4) (5) (6) 2.4. Exploitation, surplus value and profit Commonly, in Marxian analysis both categories exploita- tion and surplus value so linked as if they were synonyms. Particularly, the rate of exploitation and the rate of surplus value are often referred to the same concept by most scho- lars (Sweezy, 1942; Desai, 1974; Gill, 2002; Astarita, 2004; Shaikh, 2007; Basu, 2021). Nevertheless, under the proposed model both categories comprise different defini- tions. Those differences rely on the concept of surplus labor and, consequently, they are not merely semantics. Let us examine the interaction between potential rate of surplus value and realized rate of surplus value, which may shed light on exploitation and surplus value direct and indirect links. To doing so it is necessary to analyze the scenarios where: i) realized rate of surplus value is positive and it is below potential rate of surplus value and, ii) realized rate of surplus value equals zero. These scena- rios arise some trigger questions. If realized rate of sur- plus value is below potential rate of surplus value, was exploitation as intense as expected? In that case, should it be correct to talk about “underexploitation”? Moreover, if realized rate of surplus value equals zero, should still be correct to speak of exploitation? Understanding the con- cept of exploitation transcends its traditionally-assigned- quantitative-character is the first step to answer these questions. Respectively, it becomes fundamental to dis- tinguish between concepts of exploitation and surplus va- lue. The concept of exploitation exceeds the level of su- perficial relations of exchange. As Desai (1974) affirms, exchange obscures its underlying relations. Hence, the presence and degree of intensity of exploitation should not depend on the magnitude of realized rate of surplus value, which is unknown until realization happens. Con- versely, exploitation must be defined for the specific pe- riod where it takes place, that is, during the individual production process. Once exploitation consummates, the commodity is ready for sale17. In this case, the capitalist 17 Under capitalism, exploitation represents sine qua non condition for the existence of the commodity. 88 verbeke, m. iber. hist. econ. thought. 9(2) 2022: 81-94 obtains equal to, greater than, or less than expected profit, or even null profit, depending on realization conditions. Thus, realization shows to what extent exploitation provi- des profit to the capitalist. For this reason, potential rate of surplus value, corresponding to individual production process, expresses the magnitude and intensity of exploi- tation. Otherwise, it could be wrongly concluded that the capitalist has not exploited the worker, or not as much as expected, because exploitation would not provide expec- ted profit. In this line, if the capitalist does not obtain any surplus value, some could rise the argument of “inverse exploitation”, that is, exploitation from the worker towards the capitalist. Under this situation, the worker ob- tains a monetary income in exchange for the use of labor power while the capitalist would either barely cover the production costs or, even, face capital losses. In any case, the capitalist would not obtain surplus value. However, adopting this type of reasoning would lead to a flagrant error. Conversely, elementary premises of the labor theory of value stands the production of commodities for the purpose of profit necessarily implies exploitation (Okis- hio, 1963; Morishima, 1973; Shaikh, 1977). To clarify these notions, it is sufficient using the concept of surplus labor. In every production process, the capitalist imposes on the worker a working day greater than necessary to recover the capital investment. The capitalist, even the most backward of all, seeks to validate surplus labor time. Precisely, here situates the source of exploitation. As other categories developed above, the surplus labor has different determination stages. It is either potential, ex- pected, or realized. Under the capitalist mode of produc- tion, every individual production process must comprise (potential) surplus labor as necessary condition for the existence of (positive) surplus value. During the indivi- dual production process, the worker produces more than necessary (Marx, 1992). Hence, (potential) surplus labor time materialize into potential surplus product, which the capitalist seeks to validate at the market surplus product level (set by modal production conditions). Realization conditions determines to what extent (potential) surplus product validates. Thus, surplus product indirectly reveals exploitation18. Which leads to an important conclusion. Exclusively surplus labor directly reveals exploitation (Meek, 1956, p. 96, n. 4). In money terms, surplus labor time is unpaid labor the capitalist appropriate and will try to validate. The worker is paid below money is expected to be obtained by commodity’s sale. Then, if the worker were paid the equivalent of the value of the commodity or, in a hypothetical and unreal case, above it, then, it would not be correct to speak of class exploitation, since there would be no surplus (labor, product and value) that the capitalist could (potentially) appropriate. Neverthe- less, these alternatives are not reproducible under capita- lism. In exchange for the use of labor power, the worker normally receives a fraction of the total amount that the capitalist expects to obtain. The capitalist has an incentive to invest only in productive processes of capital (Marx, 1992). Thus, the capitalist tries to appropriate the poten- 18 Surplus product scholars like Sraffians and neo-Ricardians do not focus on the difference between surplus product and surplus labor. tial surplus labor in the form of potential surplus product to validate it as realized surplus value. This shows the concept of exploitation goes deeper than the realization of surplus value. For instance, exploitation exists from the moment the capitalist extracts potential surplus labor. This act is possible due to alienation of the commodity (Dussel, 1985, p. 204). Then, to “confirm” and “verify” the degree and intensity of exploitation it is not correct to wait for realization occurs19. In fact, exploitation confirms and verifies in the production process, that is, in the pe- riod that places the protagonists in their role, the worker as exploited and the capitalist as exploiter (Shaikh, 2007). Once settle the difference between exploitation and sur- plus value, it is easier to explain superexploitation (ove- rexploitation) case. Marini (1973, pp. 38-42) affirms su- perexploitation bases on three mechanisms that combine themselves to capitalists obtain higher profits. These me- chanisms are: i) intensification of labor (relative surplus value); ii) extension of the working day (absolute surplus value) and iii) expropriation of part of the labor necessary for the suitable reproduction of the worker. In sum, supe- rexploitation corresponds to the situation where the labor power is paid below its value. Let us now fit superexploi- tation concept into the proposed model. When commodi- ty validates a rate of surplus value above expected rate, an extraordinary rate of surplus value verifies. Nonetheless, the extraordinary rate of surplus value does not imply that the worker has been super-exploited (overexploited), sin- ce there is no way to apply a sort or exploitation ex post. Properly, exploitation always and solely occurs during the production process and ends with it once the capitalist al- ready paid the worker for less than the equivalent of the value of product and has alienated the product of the worker’s effort. In the same way, if superexploitation oc- curs it solely happens during the production process and ends with it20. In doing so, focus should be over the indi- vidual production processes because they establish to what extent workers are exploited by mentioned mecha- nisms. It must be clear that both categories exploitation and superexploitation exclusively correspond to the pro- duction period. Then, once set realization conditions it should be wrong make conclusions about them21. Realiza- tion conditions establish to what extent exploitation (and if so superexploitation) provides profit to the capitalist. Then, extraordinary surplus value refers to the simple fact that the capitalist has underestimated the potential surplus value and/or the expected surplus value. In other words, the commodity realizes more profit than expected. It should be clear that the act of obtaining profit from the commodity belongs exclusively to the capitalist. The wor- ker does not participate on commodity’s realization. Once the production process has ended, exploitation has been 19 Precedent explanation will result obvious if we simply understand potential surplus value comes from potential surplus product, which itself comes from potential surplus labor. If so, it is easy to find the inner connection between surplus value and exploitation. 20 Superexploitation notes in the comparison between potential value composition and modal production conditions (i.e., modal producers establish average/modal exploitation conditions). 21 In the proposed model, wages are paid at the beginning of the pro- duction period. Thus, superexploitation defines independently from realization conditions. 89Verbeke, M. Iber. hist. econ. thought. 9(2) 2022: 81-94 consummated. Consequently, exploitation as well as su- perexploitation can yield or not profit (given proposed model does not guarantee profit appropriation ex ante). Precisely, realization cannot undo or change what pro- duction already did to the worker22. Production already established exploitation (and if so superexploitation) con- ditions. That is, realized surplus value rate cannot deter- mine the level of exploitation that the worker already su- ffered in a previous period. The worker is exploited (and if so superexploited), regardless the level of the rate of realized surplus value. The realization of the commodity establishes to what extent exploitation transforms into profit. To clarify, let us now analyze the forms of realiza- tion of profit through the rate of profit23. The potential rate of profit is the proportion of profit that emerges from the individual production process. The market rate of profit is the proportion of profit set by modal pro- duction conditions. The realized rate of profit is the proportion of profit validated. (7) (8) (9) The producer of commodities tries to obtain the po- tential rate of profit, which market rate of profit con- fronts and restricts. Likewise, realized rate of profit may differ from market rate of profit. Since realized surplus value depends on the conditions of realization, neces- sarily, a commodity will face one of the following profit realization scenarios. I. Extraordinary profit realization. Realized surplus value is above market surplus value , realized rate of profit is above market rate of profit , and realized rate of surplus value is above market rate of surplus value . II. Expected profit realization. Realized surplus value equals market surplus value , realized rate of profit equals market rate of profit , and realized rate of sur- plus value equals market rate of surplus value . III. Below expected profit realization. Realized sur- plus value is positive and is below market sur- plus value , realized rate of profit is below market rate of profit , and realized rate of surplus value is below market 22 In math terms, causality is unequivocal and does not admit reversi- bility. 23 The proposed model is not based on the uniform profit rate but on multiple profit rates. In other words, there is not necessarily a redis- tribution of surplus value among capitalists. Each individual capital- ist obtains profit according to the individual production conditions and the realization conditions. Competition between capitals implies there is no “average profit” assured for any capitalist, since the com- modity still must validate. rate of surplus value . Here, partial realization problem arises. IV. Null profit realization. Realized surplus value, realized rate of profit, and realized rate of surplus value are null . Here, either partial or total realization problem arises24. 2.5. Fundamental Marxian Theorem Along with exploitation definition, once set diverse real- ization profit scenarios; let us discuss the Fundamental Marxian Theorem (FMT). In short, the theorem states surplus value is the only source of profit (Okishio, 1963; Morishima, 1973). In other terms, all profit comes from surplus value, and surplus value directly links to labor power exploitation. In context, Okishio and Morishima belong to the current of thought known as Analytical Marxism which focuses on mathematical formulation and, particularly, seeks to achieve a synthesis between the labor theory of value and orthodox general equilibri- um economic theories such as Leontief or Von Neumann models (Zhang, 2019). For this reason, the FMT has been formulated within a matrix scheme with assump- tions that exceed the Marxist labor theory of value. In view of this, the theorem has received critiques from dif- ferent theoretical perspectives. On the one hand, criti- cisms from neo-Ricardian and Neoclassical scholar sought to delegitimize the theory of value through the arguments of inconsistency and redundancy (Verbeke, 2019). In this case, they try to prove that the theorem does not hold. On the other hand, from contemporary Marxist currents such as the NI and the TSSI, which seek the theoretical roots of the theorem to develop it entirely within a Marxist theoretical framework. In do- ing so, the theorem is disconnected from the conceptual framework of orthodox general equilibrium models due to the conceptual shortcomings of the latter (Rieu, 2009; Yoshihara, 2017). These scholars try to strengthen the theorem, so it holds as generally as possible. For in- stance, Rieu examines the original FMT, and the NI and TSSI proposals that seek to expand the FMT, and warns that “each interpretation proves the fundamental Marx- ian theorem in its own way” (Rieu, 2009, p. 216). In the original formulation of the theorem, Morishima confus- es the category of labor with labor power, uses nominal wages as numeraire, and assumes the theorem should work for the whole economy employing a widely-criti- cized uniform rate of profit (England, 1985; Yoshihara, 2017; Zhang, 2019; Basu, 2021). In general, Morishima disassociated the relational links between the social cat- egories developed by Marx and their mathematical func- tional relationships (England, 1985). Even more serious is Morishima’s misreading of the substance of value (Zhang, 2019, p. 290). Consequently, Morishima (1974, p. 73) went so far as to posit that the FMT can sustain 24 Under this scenario, the cost price presents three realization options. In the absence of profit, a commodity: i) sells at its market cost price, ii) sells below its market cost price or iii) does not sell (total realiza- tion problem). 90 verbeke, m. iber. hist. econ. thought. 9(2) 2022: 81-94 without the labor theory of value. Nonetheless, as Basu (2021, p. 320) points out, the FMT is very important since “it establishes the tight link between exploitation and profits...[and] it does establish an indissoluble, qual- itative link between the two: if there is no exploitation, there will be no profit”. In this regard, the FMT must be treated within the theoretical framework of the theory of value (Zhang, 2019, p. 288). Let us show the attempts to improve the original FMT. One of the founders of the NI, Lipietz (1982) says the FMT is expressed correctly although its greatest weakness is that it fails to fulfill the invariance postulates. In the same sense, Basu (2021) affirms the FMT only posit a qualitative link between values and prices. As an alternative, the NI proposes to establish an invariance postulate. However, any invari- ance postulate is arbitrarily chosen, and it only allows conclusions for the aggregate level. Moreover, for NI proposal it is not necessarily true that positive profits results of positive exploitation (Rieu, 2009), neither at the aggregate level nor at the individual level. Mean- while, in Kliman’s (2007) proposal the TSSI attempts to account for real, not nominal, profit. In doing so, TSSI adopts a controversial definition of inflation and real profit to validate the FMT at a lower (concrete) level of abstraction (Rieu, 2009, p. 221). Nonetheless, new methodological problems appear within this approach, like the requirement of decreasing MELT to validate the FMT. Finally, Veneziani and Yoshihara (2015) present the so-called Profit-Exploitation Correspondence Prin- ciple (PECP). Yoshihara (2017) shows similarities and differences between the PECP and FMT. While the FMT formulates for the economy as a whole (for the aggre- gate level), the PECP comprises a correspondence be- tween individual exploited workers and positive profits. However, the PECP has disadvantages compared to the FMT given the PECP admits exploitation “in an equilib- rium with zero total profit” (Yoshihara, 2017, p. 1439, emphasis added). Then, once examined these proposals, it is proper to establish the conditions to satisfy the FMT within the proposed model. Accordingly, the theorem has a necessary and a sufficient condition. The necessary condition states for there to be a positive rate of profit there must be a positive rate of surplus value (Okishio, 1963). The sufficient condition states a positive rate of surplus value is enough to attain a positive rate of profit (Morishima, 1973, p. 53). As production and realization periods analyze separately, the FMT must be reinter- preted under this analytical framework. Consequently, given the source of profit must be found in the produc- tion process (Shaikh, 2007), the (positive) rate of sur- plus value, a necessary condition for a positive rate of profit, must be represented by potential rate of surplus value. Hence, a positive (realized) rate of profit attains only with a positive (potential) rate of surplus value, that is, exclusively through the exploitation of labor power. Likewise, the other variable to prove the necessary con- dition of the theorem is realized rate of profit. Regarding to the sufficient condition, attaining a positive realized rate of profit requires a positive realized rate of surplus value. Hence, a positive (realized) rate of profit attains only with a positive (realized) rate of surplus value, that is, exclusively through the sale of the commodity at a price above production costs. As above, the other varia- ble to prove the sufficient condition of the theorem is realized rate of profit. Alternately, if potential rate of surplus value were employed, the FMT would guarantee ex ante surplus value realization, which is absurd. In this case, if realization problem arises so commodity does not validate profit, the FMT would not be satisfied. The PECP faces this issue since its sufficient condition is wrongly defined. So now, let us briefly review those dif- ficulties Kliman and Yoshihara founded. Both approach- es say the original FMT needs to be revised. On the one hand, TSSI affirms the necessity to apply the theorem to the concrete level. On the other hand, PECP focus on establishing individual links between exploited workers and positive profits. Then, both approaches find their own obstacles. However, these limitations do not apply for the proposed model. The definition of inflation and real profit as well as the coexistence of exploitation with zero profit are allowed and preserve internal coherence. There is no way to satisfy the sufficient condition of TFM other than by positive realized surplus value. Then, if we assume (positive) inflation the sufficient condition of FMT satisfies for the case of negative real profit (loss) given realized surplus value is zero. Moreover, if we as- sume there is exploitation (exploited workers) and zero profit realization, the sufficient condition of FMT satis- fies as only positive realized surplus value enables posi- tive profit realization25. These conclusions come from the definition of exploitation26. In regard, realized sur- plus value may be zero and coexist with positive ex- ploitation. Then, no one should be afraid to affirm that an individual production process that necessarily in- volves exploitation, can give zero profit or losses. It is a game rule in capitalism, for any capitalist there is no guaranteed profit (Farjoun and Machover, 1983). Hence, the models should not suppress the risk in- volved in investing capital. Then, it is important to un- derstand that realization conditions determines to what extent potential surplus value realizes and how it mate- rializes into profit (Okishio, 1963: 293). Thus, the nec- essary (10) and sufficient (11) conditions of the FMT formally define as27: (10) (11) To demonstrate the FMT, the relationship between rate of profit, rate of surplus value and the composition of capital presents next. 25 That is why Veneziani and Yoshihara (2015) do not find explanation for the inability of positive potential surplus value of transforming into positive realized surplus value. 26 The point is establishing a coherent definition of exploitation and its links between surplus value creation and surplus value realization. An interesting insight was left by Yoshihara (2017, p. 1441, empha- sis added): “these counterexamples should be viewed as representing the nonvalidity of the presumed definitions of exploitation”. 27 As presented in Morishima (1973), sufficient condition includes nec- essary condition. 91Verbeke, M. Iber. hist. econ. thought. 9(2) 2022: 81-94 (12) The realized composition of capital pre- sents as a fixed ratio (see infra). Thus, realized rate of profit variations exclusively depends on realized rate of surplus value. Consequently, as FMT states, all profit comes uniquely from surplus value. One final thing to say on FMT. In the proposed model, there is no uniform rate of profit but multiple rates of profit that do not ne- cessarily converge (Farjoun and Machover, 1983). Then, critics towards the average rate of profit on the FMT are inadequate here. 2.6. Cost price and capital destruction Hence, it remains to analyze the cost price alternatives. Potential cost price composes of potential con- stant capital and potential variable capital. Market cost price composes of market constant capital and market variable capital. Realized cost price com- poses of realized constant capital and realized variable capital. (13) (14) (15) Although they are subject of quantification as ag- glutinated mass of capital, once commodity enters the realization period, it is not possible to examine separate- ly the capital components of realized cost price. Under the traditional interpretation paradigm of Marxist labor theory of value, as long as realization problem is not in- troduced, it is assumed that potential cost price equals realized cost price, since commodity necessarily sells at a price above production costs, as Basu (2021, p. 309) claims. Then, under a simultaneous determination ap- proach, there is no way to explain the possibility of tem- poral divergence between prices of capital inputs. In re- ality, there is a temporal difference between the start of a production process and its completion, and this concrete process requires a more complex explanation (Freeman and Carchedi, 1996). As TTSI and Macro-Monetary approaches explains, the price of capital inputs, which composes the cost price, may differ between one pro- duction period to another. Potential constant capital may differ from realized constant capital as well as potential variable capital from realized variable capital. However, any eventual variation would not alter the cost of pro- duction ex post. Assuming realization occurs during the current period as capital investment in the previous one, there is no chance to apply some retrospective variation in cost price components. Realized constant capital and realized variable capital are social categories configured in the realization period, once established (and afford- ed) the individual cost of production (at the beginning of the production process). Hence, the composition of capital must be analyzed through potential cost price. Under money-capital circuit, commodities present uni- fied cost price components, that is, the total amount of capital becomes undifferentiated (Marx, 1993). Once production process has ended, commodity has homog- enized its inputs. Then, it is not possible to decompose and analyze capital inputs individually. Moreover, ana- lyzing cost price components under realization problem becomes complex since part or none of invested capital is recovered. For this reason, the realized cost price re- sults cryptic. Despite this difficulty, the metamorphosis of the commodity sheds light on the process behind the formation of categories. In the beginning of the produc- tion process, money capital invests for purchasing inputs, namely, the labor power and the means of pro- duction, represented by . As well as production pro- cess develops, commodity metamorphoses to obtain an augmented commodity , which carries with an augmented money capital . This is how capital re- produces itself over time (Marx, 1992). If capitalists fail to realize their commodities, they do not obtain the aug- mented capital . Then, due to realization conditions, capitalists are forced to keep or to sell their commod- ities at lower prices than expected (Marx, 1993, p. 280). In case commodity does not sell, and if it is impossible to maintain its qualitative properties of use value (i.e., for being perishable), investment capital represented by potential cost price becomes an absolute loss. As shown supra, in Marx’s writings there is a crucial emphasis on the passage , the so-called salto mortale of the commodity. Nevertheless, Marx (1992, 1993) considers priority carrying out an analysis of the general condi- tions of production and circulation of commodities, un- der the assumption of customary realization. In change, the proposed model includes partial and total realization problem, as for capitalists both are the most threatening possibilities. Its consequences observe in non-surplus value realization and capital losses. As a result, to com- plete the presentation, it is necessary to introduce two categories, namely, loss and loss rate. (16) Loss measures, in absolute terms, the amount of capital that individual producer cannot recover. Loss rate measures, in relative terms, the portion of invested capital that individual producer cannot realize. (17) Accordingly, for there to be (positive) loss and (po- sitive) loss rate, potential cost price must be greater than realized value . The amount of capital in- vested to start the production process comprehends the monetary expense individual capitalist risks for profit. Under partial realization problem, invested capital reali- 92 verbeke, m. iber. hist. econ. thought. 9(2) 2022: 81-94 zes a rate of profit lower than expected, which results in relative losses. Under total realization problem, capital invested does not realize value, and there are absolute losses. Consequently, the introduction of these catego- ries lines up with the concept of risk any capital assumes as it is thrown into the wheel of capitalist accumulation (Shaikh, 2007). Thus, the separated analysis of produc- tion and realization conditions, which studies the links between potential, market and realized categories, con- cludes here. Still, there is a final task left, which con- sist in analyze both periods together once for all, that is, analyze the direct links between potential and realized categories. In view of that, after setting both production and realization conditions, the final scenario for any in- dividual producer presents as one of the following alter- natives. I. Extraordinary scenario. Realized value is above potential value. Surplus value realizes an extraordinary rate . II. Potential scenario. Realized value equals po- tential value. Realized surplus value is equal to potential surplus value. . III. Below potential scenario. Within this scenario there are three options: o and positive realized surplus value. Realized value is below potential val- ue. Realized surplus value is positive, but it is below potential surplus value. . o and null realized surplus value. Re- alized value is below potential value. Realized surplus value is null. Costs of production are fully recovered . o and partial capital losses. Realized value is below potential value. Real- ized cost price is below potential cost price. There are relative capital losses. Costs of production are partially re- covered. . IV. Non-realization scenario. Realized value and realized cost price are null. There are absolute capital losses. Costs of production are not re- covered . Loss and loss rate do not represent value destruction but capital destruction. Precisely, capital destruction refers to money capital accumulated during previous periods (Marx, 1992) that does not generate the same magnitude of money capital during the present produc- tion period. Let us take again the metamorphosis of the commod- ity. Under realization problem, in the best-case com- modity converts into , that is, it barely allows to recover the capital investment. Even worst, if realization problem worsens converts into decreased and into nothing in the extreme case. The latter case shows complete capital destruction. No value is destroyed given it never got the chance to full form. This distinction is crucial to define stricto sensu what value creation is and what mediates it. 3. Concluding remarks Merely by accepting changes in some key categories, it is possible to develop a system of equations coher- ent with Marx’s labor theory of value. This scheme is useful to explain the comprehensive formation of val- ues and prices. The proposed model stands on a solu- tion to the transformation problem of values into prices and overcomes the problem of circularity. Several con- tributions from diverse approaches are integrated here. Among others, some reviewed concepts are the SNLT, the MELT, the FMT, exploitation, superexploitation, and the realization problem. Let us try to sum up the main relations within these concepts. First, exploitation as well as superexploitation are rigorously studied. The proposed model offers an alternative reading on these two categories. Accordingly, initial investment pays for wages before starting the production period. As pre- condition to start the production process, labor power sells and realizes as commodity. Therefore, labor power value and its use value validate before the product of the worker’s effort is finished. Labor power validation as use value implies exploitation (Rosdolski, 1977). In this sense, the proposed model goes further than others do since the former states exploitation should not meas- ure using the rate of realized surplus value but the rate of potential surplus value. Hence, one of the most rel- evant conclusions is that there is exploitation in every capitalist production process regardless of realization conditions. On the other hand, based on Dussel (1985) the present proposal allows to explain the sub-period “between periods” of production and realization. This sub-period is important because it comprises the first conversion of values into prices through the so-called “tentative MELT”. Furthermore, realization conditions determine profit scenarios. Then, it is possible to link exploitation and surplus value appropriation. To do so, from different perspectives the FMT examines. Known its importance for labor theory of value (Basu, 2021), satisfying the FMT should be a standard requirement for models based on Marxist theory of value (Verbeke, 2019). Its original elaboration by Okishio and Morishi- ma reformulates so it fits to the proposed model. In addi- tion, as shown above, dual determination of SNLT opens new perspectives for the periods of production and real- ization. Individual production conditions are important to establish tentative approximations to ASANLT. Nev- ertheless, social realization conditions are determinant to establish what is necessary. Realized values are actual values, those demand validates (May, 1948; Carchedi and de Haan, 1996). Hence, the unknown lies on real- ization of potential value. Consequently, potential val- 93Verbeke, M. Iber. hist. econ. thought. 9(2) 2022: 81-94 ues validate in extraordinary, expected, partial, or null proportion. Realization problem makes visible the risk commodities face in the market, the possibility of not being sold at all or being validated below market val- ue (Marx, 1993). These scenarios drive toward an im- portant conclusion. They call into question vis-à-vis the definition of the categories of value and use value. When commodity finds obstacles for realization, the concept of value and use value as full-formed categories cannot develop (Dussel, 1985). Likewise, prior to the sale, val- ue category is latent as who is waiting to exist. Potential value indicates commodity has potential use value for its buyer. Commodity carries on utility per se (Marx, 1992), but its utility is just potential. Then, utility needs to validate in the market. If not, it would not be correct to denote value as the category to indicate commodity’s potential content. Realization determines to what extent use value and value are socially necessary (Marx, 1992, p.179). Only when commodity validates, the substance of value materializes so value becomes real and takes on corporeality, it stops being in suspense. In other terms, a waiting stage ends as a completion stage begins. Hence- forth, value acquires autonomy from its uncertain past, becomes independent from ties of waiting and crosses the chaotic labyrinth of market vicissitudes managing to avoid non-realization dangers. Commodity converts into money and completions money-capital circuit (Marx, 1993). Production and circulation processes are completed. Then, value is ready to start a new adventure in the accumulation process (Rosdolski, 1977). Conse- quently, now it is possible to answer the question about the “undefined category” wrongly identified with value as well as it is pertinent to redefine the category of value. In conclusion, preserving theoretical and methodolog- ical coherence it seems necessary to redefine realized value as value, and potential value as prevalue. 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Acknowledgements: I record my special thanks to the anonymous reviewers for their detailed comments that im- proved the paper significantly. I am also very grateful to the editor of the journal Estrella Trincado for her invaluable guidance and suggestions. Of course, any errors that remain are my sole responsibility.