Production, circulation and value

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Abstract
The Marxian transformation problem is usually thought of as bridging the transition from 'essence' (value) to 'phenomena' or surface (prices). This paper shows that such a conception is incorrect. The transformation is actually between two theoretical levels of the construction of the economic region of the capitalist mode of production. The first of these levels is production in itself (Capital,Volume I), while the second is the complex unity of production and circulation (Capital,Volume III). This theoretical construction is complicated for two reasons: (1) despite the fact that production is the dominant instance, the social relationships of commodity production appear only in circulation; (2) circulation categories appear implicitlyeven at the level of production in itself. These considerations establish the transformation problem at the heart of a correct conception of the capitalist mode of production. Thus the sharpest distinctions between neo-Ricardianism, vulgar Marxism and Marxism can be drawn here. In particular, it is shown that a correct appreciation of the transformation problem proves the inadequacy of an instrumentalist conception of the state since, at least in this area, bourgeois class interest arises only at the level of class and is not the sum of individual interests (even over a subgroup of the class). Finally, the transformation problem itself is reviewed in detail. Mathematical results are separated from the essentials of the problem which are shown to lie in the correct choice of normalization, a choice that insures the transformation will actually be from value to modified value and not from value to price.

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