Transformation of Values Into Prices
Like Ricardo, Marx knew that relative labour values— in the above example—do not generally tally with relative competitive prices— in the same example. However, in the third volume of Capital he argued that competitive prices were obtained from his values through a transformation process, whereby capitalists redistributed among themselves the given aggregate surplus value of the system, in such a way as to bring about a tendency toward a more equal rate of profit between sectors of the economy. This happened because of the capitalists' tendency to shift their capital towards the sectors where it earned higher returns. As competition become fierce in a given sector, the rate of return comes down, while the opposite will happen in a sector with a low rate of return. Marx describes this process in detail in chapter 9 of Volume III.
Read more about this topic: Transformation Problem
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