Marx On The Transformation Problem In 1847

This is the start of Section 5, "Strikes and combinations of workers", in the second chapter of The Poverty of Philosophy:

"'Every upward movement in wages can have no other effect than a rise in the price of corn, wine, etc., that is, the effect of a dearth. For what are wages? They are the cost price of corn, etc.; they are the integrant price of everything. We may go even further: wages are the proportion of the elements composing wealth and consumed reproductively every day by the mass of the workers. Now, to double wages ... is to attribute to each one of the producers a greater share than his product, which is contradictory and if the rise extends only to a small number of industries, it brings a general disturbance in exchange; in a word, a dearth.... It is impossible, I declare, for strikes followed by an increase in wages not to culminate in a general rise in prices: this is as certain as that two and two make four.' (Proudhon, Vol. I, pp. 110 and 111)

We deny all these assertions, except that two and two make four.

In the first place, there is no general rise in prices. If the price of everything doubles at the same time as wages, there is no change in price, the only change is in terms.

Then again, a general rise in wages can never produce a more or less general rise in the price of goods Actually, if every industry employed the same number of workers in relation to fixed capital or to the instruments used, a general rise in wages would produce a general fall in profits and the current price of goods would undergo no alteration.

But as the relation of manual labour to fixed capital is not the same in different industries, all the industries which employ a relatively greater mass of capital and fewer workers, will be forced sooner or later to lower the price of their goods. In the opposite case, in which the price of their goods is not lowered, their profit will rise above the common rate of profits. Machines are not wage-earners. Therefore, the general rise in wages will affect less those industries, which, compared with the others, employ more machines than workers. But as competition always tends to level the rate of profits, those profits which rise above the average rate cannot but be transitory. Thus, apart from a few fluctuations, a general rise in wages will lead, not as M. Proudhon says, to a general increase in prices, but to a partial fall - that is a fall in the current price of the goods that are made chiefly with the help of machines.

The rise and fall of profits and wages expresses merely the proportion in which capitalists and workers share in the product of a day's work, without influencing in most instances the price of the product. But that 'strikes followed by an increase in wages culminate in a general rise in prices, in a dearth even' - those are notions which can blossom only in the brain of a poet who has not been understood." -- Karl Marx

You can see why after this, Marx and Proudhon were no longer drinking buddies. Anyways, Marx here considers a rise in wages. Echoing Ricardo, Marx argues that some prices drop and others rise. So even though the labor embodied in commodities does not alter, relative prices of production vary because of a variation of wages. I take this to be a statement of the so-called transformation problem.

An early statement of Marx's solution can be found in his 2 August 1862 letter to Engels.

I see in the above an idea Marx takes over from Ricardo. Think of the yearly net output of a capitalist economy as produced by the labor employed during that year. The 'real wage', in Ricardo's terminology, is the proportion of that labor that goes to produce the commodities purchased and thereby consumed by the workers. Suppose productivity increases, and total employment does not change. The workers can thereby obtain a greater quantity of 'necessaries and luxuries', while the real wage declines, depending on how the results of this increased productivity are divided among the classes making up society. The current usage among mainstream economists of the term 'real wage' is an obstacle to reading Ricardo, if one is not careful.

By the way, in a comment on one of my posts on the Temporal Single System Interpretation, Hedlund recommends Robert A. Bryer's "Marx's accounting solution to the 'transformation problem'". This is a chapter in his book Accounting for Value in Marx's Capital: The Invisible Hand