A Critique of the Cold War Definition of Labour Values

This paper criticises the generally accepted definition of labour value as first put forward by Nobuo Okishio as seriously faulty and in contradiction with the theory of cost. The shortcomings of this Cold War Definition of Labour Value are so obvious that it is difficult to understand how an error of such importance could survive for half a century and has indeed survived the Soviet Union. We present the correct definition of labour value which is shown to be the only ultimate source of cost. Marginal and average cost are obtained by multiplication of the marginal and average labour values with the wage rate. As prices under perfect competition are equal to marginal cost they are also proportional to marginal labour values. It follows that there is no transformation problem under perfect competition, but under capitalism there is no perfect competition and so capitalistic prices cannot serve as signals for the efficient use of labour.