The nature of surplus value in the 'new solution'

The 'new solution' to the transformation problem in Marx's labor theory of value rests on treating two aspects differently than in the traditional formulation: net value is used instead of gross value to avoid double counting, and the division of new value into variable capital and surplus value is determined at the point of production by the wages paid to the workers, instead of by the bundle of goods they subsequently select with their consumption decision. Campbell [Review of Radical Political Economics 29 (3) (1997) 59] developed a simple but formal presentation of the first of these issues. This paper addresses as the other crucial issue in the new solution approach, the issue of determining variable capital and surplus value. The role of the money wage in the process is highlighted. Comparison to the treatment of these issues in the traditional formulation is included for the purpose of better understanding the nature of the new solution. JEL classification: E11; D46 Keywords: Surplus value; New solution