# [OPE-L:3164] Re: Clarity on IVA

John Ernst (ernst@nyc.pipeline.com)
Fri, 27 Sep 1996 10:31:16 -0700 (PDT)

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Duncan,

Given we have disagreement over revaluation of
constant capital, I think it is may be worthwhile
to reviewe some points in the discussion.

1. The value produced in 1 hour of labor is \$1.

2. Given the technical change that is assumed, the
historic rate of profit falls.

3. In our example, both of us started at the same
point:

c +v+s=w
\$90+\$30=\$120

and generated different figures for the next period
assuming that the output for the 1st period was
120 units of the commodity, the capital input was
90 units of the commodity, wages were very,very low.
We then applied the LTV and got different results, each
assuming that 100 units of the commodity are used as
capital in the next period to produce 200 units of
output with the same amount of living labor.

My version:

c +v+s=w
\$100+\$30=\$130

c +v+s=w
\$30+\$30=\$60

I would agree that it is possible that prices may
fall to such an extent that the output in value terms
for the 2nd period might be \$60. On the other hand,
I think you would agree that the output for 2nd period
might be \$130. The question is "Which of the two
holds fast to the LTV?"

Perhaps, TSS, as I represented it, concedes too much at
the beginning of the discussion of this particular
example. That is, using my example your endpoint has
a certain similarity to the starting point. Our
calculations of the values of the inputs and outputs are
the same as we begin. You use the same technique to compute
the values of inputs and of outputs as the end of the
second period. I do not. Why? I maintain that the value
of the inputs is preserved as production takes place in
the 2nd period, despite the fall in value of the commodity
used in production.

We should note that that preservation is impossible
at the price level of \$60. That does not make the price
you derive wrong. Rather it says to me that given a
complete and utter disaster with a massive destruction
of capital value, the rate of profit can not only be
restored but even increased. In other words, using your
figures, it is unclear what would happen in Period 3
of our example in that capital failed to expand in
Period 2. Indeed, with your price, it contracted.

With the type of technical change assumed, "labor and capital
augmenting", the value of constant capital, computed as you
do with an IVA, will always be less at the end of the period
than at the beginning. Should that loss be greater
than the living labor added, then capitalism would undergo
some sort of crisis. The greater the loss relative to the
labor added, the more likely capital will fail to self-expand.

Can we resolve the matter at this level? I'm not sure.
Given that I maintain that the types of technical change that
Marx describes in modern capitalism are both labor and
capital augmenting, your application of the LTV seems to
dictate that we develop within our examples the conditions
under which the contraction of capital occurs.

Still searching for clarity,

John