# [OPE-L:3088] Re: Fred's Comments on 3074

John Ernst (ernst@nyc.pipeline.com)
Sun, 22 Sep 1996 20:31:46 -0700 (PDT)

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Duncan,

Let me see if I can be locate the problem you find
with the TSS approach.

You state (among other things):

The problem I'm raising doesn't have to do with the rate of
profit, which can be calculated on historical cost if one
prefers, but with the definition of the value added, which
is crucial in translating the Labor Theory of Value assumption
that the source of exchange value is the expenditure of
living labor in production into a theory of prices in the
examples we have been offered.

I respond:

I think TSS is in agreement with you that living labor is the
source of exchange value. And if you'll let us have a
rate of profit based on historic costs, I say "Welcome
aboard." However, here no doubt the devil is in the
details.

Let's say that I buy \$90 worth of the commodity in a
one-commodity world and spending next to nothing on wages
manage to produce \$120 worth of that commodity. The living
labor created a value of \$30. Clearly, with this informa-
tion we would agree that my rate of profit is 33.3%. Of
that \$120, I invest \$100 in constant capital in the next
period and introduce a new technique, which I hope will
increase my profits as well as my profit rate. Despite
my hopes, it doesn't since the price of the commodity
falls after production such that the total price of
the output is \$130. If we in the world of TSS look at
this situation, we see that there is \$100 invested in
constant capital and, as before, \$30 added to the product
by the living labor. For us, the given amount of living
labor is adding the same exchange value to the product in
both periods -- \$30. To be sure, the rate of profit has
now fallen to 30% as the living labor created the \$30 in
exchange value.

Now perhaps you see my difficulty in understanding your
statement that you have trouble

" ... with the definition of the value added, which
is crucial in translating the Labor Theory of Value assumption
that the source of exchange value is the expenditure of
living labor in production into a theory of prices in the
examples we have been offered."

John