Allin, even if I have failed to convince you of anything at this point, I do hope that you will consider the implications of the famous Ricardian critique of Smith's adding up theory of prices which had allowed for the greater payment for (direct and indirect) labor to result in rising total prices, rather than falling profits (see TSV II). You have the expertise do so. You are clearly doing a Smithean thing. After the equalisation, the relative prices of Depts I and II rise; since their output is the input for the system, total cost (price) rises; then you just tack on the same old surplus value, so that RISING COSTS ALONE HAVE CAUSED RISING PRICES (1000>875) though the value of the output (the indirect and direct labor which it embodies) has remained unchanged since in the transformation we alter only the outward price appearances of this system. For the life of me, I cannot understand how Bortkiewicz, Sweezy and you could think that in Marxian terms rising costs in themselves could result in rising prices. A few weeks ago in private correspondence, I suggested that you were ensnared in an adding up theory of price. I simply think you are evading the issue by dismissing my own argument as tautology. Whatever the faults of mine, yours surely has no basis in Ricardo or Marx. You are not alone. Consider Duncan's example. After the equalisation of profits, the price of steel rises relatively; he then transforms the steel input and thereby modifies cost price upward to which he adds on the same old value added, resulting in higher total prices again simply from higher costs alone since in his example as in yours the value of the output has not risen. It seems to me that both you and Duncan are implicitly assuming an adding up theory of price since you both allow for a rise in costs and costs alone to engender rising prices. Well you may say then that ditching the adding up theory of price will only mean that in the transformed system the sum of profit is no longer the same as the sum of profit in the original tableau. I would be happy if we could carefully probe into why this mathematical result obtains and whether it in any way undermines the thesis that the profit which is appropriated derives entirely from the unpaid newly added value by labor. Yours, Rakesh
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