# Understanding revenue and profit math stuffs in labor theory of value

In http://wrongarithmetic.wordpress.com/2010/08/22/keen-i/, it talks about how economists Steve Keen's argument against Labor Theory of Value (LTV) is wrong.

What I do not get is from

This leaves a revenue of \$34.36, which is \$2.54 greater than its profit of \$31.82 in this first period. This of course came from \$101.82-\$67.46 = \$34.36. I am getting confused because

1) Isn't revenue normally defined as the whole money you get from selling a product without counting any cost?

2) What does these values actually imply? The text seems to suggest it is money that can be used to support costs that come into making a product. I am not getting this. Why is profit not such value?

Also, in the text, it says

Once capital has been advanced and revenue spent, the total social product has been reproduced. Total purchases in Period 2 are the total social capital (total c + total v) plus total revenue (r):

125.46 + 66.54 = \$192. This equals the total production price for Period 1: the total social capital invested plus the total profit (π): 132 + 60 = \$192. Finally, in Period 2 all sales equal their purchases:

Iron: (corn c + gold c) – (iron v + iron r) = (21.82 + 29.09) – (16.55 + 34.36) = $0 Gold: (iron r + corn r) – (gold c + gold v + 3 tons of corn) = (34.36 + 13.64) – (29.09 + 4.73 + 14.19) =$0

Corn: (iron v + gold v + 3 tons of corn) – (corn c + corn r) = (16.55 + 4.73 + 14.19) – (21.82 + 13.64) = $0 I am really having a hard time understanding this. Probably this is because I failed to understand the first part. Can anyone explain this? - ## 1 Answer You ask: Isn't revenue normally defined as the whole money you get from selling a product without counting any cost? Yes, and this is part of the fallacy in Keen's rebuttal of Marx's Labor Theory of Value that the author of this article is trying to point out. From the text: We saw, above, that Keen collapsed (or confused) revenue and profit and saw this as disrupting reproduction. But revenues are not profits; revenue is an entirely distinct concept. Revenues fund capitalists’ consumption of total gold output and three tons of corn: they do not enter reproduction (Marx 1990:738). Profits are determined on the basis of the new value composition of capital and not the organic composition of the previous period, as Keen suggests. The increased value of corn necessarily changes the ratio of surplus-value to variable capital. ... The difference of$1.51 simply expresses a decreased rate of surplus-value and, against Keen, has nothing to do with revenue.

The contradiction in the Labor Theory of Value that Keen claims to have discovered is based on what seems to be a misunderstanding on the role of revenue in the process of accumulating surplus value.

What does these values actually imply? The text seems to suggest it is money that can be used to support costs that come into making a product. I am not getting this. Why is profit not such value?

If the decrease in the rate of surplus value is taken into consideration (as it is by the Labor Theory of Value), then it is demonstrated that the system is in fact arriving at the expected equilibrium and the author concludes that there is therefore no contradiction in the Labor Theory of Value here.

From the text:

Total purchases in Period 2 are the total social capital (total c + total v) plus total revenue (r) ... This equals the total production price for Period 1: the total social capital invested plus the total profit (π):

And here is the real punch line:

..But input and output prices inform two separate transactions made at separate points in time. The point of the production process is the augmentation of value. Marx notes that it would be nonsensical to invest capital if that capital value did not expand. Thus, the value that issues from the circuit of a capital is not equal to the capital value invested (c + v), but to the total value output (w); viz. the value that constant capital represents plus a new value that both replaces the variable capital and produces a surplus-value beyond this (c + v + s). Any individual capital is always under the condition of the total social capital.

I apologize for quoting the text you link to back at you, but I hope this at least helps to make it more readily digested.

The notation economists use is lamentable...I would suggest re-writing the math here in a more abstract and concise manner.

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