For those that would like a very readable few pages on the labor theory of value I would recommend here
(The more complete picture is located at: http://william-king.www.drexel.edu/top/political.html>
It touches further on down on the "transformation" problem, and the author - Dr. Roger A. McCain, Professor of Economics - observes:
"Where does that leave Marxism? Most likely, where you stand depends on where you sit. For a committed Neoclassical economist, it leaves Marxism without any foundation, a system of logical contradiction. (It leaves the Classical Political Economy in the same situation, with the distinction of being less complete). For a committed Marxist, it leaves a complex problem to be solved by ongoing research and a more complicated set of tools than Marx might have expected. You pick.
The purpose of Marxist theory, after all, is to understand capitalist dynamics. For that purpose, we need to understand were the economy will go from the state it is now in, not from some hypothetical state. And the state it is now in is well defined. The objective of a capitalist is to increase his profits, and to do that, he must increase the rate of exploitation, s/v. Roughly speaking, there are four ways to do that.
Increase labor productivity
In other words, introduce technological innovations. This increases s/v by increasing the output from a given input of labor. However, it usually requires an increase c relative to v, which cuts v/(v+c) and thus limits its short-run impact. In the long run, innovations can be imitated and the competition for labor is increased, so that either (1) the standard of living of the average worker, and so the wage cost, increases, or (2) the socially necessary labor time
and the price of output declines. Thus, in the long run, innovation is self-denying. But the fact that innovation raises profits in the short run is the great reason why capitalism (at its best) has been a very dynamic system.
Push workers' standards of living down
That is, cut the purchasing power of wages, either directly or with raises that lag behind inflation.
Lengthen the working day
This forces the working people to supply more input for the same pay. It was a major capitalist strategy in Marx' time, and the source of a great deal of agitation, strikes, violence, and political reform. This is limited, of course, in that there is an upper limit of about 16 hours per day.
Make working conditions worse
Although we have not mentioned working conditions before -- and they don't come up separately when we think in terms of v, c, and s -- requiring workers to make more effort, risk their lives and limbs more often, take fewer breaks and go home more tired and weakened can cut some nonlabor cost, lowering c, and so increasing profits. This works very much like lengthening the working day, and Marx discussed this a good deal in some of the informal sections of Capital.
another site contains the following bit:
"Note that labor makes up most of the cost. In this example, direct labor is only half of the total cost. But if we opened the books of the businesses that supplied the raw materials and replaced the worn
out tools we would find their costs can also be broken down into labor, profit, rent and supplies. Then we could look into the costs of their suppliers, and so on. About one-third (actually, 32.5%) of the costs in this example - raw materials and replacing worn out equipment - are subject to this process. If the costs in these supplier industries are proportional to the costs in the pig industry, [6: Note] then half of these supply costs could be attributed to labor, then half of their supply costs, then half of those firms' supply costs. When we add it all, we find that labor costs are close to 75% of total costs; considerably higher than the 50% figure that we get by only looking at direct labor costs."
Happy reading. The basic concepts don't really seem to be ALL that difficult to comprehend.