[OPE-L:872] Valuation of Inputs (Andrew)

John R. Ernst (ernst@pipeline.com)
Mon, 29 Jan 1996 16:03:42 -0800

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Some points of clarification with respect to OPE-868

1. In your attempt to clarify matters concerning the differences
among the terms -- historic cost, replacement cost, and
reproduction cost -- you state:

"The problem is that reproduction cost of a productive input can also mean
its value when it enters production, not after production. This concept
of valuation is neither an historical cost notion nor a replacement cost
notion. For instance, assume a can opener :-). Assume that its value
when it was produced was 15. But imagine it was held as a stock for
awhile, and that by the time it gets used in a production process, its
value is only 13. Assume that the can opener lasts one production period,

and at the end of this time, can openers of the same type are being
at a value of 11. Then this can opener's *historical* cost is 15, its
*replacement* cost is 11. But it has TWO DIFFERENT reproduction costs,
one when it enters production, 13, and one when the production process
ends, 11. In referring to the "current" reproduction cost, which does
mean? The latter. But the former is also "current." Such terminological

problems make it sound as if some of us think that a sheet of paper
at the beginning of capitalism, if used in production today, transfers a
value to the product which the paper had back then. No one does."

The questions I have concerning your example are:

a. In his profit calculations, what does the capitalist use for
the price of the can opener -- 15,13, or 11?

b. As the price fell from 15 to 13, was the capitalist maintaining
a normal amount of can openers in stock? Did the price of
the good produced with the can openers fall? If so, when?

c. Is this type of price decrease the norm? That is, should the
capitalist anticipate such decreases?

2. With respect to the exchange between Fred and me you state:

"Third--both John and Fred seem to attribute rising prices in spite of
rising productivity to monopoly? Why? There was monopoly for about
2/3rds of a century and "creeping inflation" didn't really exist. I
suggest that the real key to this issue is that we don't have a
gold standard anymore. I don't deny that monopoly is a factor.
But I think monopolies would have a lot of difficulty pushing up
the *general* price level on a gold standard."

Correct me if I am wrong, but I think Fred and I have mainly spoken
of falling prices due to increases in productivity. I can not
recall the role of monopolies in our discussions. That is, we've
simply been assuming some price decreases in the production of
the elements of fixed capital due to increasing productivity.

We are abstracting from the case of non-falling prices at this
point in the discussion. When we move forward, I think we need
to a look at the gold standard, monopolies, rents, and fiscal


P.S. I'll get back to you on your latest post on Sraffa.