[OPE-L:1414] Where does the value go? (3)

Alan Freeman (100042.617@compuserve.com)
Sun, 10 Mar 1996 23:27:33 -0800

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Completes the response to Paul's [OPE-L:1366 of 8/3] (and to some extent
Michael's 1376) on moral depreciation and value conservation

Why must the formation of social values extend to stocks?

Not least, I think this the only consistent way to proceed.

Exchange is by definition not a relation between flows but between stocks.

The model of competitive general equilibrium, in which all exchange
relations consist of relations between flows, blinds us to this. In this
model, contracts are made not for the delivery of 20 linen here and now,
but for the delivery of 20 linen per week for all eternity, or until the
next auctioneer's visit. But

20 linen = 1 coat

does not and cannot mean, 'you can have one coat for each 20 linen I
produce, when I get around to making them'. It is not a futures contract.
It is a here and now contract. It means 'I have coats, you have linen,
this is the relation between them'.

The very fact of a uniform price means that every 20 linen in the world is
equivalent to every single coat in the world. If this were not so, then
there would not be a uniform price. Somewhere, there would be a coat that
was not equivalent to 20 linen, or 20 linen that were not equivalent to 1
coat, and the exchange-relation would not be universal.

If I buy a ton of cotton, then until I have used it up, it exists in my
hands as a stock. Before I bought it, it was the producer's stock. It is
as a stock that it rises or falls in price and in value, due to general
fluctuations in the market. Even though it functions as circulating
capital in production, it exists as a stock as part of a capital.

'Capital advanced' is the sum of the values of all stocks (including
money) in the hands of the capitalist. This is the point of the
distinction between capital turned over and capital advanced.

Walras got round this problem by launching the unfortunate idea that fixed
capital is a special type of capital, so that many people think

fixed capital = stocks
circulating capital = flows

Then they start thinking, machines are fixed capital and raw materials are
circulating capital. So you can't have stocks of raw materials and you
can't have flows of machines.

But this doesn't work. Cotton - circulating capital par excellence - forms
a stock when it is literally 'stockpiled' before entering production.
Conversely the slow erosion of a machine constitutes its 'flow' into

Everything exists both as a stock and a flow, just as current is just a
form of existence of electrical charge, and momentum a form of existence
of mass. A stock of raw materials is easy to visualise but a flow of
machines is more difficult. In Marx's day, this gave rise to much
confusion about fixed capital which is why he spent so long on the concept
of turnover time, and the idea that fixed capital passes only gradually
into the product - the conceptual apparatus needed to see how a machine
can become a flow.

In equilibrium models only flows exist, which I think is why nowadays people
have more difficulty conceptualising how a flow can become a stock. I
suspect this is the root of Paul's difficulty; I would hazard a guess that
he is conceptualising a price as a relation between commodity flows.

But consider the commodity water, for example; a reservoir is a stock and
a stream is a flow. Both the stock and the flow are made up of the use
value water. Water does not exist in two forms, the use-value
'reservoirs' and the use-value 'streams'. It is always just plain water
(and stays in the reservoirs for up to three years, making it a prime
candidate for fixed capital)

When saleable water is priced, this price applies not just to what comes
out of the taps, but what is in the reservoir, which counts as part of the
assets of the water company along with their dams and their pumps.

And indeed, when there is a general decline in the price of water from the
taps, were it not for price controls, the water companies would find their
assets correspondingly 'morally' depreciated. Just as, when there is a
general rise or fall in the price of oil, the oil reserves of all the oil
companies are correspondingly upgraded or downgraded.

There is no difference in principle between a vast pool of oil and a vast
machine. They are both just a commodity stock; they both pass gradually into
the product; and they both rise and fall in price with the general movement of
market prices.

And, they both enter the formation of social from individual values
because this, too, is an exchange relation, that is a relation between

Indeed, depreciation is merely an attempt to reckon all stocks at the same
market price. Depreciation in reality *is* the formation of a uniform
price, par excellence a phenomenon of circulation.

The stock-flow relation is under-theorised. Harrod, I think, is one of the
few and very important exceptions to this. Actually, the fact that a flow
is the differential of a stock is of fundamental importance but one must
always remember that an economic stock is simultaneously replenished at
one end, and depleted at another, so that its rate of change is the
difference of two flows. Equilibrium models simply equate these two flows
to each other so that the stock of everything is constant, and thereby
eliminate stocks from their theory in any meaningful sense.

The only possible controversial point, therefore, arises when part of the
capital is by its physical nature fixed in the production process, such as
a bench lathe or a process plant. In this case it can be argued that the
plant no longer functions in circulation and cannot be regarded as
entering the equalisation of prices. This is a possible argument but then
the issue no longer depends on whether stocks *in general* fail to enter
the formation of social values but on whether *some* stocks can escape it.

All I am saying is that all commodities, whatever their nature, are
affected by the market in exactly the same way as all other commodities.

Let the simplest explanation suffice.