[OPE-L:5206] Re: Reproduction Costs vs. Replacement Costs

Duncan K. Foley (dkf2@columbia.edu)
Sat, 7 Jun 1997 06:46:45 -0700 (PDT)

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Part 2 of a response to Andrew's OPE-L:5179:

>(Andrew) wrote:
>(1) Assume that workers harvest some wild corn, having no value, plant it,
>and harvest new corn. The new corn has value, due to the value added by the
>living labor. According to the replacement cost interpretation, then, a
>positive amount of value is 'preserved' and 'transferred' from the wild corn
>to the new corn. How do you reconcile this with the following from Capital
>I, p. 314 of the Vintage ed. (emphasis added):
>"'Its value is determined not by the labour process into which it [a means of
>production] enters as a means of production, but by that out of which it has
>issued as a product. In the labour process it serves only as a use-value, a
>thing with useful properties, and cannot therefore transfer any value to the
>product unless it possessed value BEFORE its entry into the process'?"
>Duncan replied:
>"If wild corn is a free good, then I don't think it would play a role in the
>pricing of the new corn, any more than the air would have in pricing the
>output of a steam-powered mill.
>"I don't see the difficulty. Since the wild corn did not have any value (on
>the assumption that it's a free good) it wouldn't transfer any value to the
>I'm very glad to hear this! I'm hopeful that this example may help clarify
>matters. I especially appreciate the recognition that the actual prices of
>inputs "play a role" in the pricing of outputs. This is in contrast with the
>replacement cost interpretation, according to which it is irrelevant what the
>value of the means of production was when they entered production. The value
>of free goods is "preserved" -- even though they had no value -- and they
>"transfer" to the product this sum of value that they didn't have.
>Hence, if free goods do not transfer value, the replacement cost
>interpretation must be rejected.

I don't follow your logic here, though I'm still not sure what "replacement
cost interpretation" means in terms of the mathematical and accounting
conventions. Wild corn is still free after the production process, as I
understand the terms of the example.

>Moreover, if free goods do not transfer
>value, the monetary expression of labor-time (MELT) cannot be computed on the
>basis of the "value of the net product." Let me show this by putting some
>numbers on my example:
>Wild corn input: 4 bu.
>Living labor added: 1 labor-hour
>Corn output: 5 bu.
>Output price of corn: $x/bu.
>"value of net product": [$x/bu.]*[5 bu. - 4 bu.] = $x

Well, no. I would make the net product here 5 bushels of produced corn,
since I would distinguish wild corn as a separate (potential) commodity
that happens to have a zero price both before and after production.

>According to the "net product"-based measure of the MELT, it equals the
>of the net product" divided by living labor added, $x/(1 labor-hour) =
>$x/labor-hour. This means that the 1 hour of living labor extracted "added a
>money value" of $x. But the 5 bu. of corn output are worth a total of
>[$x/bu]*[5 bu.] = $5x. So the other $4x is the "value transferred" from the
>free wild corn.
>This "net product"-based measure of the MELT also implies that, measured in
>labor-time, the value of the corn output is $5x/[$x/labor-hour] = 5
>labor-hours. Since value added by living labor is 1 labor-hour, the free
>seed-corn "transfers" a value of 5 - 1 = 4 labor-hours.
>The actual situation, I think we agree, is this. The entire value of the
>output is the value added by living labor. The 5 bu. of corn output thus
>a total value of 1 labor-hour, expressed monetarily as $5x, so the MELT at
>time of output equals $5x/(1 labor-hour) = $5x/labor-hour. No value is
>transferred from the free seed-corn.
>It should be clear that this discrepancy between the figures based on the
>"value of the net product"

But the discrepancy in this case arises from a difference in definition of
the net product, not in the pricing convention.

>and the actual figures is just a particular
>instance of the discrepancy that arises whenever the cost of inputs at the
>time they enter production differs from the replacement cost of these
>It should also be clear that the second set of figures ("actual situation")
>follows straightforwardly from the TSS interpretation.
>I do not think that it is possible to reconcile the two sets of figures,
>or to
>discount the latter, by referring to the revaluation of inventories or
> In this example, the 4 bu. of seed-corn no longer exist as commodities once
>they are planted, so there are no unused stocks to revalue at the end of the

One or another version of this claim about the nonexistence of stocks in
circulating capital models has turned up in several TSS examples and
comments, but I think it's incorrect. The seed in the ground is analogous
to an inventory of commodities in the process of production, which
generates an entry on the asset side of the balance sheet. Whenever there's
a real time lag in the production process, there is a stock of goods in
process that can be revalued.


Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947
e-mail: dkf2@columbia.edu