[OPE-L:5212] Re: Reproduction Costs vs. Replacement Costs

andrew kliman (Andrew_Kliman@msn.com)
Sun, 8 Jun 1997 09:36:58 -0700 (PDT)

[ show plain text ]

A reply to Duncan's ope-l 5206.

First, to clarify my wild corn example. Duncan writes "Wild corn is still
free after the production process, as I understand the terms of the example.
.. 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."

No, the wild corn does not exist. It has been used up, destroyed,
productively consumed in the process of producing the corn output. And,
whether produced or wild, all the corn is physically indistinguishable. Were
wild corn to exist at harvest time -- which, again, it does not -- it would
have to have the same value as the produced corn. Corn is corn is corn.

Duncan: "I'm still not sure what "replacement cost interpretation" means in
terms of the mathematical and accounting

If P(t) is the vector of input prices of period t, P(t+1) is the vector of
output prices, A is the vector of consumed means of production (including
perhaps depreciation), then the pre-production *reproduction cost* of the
means of production is P(t)A. This is a reproduction cost, because the means
of production may actually have been acquired at time t-k, and warehoused
until period t. But because the value of the commodity (not the means of
production, but the *product* produced by means of them) is determined by the
cost of REproducing it, it does not matter when the means of production were
acquired. The value of the commodity is not P(t-k)A + L (where L is living
labor), but or P(t)A + L. The value transferred is not P(t-k)A but P(t)A,

The *replacement cost* of the means of production is P(t+1)A. But P(t+1)A + L
is not the amount of labor time needed to reproduce the commodity in period t.
It is a hybrid of the amount of living labor needed in period t, plus what
the means of production would cost NEXT period.

I had written: "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 stocks. 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 year."

Duncan replied: "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."

I'm sorry, but I have to say that I know no other term for this but *commodity
fetishism*. It confuses the process of value production with the process of
physical production. Although the VALUE laid out on means of production is
preserved and transferred to the product, the USE-VALUE of the means of
production is used-up, destroyed, productively consumed in the process of
production. These are two distinct and antagonistic processes.

Before one can value an asset, it has to exist, it has to have a use-value (as
Jerry has recently reminded us). How can you say that the seed-corn exists
physically once it has been planted? Where is it? Could you dig up the
ground and find it

Or imagine that goods are hauled by truck from New York to California. This
adds value to the goods. In the process, gasoline is used up, destroyed,
productively consumed. So much is used up that the driver must stop several
times along the road and refuel. How can you call the used-up gasoline a
still-existing stock? Where is it? For what price could the trucking firm
re-sell the burnt-up gasoline?

(In any case, the valuation of assets is irrelevant. The basic simultaneist
error is to confuse the sum of value invested with the valuation of the
material components acquired by means of that investment. *This* is why Marx
says that the constancy of constant capital -- the mere re-appearance of the
*capital advanced* for means of production -- "by no means excludes the
possibility of a change of value in its elements." He uses the word
"elements" here and elsewhere to refer to the material components acquired.
In other words, though the *constant capital*, the sum of value laid out on
means of production, is necessarily constant, the value of the material
elements can change. The constancy of the constant capital does not exclude
the possibility of a revaluation of means of production BECAUSE THE VALUE OF
the sum of value advanced for means of production.)

This is all closely related to the ideological notion of "net product." As I
wrote in ope-l 4468:

"Because all new value comes from living labor, the simultaneists look for a
physical counterpart to this, in which living labor produces the new product
('net product') and, apparently, the means of production are merely preserved
and transferred to the product. So we see once again the characteristic
simultaneist move of establishing a one-to-one relationship between value and
use-value. For instance, see _Understanding Capital_, p. 13: 'Every
commodity contains a certain amount of value, and the mass of all commodities
*newly produced* in a society in a period of time also contains a certain
value, the aggregate *value added* of all the *newly produced* commodities.'
[middle emphasis in original]

[See also pp. 20-21: "The whole mass of NEWLY PRODUCED commodities contains
the whole expenditure of social labor in a particular period of time, and this
value [BTW, what value?] expresses itself as the money value added of the mass
of commodities."]

"At the beginning of the year, 400 bushels of seed-corn are planted, and, at
the end of the year, 500 bushels of corn are harvested. We're supposed to
believe that only 100 of these are 'newly produced.' Which ones? How did the
other 400 manage to reconstitute themselves so nicely? And why go through all
the bother and expense of putting the other 400 in the ground in the first

"Double counting, you say? Show me where?"

I think this notion of the "net product" is ideological because it conflates
value and use-value, effaces their antagonism, makes the process of value
production appear as if it were a physical process. The physical relation is
made to appear, wrongly, the way the value relation actually is: past corn
merely preserves itself and transfers itself to the corn product; the living
labor produces all the new corn.

Andrew Kliman