[OPE-L:5235] Re: Stocks in circulating capital model

andrew kliman (Andrew_Kliman@msn.com)
Tue, 10 Jun 1997 13:14:07 -0700 (PDT)

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A reply to one aspect of Duncan's ope-l 5217. I have to work through the
other issues some more and, I hope, reply to them later.

I had written: "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?"

Duncan replied:

"The field with the seed corn planted and growing in it is a different
commodity and more valuable than the same field unplanted at the same time of
year. Adjustments of this kind are made all the time at real estate closings,
analogous to the adjustment usually made in houses for the amount of oil in
the oil tanks. ...

"Again, the goods moved to Indianopolis are worth more than they were in New
York, though less than they would be in L.A. So the value of the gasoline
(not, obviously, the gasoline itself) is a still-existing asset on the balance
sheet of the company."

I agree with Duncan completely about this.

What he in fact has pointed out is that, when considering circulating capital
(capital invested in means of production that get used up in the act of
production), there are no "stocks" (in the sense of physical products) to
revalue. In the first case, there is no revaluation of the planted corn,
which is no longer a commodity once it is planted. Instead, there is now a
new, different commodity, the improved cornfield, which has its own value (it
is only unimproved land that has no value). In the second case, there is no
revaluation of the gasoline that no longer exists but, instead, new
commodities that one might call "intermediate" commodities -- if that term
were not already taken for something else -- namely, partially transported
goods. Again, they have their own value.

What Duncan has done is very important, I think. His vantage-point shows that
what we take to be a produced commodity is, in large part, just conventional.
We tend to think a commodity is finally "produced" only when it is finally in
a form for which a market exists. Thus, we tend to think that no commodity is
produced until the corn is harvested and trucked to the corn market (or
indeed, according to some, until the corn is sold), or that no commodity is
produced until surfboards get to the retail stores in California. They are
not "use-values" to the landlocked of Indianapolis.

But they are use-values for *capital*.

Markets may exist for these "intermediate" commodities, or they may not, but
both physical and value production are taking place at each instant. Duncan's
vantage-point allows us to see that a new commodity is being produced at each
instant, and that the conventional way of thinking of when a commodity is
produced tends to stem from market incompleteness. (Aside to Alan Freeman:
is this what you were talking about in the conversation you had with Alejandro
Ramos, Mario Robles, and me at the 1996 EEA, when you said that it is
possible to produce fractions of a commodity? I still don't like that
wording, but if you're saying that 0.432176 of a ship is a produced commodity,
I agree completely, now that Duncan has clarified it for me.) I think this
conception conforms very closely with Marx's "value in process" and, indeed,
it clarifies it significantly, at least to me.

I think Duncan's vantage-point yields the absolutely BEST argument to date in
favor of temporal valuation and against simultaneous valuation. I will try to
explain this by means of the corn example.

At time t0, A units of seed-corn, having a unit price of Pc(O), are planted on
unimproved land. The only other input is labor. Yet, once the seed is
planted, at time t1, a new commodity exists, the improved field of t1. Thus,
using Vf(t1) to denote the value of the field as improved at time t1, the
value of the new commodity is

(1) Vf(t1) = Pc(0)A + N(t0,t1)

where N(t,t1) is the new value added between t and t1. (This equation, BTW,
does not assert any particular theory of what determines N. It does assert
that value is additive and that it follows the arrow of time.)

Now, imagine (for simplicity) that labor is applied non-stop in the production
of the new corn. No other inputs are used -- except, and it is a crucial
exception, that the field of time t1 is also a commodity that enters into the
production of the more-improved field of time t2. The value of this new
commodity, Vf(t2) is

(2) Vf(t2) = Vf(t1) + N(t1,t2).

By the same reasoning:

(3) Vf(t3) = Vf(t2) + N(t2,t3)


(n-1) Vf(t[n-1]) = Vf(t[n-2]) + N(t[n-2],t[n-1]).

Assume now that X units of corn are harvested at the next moment in time, tn.
Each is a commodity produced by means of the improved field of t[n-1], the
value of which is Vf(t[n-1]), and labor. Denoting the unit value of the
harvested corn of time tn as Vc(n), its aggregate value is:

(n) Vc(n)X = Vf(t[n-1]) + N(t[n-1],tn]).

The time-intervals, t1 - t0, t2 - t1, and so forth, can be as small as one
wishes. Assume that each is smaller than e, where e is any finite number.
There is a time-interval between inputs and output, but it is infinitesmally
small. Production and valuation are continuous and virtually instantaneous
processes. Note that no unused physical stocks exist at any stage of output.
Rather, the improved field of one instant (the means of production) becomes,
by means of the expenditure of (concrete) labor, the infinitesmally-improved
field of the very next instant (the output).

What is the magnitude of Vc(n)X? The answer is trivial (once one sees it).
Examine (1) and (2). Clearly Vf(t2) equals the original sum of value, Pc(0),
plus the value added between t0 and t1, plus the value added between t1 and t2
or, equivalently, the original sum of value plus the value added between t0
and t2:

(2') Vf(t2) = Pc(0)A + N(t0,t2).

By the same reasoning,

(3') Vf(t3) = Pc(0)A + N(t0,t3)


(n-1') Vf(t[n-1]) = Pc(0)A + N(t0,t[n-1]),

and finally,

(n') Vc(n)X = Pc(0)A + N(tO,tn).

Thus, the value of the corn output of time tn equals the original sum of value
plus the total flow of value added between t0 and tn.

Now, postulate that N is (the monetary expression of) the living labor
expended, L, and we have:

(n'') Vc(n)X = Pc(0)A + L(tO,tn).

This is the TSS equation. Or maybe a slight generalization of the TSS
equation. But it should be easily recognizable.

(The above discussion of course abstracts from certain things, such as
price/value differences in the improved fields, the possibility that pests may
destroy the use-value of the growing corn, and so forth. It is not,
therefore, a claim that the value of the corn at time n is actually determined
according to (n''). The discussion abstracts from everything but the stock
revaluation issue.)

The conclusion of this inquiry is that, if

(a) products of labor under capitalism are commodities even though they are
not yet in the form for which a market exists, then

(b) *used-up* physical stocks cannot be revalued at the time of output,
because they no longer exist. Rather, there exist new, different stocks,
which are themselves new and different commodities, and which accordingly have
values that different from those of the used-up stocks.

And if Marx

(c) held that the value of output equals the amount of value that is
*currently* needed to acquire the means of production used-up in production,
plus the new value added, and

(d) held that a unit of living labor, performed in the socially necessary
time, always creates the same amount of value and is the sole source of new
value, and

(e) did not deny (a), from which (b) follows, then

(f) the TSS interpretation of Marx's value theory, as formalized in (n'') and
multisector extensions thereof, is a correct interpretation.

Andrew Kliman