# [OPE-L] Historical, real and current costs(1)

aramos@aramos.bo
Mon, 2 Feb 1998 21:58:02

In the PIAF:

Date: Sun, 01 Feb 1998 21:08:30 +0000
From: Alan Freeman <a.freeman@greenwich.ac.uk>
To: ope-l@galaxy.csuchico.edu
Subject: [OPE-L] Historical, real and current costs(1)

commenting on Fred''s questions, Alan F. writes:

> As an example suppose that iron is produced during 1995 and is
> priced, on 1 January 1996, at \$10 per ton. Suppose it is purchased
> by the steelmaker on 1 January 1997 after a years stockpiling by
> the original iron producer, and now costs \$8 per ton either
> because of monetary changes, or because of rising productivity in
> the iron industry during 1996. Suppose that the steel is produced
> during 1997 and is ready for sale on 1 January 1998, using the
> iron continuously throughout the year, and suppose that by this
> time the price of iron has fallen to \$5 per ton.

> I would say that the iron transfers \$8 to the steel for each ton
> used in 1997. This is not the original historical cost of \$10 but
> neither is it what you call the current cost, that is, \$5. I would
> say the difference, \$3 per ton, is moral depreciation. You on the
> other hand would, I think, argue that the value transferred to
> the product during 1997 is \$5 per ton...

The idea that the value transferred from the iron to the steel during
1997 is \$5 per ton would require that, on January 1, 1998, steel
produced by using cheaper iron (\$5 per ton) is actually available on
the market. However, this day, it is clear that there is *only*
steel produced with iron purchased one year before, on January 1,
1997, and paid at \$8 per ton. Thus, the real availability of cheaper
steel needs a *new production process*, that of the coming year 1998,
in which the cheaper iron will be consumed and its value actually
transferred to the output. This process requires *time*, specifically,
*production time*.

In other words, on January 1, 1998, the fall in the price of the
*input* (iron) cannot provoke an *instantanous* fall in the price of
the *output* (steel). We can ask, where is, this day, the cheaper
steel? Nowhere. The only steel available has been produced with iron
already paid at \$8 per ton. To have a cheaper *output*, it is
necessary, firstly, to consume the cheaper *input* and this takes
*time*, the still-in-the-future *production time* corresponding to
the year 1998. Only on January 1, 1999, cheaper steel, resulting from
the fall in the price of iron, will be brought into the circulation
process.

In the following passage, Marx stresses that the capital circuit is a
*temporal* sequence:

As we have seen, the movements of capital through the production
sphere and the two phases of the circulation sphere are
accomplished successively in time. [in German: "in einer
zeitlichen Reihenfolge", i.e. "in a temporal succession"] The
duration of its stay in the production sphere forms its production
time, that in the circulation sphere its circulation time. The
total amount of time it takes to describe its circuit is therefore
equal to the sum of its production time and its circulation time.

Capital, II, Ch. 5,
Penguin, p. 200

The hypothesis that the value transferred by the inputs corresponds
to the end-of-period ("replacement cost") price (in the example, \$5
per ton) does not take into account that the capital circuit is
actually developed in a "zeitlichen Reihenfolge". In particular, it
amounts to argue that the "production time" is not necessary to have
the commodities on the market.

Alejandro Ramos