[OPE-L:3755] Revaluing Capital

From: John Ernst (ernst@pipeline.com)
Date: Tue Sep 05 2000 - 16:51:55 EDT

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Let me see if I can explain my take on the depreciation question
a bit more clearly. As you point out, the problem of moral
depreciation can present itself even in models where there
are only stocks of circulating capital. If we simultaneously value
inputs and outputs at the value of outputs, then moral depreciation
simply disappears. Fred's given advance of money capital cannot
be determined until after the outputs are at least priced. Hence,
if a capitalist in real time purchases either stocks of
circulating capital or fixed capital, the amount actually advanced is
not Fred's "given." The "given" can only be determined after
production takes place and the changes in valuation taken into
account. The "loss" due to moral depreciation disappears even in
cases of falling values due to increasing productivity. Each period
becomes disconnected from all prior periods. The rate of profit
is not computed on what the capitalist actually advanced but
on what he would have advanced had he purchased the means of production
after production takes place when the means of production are
at the lower value.

Given that moral depreciation is not taken into account in his
way of thinking how one estimates the life time of fixed capital
is unclear to me. However, if one is to be consistent, then it
seems to me that the life time can only be based on the
estimated physical life of the machine and not on an estimate of
its economic life.

This makes a difference even in those periods in which there is
no technical change. That is, if I think a machine will last
10 years and Fred thinks 20 years, his depreciation charge will
be 1/2 of mine even in periods in which there is not technical

I hope this clears things up a bit.


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