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I must not have been very clear in my article. What I was trying to say was
that if you had merely physical depreciation, which could be predicted, then
assigning values would not be very difficult. In fact, to be realistic you have
to take moral depreciation into account. You cannot predict moral depreciation
unless you assume that you have knowledge about the future.
Many decades ago, in writing my dissertation, I came upon the requirements for a
mathematical treatment of depreciation in an article
Preinreich, Gabriel A.D. (1940) 'The Economic Life of Industrial Equipment',
Econometrica, 8, 1 (January), pp. 12-44.
The author showed that the economic life of a piece of capital will depend upon
the date of its scraping -- he ignored resale of the capital. The date of the
scraping will depend upon the decision to purchase the next unit of capital to
replace it, but this decision will depend upon its ultimate scraping.
Eventually, the only solution is to assume a terminal date at which the final
capital could will be scrapped or be in some predetermined state, then work back
and find the optimal date to purchase that capital could, then work back further
determined the optimal date to purchase the previous capital good. Then
continue this process until you come to the present.
This mathematical recursion is made more difficult if you have no knowledge of
the future states of technology or of the future states of demand. The
informational requirements of solving this problem go beyond the capability of
So, the only solution would be to postulate that the capitalists has rational
expectations that carry into the indefinite future.
> But in your 1999 CJE article you wrote:
> "If a tool is to be used over a fixed period of time with a known pattern of
> intensity, we can develop a rule to measure the rate at which the labour
> embodied in the tool is deposited in the flow of commodities. To argue for
> the realism of such conditions is tantamount to proposing some sort of
> 'rational Marxian expectations'."
> I (and a colleague not on the list) have taken this to be a criticism of the
> idea that **physical** depreciation can be predicted.
> Have I misunderstood something, or have you changed your view?
> Incidentally, surely the use of physical depreciation schedules (being based
> on past empirical experience) is analogous to "adaptive expectations", not
> "rational" ones?
> By "rational" I here mean the kind that rational expectations theorists
> regard as rational; I seem to remember that Tobin demonstrated that in a
> truly Keynesian world adaptive expectations are the rational ones (in the
> sense of being self-validating, which is the one used by the real rational
> expectations school)?
-- Michael Perelman Economics Department California State University Chico, CA 95929
Tel. 530-898-5321 E-Mail firstname.lastname@example.org
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