[OPE-L:432] Value of Constant Capital

John R. Ernst (ernst@pipeline.com)
Mon, 6 Nov 1995 00:23:17 -0800

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Dear Paul Cockshott,

In what follows, I extend the dialog between us.

John Ernst (1)

If I buy a machine produced in, say, Period I for $500
and that machine "embodies" 50 hours of abstract
labor, then I am ready to begin production in Period II
with my fine new machine. Now, if, as I produce, the
producers of my machine are able to produce it in less
time, say 25 hours, do we then say that I am out $250?
Where's the loss in Paul Cockshott's method of assigning
values to constant capital? Is there a loss? If my
workers only created $50 in surplus value, I would be
short $250 as I gain $50.

Paul (2)
Any honest accountant reviewing the company would say
that it was running a loss on capital account.

This loss arises from a change in value conditions
between periods. The correct way to calculate values
should be allow depreciation of machinery only in
terms of its current labour replacement cost. Thus
in the second year, the machine transfers proportionally
less labour to the product.

In practice when working with I/O tables this is what
one is doing since one measures depreciation in terms of
current inter-industry flows, rather than historical

The point at which it becomes important to take into
account technological depreciation is when dealing with
organic compositions and capital accumulation. When
working from national income statistics one should use
replacement cost and should adjust capital accumulation
figures to allow for stock appreciation/depreciation.
In the case of the UK taking stock appreciation into
account has a dramatic effect on the apparent accumulation
figures for some years.


John (3)

Paul must be making an assumption not part of my original
query. That is, he assumes that the machine made in a more
productive fashion sells for less. I said nothing of a
price reduction for that machine. Yet, if we were to use
his labor time accounting techniques, we would insist that
I had lost the $250. To be sure some of this "loss" would
be there whether or not there was a change in technique in
machine production as it would be seen as depreciation. If
the price of the machine didn't change, I'd question the
sanity of any accountant who told me I lost $250
in depreciation unless the new technique led to an IMMEDIATE
price decrease.

In calculating values via labor time and then assigning them
to commodities, it would seem that we may well fail to capture
what's going on in the economy itself. To continue the
example, I may be able to use the machine I bought for 5 years
or more before the drop in the price of the machine takes

Side note: I am curious about capital appreciation in the UK.