[OPE-L:644] Forms of Tech Change [Digression]

glevy@acnet.pratt.edu (glevy@acnet.pratt.edu)
Sun, 3 Dec 1995 18:01:38 -0800

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What kind of market structure are you assuming in regards to
technological change? While price competition was dominant in the last
century and the early part of this century, aren't most branches of
production in advanced capitalist economies (as a result of the
concentration and centralization of capital) now dominated by oligopolies
where product differentiation (and consequently, advertising) _replaced_
price competition as the *dominant* form of capitalist rivalry within a
branch of production? What implications does this have for the forms and
pace of technical change?

I am including a post that I wrote in May since it bears on the
discussion we are having re technological change and moral depreciation.

In OPE-L Solidarity,

Date: Tue, 16 May 1995 23:15:56 -0400 (EDT)
To: marxism@jefferson.village.virginia.edu
Subject: Technological change, fixed capital, moral depreciation

Over the last few days a number of people on the list have made
suggestions concerning this topic. I'm going to attempt now to pull some
of the threads together. I'll try and keep it as non-technical as
possible so that those on the list who aren't political economists can
understand and contribute.

Individual capitalists go into the marketplace and purchase capital goods
which will become constant fixed capital projecting a certain rate of
depreciation for those commodities. Alternatively, some capitalist firms
could produce their own capital goods using internally generated funds
(e.g. with internal Research and Development departments). In either
case, the decision to use those capital goods is made using the criteria
of expected profitability.

Capitalists, consequently, decide before the fact (ex ante) how much
money capital they are willing and able to spend on capital goods and
what they expect in terms of the increased profitability that would, they
believe, result from that expenditure. As part of the calculation
concerning expected profitability, they must make projections concerning
the rate of depreciation and the time period during which they will be
able to "justify" their expenditure (the so-called "pay-back period").

The problem is that moral (social) depreciation can occur -- something
they can not entirely predict ex ante. If capitalists then, in the
presence of moral depreciation, purchase alternative (more advanced)
technologies, then they must write off the value of the older fixed
capital even though its use value -- in a technical sense -- has not been
used up. When capitalists decide to purchase newer, more efficient
technologies they likewise do so on the basis of expected profitability
and in the context of capitalist competition. In other words,
capitalists take a "loss" on the old technologies because they expect a
greater net "gain" from using newer technologies.

In the context of competitive markets, individual capitalists have little
choice when it comes to replacing the morally depreciating constant fixed
capital since with a newer technology, a newer standard for socially
necessary abstract labor is established. While, in a technical sense,
the older capital goods could be continued to be used, the productivity
of labor would be lower than the social average in that branch of
production and they would therefore be at a competitive disadvantage.

The issue of morally depreciating fixed capital stems from the two-fold
nature of commodities, i.e. commodities (including capital goods) have
use value and exchange value. The use value in a formal sense is
retained by the morally depreciating fixed capital, but, due to social
depreciation its usefulness for profitability is either decreased or
ceases altogether. Without use value then, there is no exchange value or
value. Hence, the exchange value of the older technologies drops to a
point where it can cease to have any value at all.

Decisions made by capitalist firms concerning expected profitability
resulting from the use of new technologies are made on the basis of
predictions. Generally, these predictions (no matter how sophisticated
or mathematical the models they use) are based on certain assumptions
concerning past trends. Ultimately, they are simply "guesstimates" which
may be validated or invalidated by subsequent events (ex post). This
simply means that uncertainty and risk are inherent in the decisions
concerning new technologies and fixed capital, i.e. capitalist firms
don't know what will happen in the future, they only have expectations
about future events. But, as we know, simply because a capitalist
expects something to happen doesn't mean that it will.

After capitalists have invested in constant fixed capital, they (knowing
the possibility of moral depreciation) are under pressure to realize a
return on that investment at the earliest possible date (before they have
to go out and purchase newer, more efficient capital goods). The
existence of moral depreciation, consequently, might serve as a strong
incentive for capitalists to:

-- integrate technologies in the production process through
rationalization (e.g. Taylorism) rather than simply deploying individual
pieces of machinery in the production process.

-- increase relative surplus value by increasing the intensity of

-- increase absolute surplus value by increasing the length of the
working day and the length of the work week;

-- increase the workweek of fixed capital and capacity utilization,
possibly through shiftwork.

If capitalist firms can do any of the above, they can shorten the
pay-back period and thereby "justify" their decision to utilize the
capital goods.

Another issue that arises is the following: In their decisions about
capital expenditures on fixed capital, capitalists base their
expectations of profitability, in part, on demand projections. Clearly
no capitalist would attempt to increase the production of surplus value
unless that capitalist thought that the surplus value produced would be
realized in the marketplace and surplus value would thereby be
transformed into profit.

If capitalists miscalculate and overestimate the amount demanded for the
commodities they produce, their profitability goes down not only because
they were unable to sell the commodities they produced, but also because,
having already purchased constant fixed capital, they find that they are
unable to "work" that capital enough causing the period of time needed to
pay back their capital investment to increase. In other words, the
overexpansion of capital results in the underutilization of constant
fixed capital. This frequently increases the indebtedness of the firm.

Capitalists understand that the cost of producing zero commodities is
greater than zero because of their "fixed costs." As time passes, the
exchange value of the capital equipment decreases since the use value
decreases (i.e. it becomes more obsolete). This presents a dilemma for
capitalists since to restore profitability they must restore production,
but as long as demand remains weak any increase in production only
increases the stock of unsold goods.

The capitalists who are worse off are the ones who purchased their fixed
capital immediately prior to the onset of a crisis since they discover
that once the crisis commences they can't realize surplus value or
generate profit, yet they still have to pay back on their investment
expenditure (for which they won't see a return).

If this happens in a single branch of production, then the capitalist
firms in that branch might be able to invest their financial capital in
other branches where the expected rate of profit is higher. This might
involve writing-off the value of their plant and equipment. In some
cases, this cost might be so high as to effectively constitute a "barrier
to exit" and thus the mobility of capital would be impeded.

If overproduction happens in all (or most) branches of production, then
the outlook for individual capitalists in terms of their possible options
becomes very bleak.

How this process, which I have so far examined in the context of a
particular branch of production, effects the turnover of aggregate fixed
capital, the timing (periodicity) of the business cycle, and the actual
manner in which capitalist crises occur are other important questions.

Also, I have not included factors which influence the diffusion
(generalized adoption) of new technologies -- a subject which is of
particular interest to me.

As a consequence of the foregoing, I believe that concepts such as moral
depreciation, profitability expectations, expected demand, uncertainty,
increasing surplus value through rationalization and by increasing the
intensity of labor, and increasing absolute surplus value can and should
be integrated into a theory of fixed capital and technical change.

I thank you for reading this long post.