# [OPE-L:821] Valuation Of Inputs

John R. Ernst (ernst@pipeline.com)
Sat, 20 Jan 1996 16:08:37 -0800

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Jerry,

Quoting me you say, John says in [818]:

In purchasing constant capital, especially constant capital
that is to be used as fixed capital, the capitalist must
^^^^
be aware of how much of the price of each commodity he sells
^^^^^^^^
represents the constant capital used up in the process.
How does he get this number? Let's say that a machine
costs him 1500 and with normal use would PHYSICALLY last
15 years. Using straight line depreciation, the charge per
year would be 100. We assume there is no "scrap value" of
the machine after those 15 years.
However, based on his own experience, he knows that the
^^^^^^^^^^^^^^^^^^^^^^^^^^^ ^^^^^
machine can only be used profitably for 10 years. Using
the same depreciation method, he is clear that he must
charge 150 each year. The difference between 150 and
100,50, represents what Marx calls "moral depreciation."

I think the above looses too much of this concept. Capitalists can not
reliably project moral depreciation ex ante. To be sure, they can (and
do) make ex ante forecasts. However, there is no way that they can know
whether these ex ante projections will be determined to be accurate ex
post. Unless one wants to make the rather large assumption of "perfect
information" this must be the case. Moreover, there is no a priora reason
to assume that the "wrong" forecasts will be counter-balanced by "right"
forecasts of other capitalists.

John now says.

1. No matter how many years the capitalists say their fixed capital
will last the point is that it represents something less than the
physical life of the machine. How they come up with this number
is an interesting question. Clearly, it not always be right.
On the contrary, it will generally be wrong. Their hope is that
"on average" they will get it right.

2. They must determine the number of years ex ante. At no point, did
I suggest that their estimates will be perfect. My point is simply
that they do it.

Jerry says

In a period of rapid technological change in constant fixed capital, it
becomes all the more difficult in practice to make meaningful
projections. Indeed, in the recent period (say, the last year) virtually
all of the forecasts regarding price and quality of personal computers
were off-base by a significant margin.

John now says

Note that you are talking about one aspect of "moral
depreciation" -- the changing price of inputs. How would
the capitalists using those computers experience more
rapid "moral depreciation" than predicted? It seems to
me that it would have to be via a drop in the prices of
the commodities they sell. Capitalists who hold the
computers in inventory would, indeed, be out of luck.

__________________________

With all this, I hope we do not lose sight of what we dealing
with here. That is, the issue is the "revaluation of inputs."
The basic idea is that capitalists attempt to recover the value
invested and not the value that it takes to reproduce the means
of production at any given point in time.

John