[OPE-L:855] Questions to Paul C. & Alan

John R. Ernst (ernst@pipeline.com)
Fri, 26 Jan 1996 00:41:38 -0800

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Here, I'd like to clear up a couple of points concerning
moral depreciation that Paul C. and Alan have raised.

1. Paul Cockshott's comments (I grabbed this stuff
from Alan's post(OPE 853)

Jerry writes:

"Let's say that a firm replaced its morally-depreciated 386SX
computers one year ago with 486DX2/66 computers estimating,
when they purchased the new machines, that they would have an
effective "work life" of three years taking into account
estimated future moral depreciation. It is now January, 1996.
Does that firm now go into the marketplace and purchase Pentium
120s? Not necessarily. Wouldn't you agree?"

Paul replies [OPE-L:844]

"Probably not, but its accountants write them down to taken
into account the decline in resale value."

John now asks:

Can we say that this devaluation may well have been anticipated
as the initial investment was made? To be sure, the
estimates may have been high or low but they do exist.

2. In his (OPE 853) Alan writes:

They lose value because some capitalists *do* buy Pentiums in
January: those whose equipment is already three years old and
have accumulated the reserves to replace them. Initially this
cheapens their outputs, and so force down the price (and value)
of whatever they and the 486-ers are both producing. They make
a superprofit, and the 486-ers suffer a loss in both revenue
and profits, because their sales income diminishes. The
function of depreciation is to compensate for this loss of
sales income. This is, for the 486-ers, a real and not an
imaginary loss.

But the value which the 486-ers lose, reappears in the profits
of the 586-ers. The moral depreciation of the 486 owners is the
source of the technical rents of the 586 owners. The rival is
able to sell her or his product for *more* than its individual
value, because the 486-ers are still around, and the social
value of whatever they make is correspondingly higher. The 486-
ers on the other hand sell the product for less than its
individual value. But society as a whole experiences neither a
net gain nor a net loss of value.

John asks:

a. Are you saying that the amount of moral depreciation of the
486-ers is equal to the supper profit of the 586-ers? Why
would this be?

b. On what basis does the 486-er calculate his profit? Did he
make any allowance for moral depreciation when he bought
the 486?

c. What does it mean to say that there is no net gain or loss
of value? What is the standard from which there is neither
gain nor loss?