[OPE-L:874] Valuation Again

John R. Ernst (ernst@pipeline.com)
Mon, 29 Jan 1996 18:04:21 -0800

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Here's to clearing up unclarity.

In your OPE-873, you say:

"I am still not clear about the correct way to measure value with respect
to the valuation of constant capital. In a "perfect competition world"
[i.e. with no monopoly] the inputs may be valued according to their value
at the inception of the production period (as I understand Andrew to
suggest) or at the end of the production period. I can think of reasons
for either method."

Andrew had 3 ways of looking at the cost of constant capital. Are
you assuming away one as you refer to two in the above?

You go on to say:

"Consistent with valuation at the beginning of the period, we can think
of the capitalist as estimating a subjective patter of depreciation. This
information cannot be known in advance. Some of the earlier postings
assumed that it could be."

I am going to call myself one of those who assumed that information
about devaluation can be known in advance and further claim that it
is. Let me be clear. I do not think capitalists have perfect
information. Rather, I have stated (perhaps not as well as I
should have) that capitalists in Marx's day knew that the elements
of fixed capital that they purchased would often be available
at lower prices while they were using the fixed capital. To
compensate for this loss as they price their commodities, they
included a charge for "moral depreciation." This does not preclude
sudden devaluations in the future which are entirely unanticipated.

And then you state,

"As we move toward a greater reliance on constant capital [where fixed
costs loom large] a competitive economy will make prices move toward
marginal costs. As a result, fixed capital might suffer rapid devaluation.

Under such circumstances, capitalism will not be viable. [Witness the U.S.

airlines] I amplify on this idea in my new book, The End of Economics
(Routledge, in the next couple of months) and further in a new book in

I'm not sure why we would assume that prices would move toward
marginal costs. Doesn't the general story for this type of movement
assume that techniques are unchanged?