[OPE-L:883] Valuation of Inputs

John R. Ernst (ernst@pipeline.com)
Wed, 31 Jan 1996 02:17:09 -0800

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Hi Fred,

I think we are getting a bit clearer on our disagreement. This
is due in no small part to your last response (OPE-882). However,
I still think your position is problematic. Let me explain.
You begin by stating your interpretation of my position. For
you, it includes the following 3 points.

"1. According to Marx's theory, the value of the existing constant
capital is depreciated as a result on ongoing technological change.

2. However, capitalists try to anticipate this devaluation of capital by
means of accelerated depreciation (or "moral depreciation").

3. According to Marx's theory, the resulting higher depreciation charges
increases the constant capital component of the price of commodities, and
thus also increases the price of the output as well. "

You stated that you agreed with 1 and 2 but not 3. I am not sure I
agree with 3 either. That is, given point 2, about what is point 3?
Implicit is the idea that there is a set of prices that include
lower depreciation charges than those that contain the allowance
for "moral depreciation." What are these prices? They seem to be
computed on the basis of no technical change.

Commenting on your disagreement with point 3, you state:

"Capitalists may try to anticipate the devaluation of their capital by
means of accelerated depreciation, but, according to Marx's theory,
Marx's theory, constant capital is determined by the
social labor time currently necessary to produce the means of
production. If, in addition to the current socially necessary labor
time, capitalists add an extra charge to make allowance
for expected future devaluation of capital, this does not change
the current socially necessary labor time to produce the means
of production. It also does not change the total socially necessary
labor time, and thus, does not change the total price of the commodities."

I do not see how this fits in with point 2 in the above about which
we agree. Let's recall how subtle "moral depreciation" is. When
determining the value of a commodity in the c+v+s framework, given
fixed capital, both the theorist and the capitalist are forced to
come up with a number for the initial value of the fixed capital
as well as with one for its lifetime. What is its lifetime? Both
as a theoretical and practical matter, that lifetime is socially
determined. That is, at the end of its life, much of the fixed
capital is still workable but no longer profitable to use. In
general, it is superseded by cheaper and/or better means of

Let's take an example. If the practical capitalist estimates the
life of his machinery to be 10 years and sets up a depreciation
schedule on that basis, he will include "moral depreciation"
in that schedule. All this means is that he thinks that use
of the machine after 10 years will no longer be profitable.
So his average annual depreciation charge would be 1/10th of the
value of the machine. In your interpretation, is he overcharging
for depreciation? Should we, as theorists, say that the machine
would last, say, 20 years without technical change and that the
depreciation charges are double what they should be?

For me, the inclusion of an allowance for "moral depreciation"
within the price or value of a commodity is indicative of what
separates Marx from both classical and neo-classical economists.
It tells us that

1. Marx is including technical change within his analysis.

2. Marx's view of the economy does not take place at a point
in time but rather captures the economy in real time.

I think what is so shocking about my view is that it is not
part of most interpretations of Marx and not that it is not
to be found in Marx's work. Let's face it most 20th century
work in the field focuses on an ecomomy without technical change
and without time itself. But the minute we speak of the
movement of the economy from one period to the next or
include technical change within that movement or both, much
of the standard work on Marx is useless. What the concept
of fixed capital does is force us to include both technical
change and the element of time within the analysis. This is
not easy and I think we have just started but like the man
says there is no royal way.