[OPE-L:1069] On Duncan's 1036

John R. Ernst (ernst@pipeline.com)
Thu, 15 Feb 1996 08:46:53 -0800

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In OPE 1036, Duncan says:

In any ongoing economy there are also stocks of commodities produced in
the past. These are consumed more or less rapidly in the production of
new commodities and reproduction of the labor force. The effect of a
commodity economy is to impute value to these stocks. This imputed value
may change because of technical change that cheapens the commodities in
the stocks and thus lowers their value, or because of changes in the
value of money, but it is vital not to confuse these changes with the
production of value. When an existing stock of commodities is revalued no
new value is either created or destroyed. This changed imputed value
changes the claims agents believe they potentially can make on the flow
of new value, but not the flow of new value itself. The accounting
treatment of devaluation due to technical change should be analogous to
the destruction of part of the stock of commodities by fire, for example.

John says:
If we agree with Duncan's suggestion that the devaluing of stocks
including fixed capital is analogous to their physical destruction
by fire, then we should speak of fire insurance as well. That is, the
loss is predictable and should be included on the aggregate level in
what Marx calls "moral depreciation." Should we not do so, then we
would be looking at the creation of value without the simultaneous
destruction of value, given technical change.

Duncan goes on to say:

In any accounting system (whether it is based on money prices, or money
prices corrected for inflation, that is, the change in the money price of
use-values, or on labor-input coefficients) some account has to be taken
of these changes in the valuation of stocks of commodities over time.
Marx argued, correctly, in my opinion, that value-added accounting was
the appropriate framework in which to understand the production of new
value; we should deduct from the prices of commodities produced and sold
in a period the value of the input commodities used up in their
production, in order to calculate the value newly produced which we
associate with the expenditure of living labor. Capitalist accounting
practice does precisely this. Unfortunately this accounting is inherently
ambiguous, a fact which is reflected in the coexistence of various
conventions for valuing intermediate inputs drawn down from stocks or the
gradual exhaustion of the value of long-lived fixed capital: first-in,
first-out, last-in, first-out, straight-line and various types of
accelerated depreciation. I doubt that there is any scientific way to
determine which of these conventions is "right"; the important thing is
that we choose one or another in a given circumstance and stick with it
consistently. The actual magnitude of value added will vary with these
conventions (whether measured in labor time or money). I myself find it
much easier to resolve these issues by agreeing first what question one
wants the resulting accounting measure to answer.

When capitalists anticipate a devaluation of productive stocks due to
technical change, the effect is to lower the value imputed to the stocks
and to impose a capital loss on the capitalists holding them. If all
capitalists agree in anticipating this, they will take it into account in
deciding whether or not to invest in a sector, and compete accordingly.

John says:

I agree with Duncan that we must chose and stick with an accounting
system that makes sense. Unfortunately, the one often chosen
doesn't make sense as it excludes devaluation. Thus, devaluation
becomes analogous to those uninsured fires. If, on the other hand,
we agree that in reality capitalists do anticipate devaluation,
then we are saying that capitalists shorten the anticipated
life of their stocks. For example, even though a machine is
built to last 15 years, capitalists may depreciate it over a period
of,say, 10 years. The loss, given its anticipation, would not
be seen as such by the capitalists. From a social standpoint,
this may mean a loss but it is unclear how it is relevant
to the analysis of capitalism, at the level of abstraction of
Vol. I. It's a bit like the labor-saving machines that Marx
refers to in Vol. I that capitalists do not use because of the
lack of profitability.

Once again, the capitalists expectations may be wrong. All that
I am saying is they know technical change produces obsolescence.
They make their investment decisions and price accordingly. The
fear that they may be wrong gives them greater incentives to
lengthen the working day and to intensify labor. In Vol. I,
Marx simply acknowledges this by introducing the category
of "moral depreciation." Given his approach, I do not see how
this affects the amount of living labor in the production process,
rather it does alter the amount of labor transferred.