[OPE-L:1266] Re: Determination of Constant Capital

John R. Ernst (ernst@pipeline.com)
Thu, 29 Feb 1996 20:53:26 -0500

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There are, again, several problems that arise when one
speaks of the devaluation of constant capital. For example,
on the list, we've kicked around the idea of "moral
depreciation." Further, I have reproduced an idea that I had
concerning "Vanishing Values", with some corrections
suggested by Alan. Again, comments welcome. Here, let me
briefly argue for necessity of using historic valuation
as an approach to the analysis of capitalism.

In the exchange between Andrew and Paul concerning valuation

Paul writes:

Capital goods are purchased, and later have to be
revalued to a higher or lower valuation.
This is entirely what one would expect on a
synchronous field approach to value. I do not
see how evidence that this occurs can be taken
to disprove such an approach. It would seem to
be confirmation of it.

John says:

Paul is correct on this, revaluation can and does occur.
The question is how and why? Like money, capital especially
fixed capital is a store of value. To write off
part of the value of an existing machine cannot be done without
some consequences. Here, I am not suggesting that Paul thinks
otherwise. But in what he calls the "synchronous field
approach to value" I have yet to find much discussion of the
"how and why's" of devaluation.

Let's consider something that at first seems simple. A machine
can now be made cheaper than it was 5 years ago. Are all the
machines in use for 5 or more years now to be devalued? They have
have depreciated anyway; hence, if the depreciation recovered in
those 5 years is greater than the price decrease, how would one
devalue these old machines? Why bother? On the other hand, if
the price drop is so great, would the devaluation assign negative
values to the old machine?

The point is that capitalists do treat fixed and circulating
constant capital differently when they do their accounts. They
do use LIFO and FIFO for evaluating the circulating constant
capital, but when it comes to fixed capital things get messy.
One reason for the mess is that often it is not a question of
a new machine but a "better" machine. This problem seems to be
beyond the "synchronous field approach to value."

With historic valuation, we are forced to describe the
manner in which the economy traverses from one period of
production to the next. This does not preclude arriving
at the same results as those using the "synchronous field
approach to value." But, for us, it would clearly be
a result of an economic process whereas with simultaneous
valuation, the process simply disappears. One moves
from one period of production to the next without any of
the how's and why's. Capital as a store of value ceases
to exist, value itself is declared redundant, the
"economic law of motion of modern society" is impossible
to grasp since in the model itself there is no motion at

To be sure, no one using historic valuation as a tool in
that analysis of capitalism would object to starting an
analysis in which valuation is simultaneous. But,
the point is to move to the next period and the next,
and so on as one shows what is happening to the quantities
of value.

Vanishing Values

A century after the publication of CAPITAL disagreement over what
Marx meant by value continues. To be sure, the work itself is a
criticism of Classical Political Economy and its labor theory of
value. Yet, modern interpretations of CAPITAL often identify
Marx's concept with that of the Ricardo. That is, value is
viewed ultimately as the labor time necessary to produce a com-
modity in both Marx's work and those of the classicals. Given
that interpretation of value, fatal flaws are found in CAPITAL.
That is, as Marx developed his transformation of values into
prices of production and the falling rate of profit, the errors
committed are not only obvious but also indicative of gross

Can Marx be so easily dismissed? We think not and hope to show
that by imputing the classical notion of value to Marx's argument
the immediate incompatibility of that concept with the Marxian
framework is ignored.

Vanishing Values

The standard interpretation of CAPITAL informs us that the value
of a commodity is determined by the past and present labor time
socially necessary for its production. The value of the means of
production or constant capital is seen as labor time spent in the
past and merely transferred to the commodity in the process of
production. The present labor time or living labor is the social
necessary labor time used in the production process itself.
The output itself, represented by w, is thus seen as the sum of
past labor time, c, and the living labor time, v+s, where v is
the value of the wages paid and s is the surplus labor time.

(1) w = c + v + s

The rate of profit or profit margin, p, given all of the means of
production are used up in one period of production, is given by

(2) p = s/(c+v)

So far things seem simple enough. Let's look at a numerical
example. Assume that prices are proportional to values and that
each hour of labor is represented by $10. Suppose that the means
of production purchased have a value of $100 or 10 hours of
labor. And the living labor expended is 10 hours, represented by
$100. If the wages are $60, then using (1), we can write

(3) w = $100 + $60 + $40 = $200

Using (2), we see that

(4) p = $40/($100+$60) = 25 %

Now let us assume that after the capitalist purchases the means
of production, increases in productivity take place in the pro-
cesses that produce them. Fewer labor hours are expended in their
production. Let's assume that what once took 10 hours, now takes
4 hours. Hence, they now can be purchased for $40. Using (1)
and (2), we see that

(5) w = $40 + $60 + $40 = $140

and that

(6) p = $40 / ($40+$60) = 40%

On the one hand, the capitalist seems to be doing quite well as
his profit rate in (4) increases as we move to (6), an increase
of 15%. On the other hand, he actually invested $160 and, ac-
cording to (5), only got back $140. In his mind, he suffered a
loss. Indeed, where has all the value gone?