[OPE-L:2123] Re: Depreciation as such

Paul Cockshott (wpc@cs.strath.ac.uk)
Thu, 9 May 1996 06:16:38 -0700

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Looking over Alans account of historic cost profits and
depreciation I agree that these are a useful measure to
a speculative capitalist who engages in a business for a
short time and then withdraws. You however are making a
much stonger statement in you treatment of prices of production.

You are saying that historic cost rates of profit will be
equalised accross branches of production, since it is these
that you assume to be the same.

Since these profit rates are only known after the event, how
are they supposed to equalise?

The only plausible process would be an iterative one in which
capitalists responded to divergences between rates of profit after
the event by switching capital between branches. But this immediately
rules out the scenario of production occuring once and then the
capitalist withdrawing his capital. Instead, to get convergence
capitalists have to be estimating what profit they are likely to
get if they continue production production at a larger or smaller
scale. At this point they have to consider what means of production
currently cost.

For your theory to be coherent you have to demonstrate that your form
of transformation is compatible with convergence on an equal rate
of historic cost profit. That is to say, given an intial random
dispersion of rates of historic cost profit, you have to show
that by means of expanding or contracting production in individual
firms, the system will move to an equalised rate of profit on
historic cost.

If you had done that, the question then arises, would your equilibrium,
be different from that of the simultaneous model?
Paul Cockshott