[OPE-L:3038] Re: Straight and Moral

John Ernst (ernst@nyc.pipeline.com)
Tue, 17 Sep 1996 09:20:52 -0700 (PDT)

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Before we write this thing up, let's look at the claim again.

I wrote, referring to methods of depreciation used:

If it is straight-line, then it seems to me that those who
think that there are continuous revaluations of fixed
capital with continuous technical change have a
problem. That is, by using the straight-line method
(or sum of digits, declining balance, etc.) we see
that capitalists are anticipating at least some of the
price decreases brought about by technical change.
This manner of calculating depreciation may be the
way in which "moral depreciation" is taken into
account in rate of profit calculations.


Let's see if we can nail down a few of the loose ends and
search for holes in the claim.

1. Knowing little of economic history and even less of the history
of accounting, I am claiming that straight-line depreciation
was the method used in Marx's time. Save for the few quotes
in CAPITAL, I have scant evidence for this.

2. When using present values came into use by capitalists
to compute profit rates is clearly a question. Using that
technique, one would, as Duncan pointed out, need to be
very specific about the anticipated prices of the commodity
produced as new techniques are introduced. Price stability
would make this method much easier to use. Using straight
line in a period of price stability, would make the rate of
profit appear to rise from period to period.

3. With the table in my OPE-3016, we see that if the prices match
those anticipated, the book value and market value of the fixed
capital are equal. They will differ if the prices are not those
predicted. Within the world of linear models, the goal seems
to be to calculate the market value of fixed capital at a given
point in time. Here there are problems if these models
are used to interpret the process of accumulation.

a. Old techniques seem to disappear as new ones are introduced. The
ideas that fixed capital might not be fully depreciated when this happens
and the problems attached to the losses are not considered.

b. Fixed capital seems to experience only physical depreciation
in linear models. Since there is no technical change, there
is no way to incorporate the idea of "moral depreciation."
In our discussion last year, we saw efforts to "abstract from"
moral depreciation itself when we considered how Marx dealt
with depreciation in a given period of production.

4. It would be interesting to find out more of what Marx
himself thought about this. Somewhere around 1870, he wrote
that it was doubtful that investment in fixed capital (or some
portions of it) is never fully depreciated as sudden devaluation
due to crises took place prior to the recovery of the investment.
(I think Mandel made note of this somewhere.)