[OPE-L:3039] Re: Straight and Moral

Michael Perelman (michael@ecst.csuchico.edu)
Tue, 17 Sep 1996 09:52:36 -0700 (PDT)

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I meant to write to John directly, but we might as well keep this on

John Ernst wrote:
> Michael,
> 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.
> Yes, John, I think of this approach as rational expectations marxism.
> 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.

Not really. People still used the Ricardo method. Capital is permanent. Only maintainence is a cost.
No depreciation exists. Methods of depreciation were just starting in railroads. Marx read the
railroad economists.

> 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.

Baumol has a discussion of the beginning of present value. I can find it.
> 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.)
> I cited this letter in my Marx book. He says, several times, that no investments in fixed capital ever seem
to pay off.
> John

Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 916-898-5321 E-Mail michael@ecst.csuchico.edu