[OPE-L:3062] RE: John Ernst's OPE-L 3016

John Ernst (ernst@nyc.pipeline.com)
Thu, 19 Sep 1996 21:40:51 -0700 (PDT)

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1. Thanks for the references on the valuation of
capital. I'll see what I can do in tracking
them down.

2. In OPE-L 3055, you state that

The various formulas used by accountants to
depreciate assets, such as straight-line, are
obviously only approximations to these ideal
market measures.

I respond:

I agree. However, I do think we have to take
care as we read CAPITAL and attempt to determine
the roles that depreciation and turnover of fixed
capital might have played in a finished work.

Given that Marx assumed that prices tend to fall
with increasing productivity, the devaluation
of fixed capital becomes a possibility. The concept
of "moral depreciation" is introduced. In 3016,
we see that capitalists knowing nothing of either
the relation between productivity increases and
prices or the possible devaluation of even their
own capitals as they introduce new techniques could
attempt to preserve capital value by simply setting
up depreciation schedules which assume falling
prices over time.

3. My hypothesis is that various methods for depreciating
fixed capital arose primarily as attempts to assure that
capital value will be preserved as price drops occur.
Here, I'll look into a bit of accounting literature on
19th century methods of depreciation. Any references from
anyone on this would be appreciated.

4. In OPE-3055, Duncan writes:

A mistake in the formal depreciation accounting simply amounts
to a misallocation of cash flow between profit and depreciation,
but from the capitalist's point of view the important issue is
the cash flow itself.

John responds:

This is true and raises a couple concerns:

A. Given the ease with which profits can allocated to
depreciation and vice versa, measuring the rate of profit
is burdened with yet another complication.

B. By allowing for "moral depreciation", separating dead
and living labor becomes a bit more involved.

C. With all the talk on this list about Okishio and historic
valuation, separating profits from depreciation as well as
finding "where the disappearing value goes" seem both topical
and perhaps related.