John Erns (ernst@pipeline.com)
Tue, 10 Dec 1996 21:57:51 -0800 (PST)

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In OPE-L 3804, David Laibman writes:

3. Should every element of the capital stock be entered at
historical cost rather than replacement cost? Marx certainly did-
n't think so: he was at pains to describe the "cheapening of the
elements of constant capital" by technical change, just as he was
concerned to show that the fall in the value of those elements did
not completely compensate for the rise in their mass (i.e., the
assertion, once again, that k rises faster than y, or -- the same
thing -- that k rises faster than L/Y falls).

My answer is a qualified "no."

John comments:

I do not think the notion of "cheapening of the elements of
constant capital" settles the matter concerning the valuation
of capital stock. Indeed, I'm not sure David does either as
he answers his question with "a qualified 'no.'"

David then continues:

What matters in capitalist competition is the dynamic strug-
gle to survive and expand. The capital stock that matters for the
rate of profit that matters (for future accumulation) is one
valued at its expected replacement cost. When productivity cheap-
ens the replacement for an existing machine that was purchased
earlier for more money, that machine is subject to moral deprecia-
tion (Marx's term). The POTENTIAL profit rate has RISEN, and if
you don't get it, your competitors will. This is simply an appli-
cation of the Marxist proposition that it is the social, not the
individual, situation that determines value.

John comments:

I'm not sure how valuation at "expected replacement cost" works.
In the 20th century, most readers of Marxist theory have
argued that in assigning values to the capital stock one
should use "replacement costs." Let me assume that we are
speaking of the rate of profit that capitalists use. If so,
valuation at expected replacement costs would mean that
capitalists themselves recognize "moral depreciation"
prior to investing in new machinery. They would then see the
need to set up their depreciation schedules in such a way that
their historical costs are recovered. In so doing, the use of
"expected replacement costs" becomes equivalent to historical


The rest of David's post is interesting but time has me in its
clutches as well, so that's it for now.


P.S. (to David) Glad to see you did not embrace the Sweezy position
on the K/y ratio. I thought maybe you'd changed (smile).