[OPE-L:3995] More Depreciation Questions

john erns (ernst@pipeline.com)
Thu, 16 Jan 1997 02:12:56 -0800 (PST)

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Thanks to Michael, again, and Chai for their responses.

1. Michael -- I thought that Marx's letter of 09/11/1867
indicated that Marx admits he dismissed the idea that a
sinking fund could be used as one for accumulation. That
is what I meant by dismissing McCulloch.

2. Chai, you ask where things ended up concerning the
depreciation discussions. As you may recall in that
last round, I mentioned a few peculiarities when one uses
straight line depreciation. Duncan noted that what
accountants call the present value method of depreciation
might yield different results. I thought it might be
worthwhile to look at the "History of Accounting." Michael
shared his notes on the matter. Since then, I have managed
to get my hands on a text entitled THE LATE NINETEENTH
by Richard P. Brief. It was published in 1976 and is
currently out of print.

The text itself, save for the introductory essay by Brief, is
a collection of essays published in England in the late 19th
Century. The earliest reproduced pieces are dated after 1870.
Marx ,again, in even asking his questions in 1858 seems far ahead
of the accountants themselves.

One of the essays by O.G. Ladelle, "The calculation of depreciation",
published in 1890 is described by Brief as the most brilliant of the
lot. In it, Ladelle, according to Brief, derives a method of
depreciation "...almost identical to the so-called present value
method of calculating depreciation."

I suppose we would note that the efforts these late nineteenth century
accountants not only parallel the development of large scale industry
but also the rise of joint stock companies or the modern corporation.
That is, how much is profit and how much is depreciation are crucial
questions when capital is owned by more than one person. Further,
if profits are taxed, then again the question is not academic to the

I have barely scratched the surface when it comes to the 20th
Century. In the U.S., tax codes permitted only straight line
depreciation prior to and immediately after WWII. According
to Certified Public Accountants with whom I have discussed some
of this, in the U.S. corporations must chose methods of depreciation
dictated by the tax authorities, now called the Internal Revenue
Service(IRS). Whatever profits reported to the IRS must match those
reported to shareholders.

On a theoretical level, questions concerning Marx's concept
of "moral depreciation" remain. Further, we still have the
matter of how a rate of profit is to be calculated given one
chooses something like straight line depreciation (which Marx
seems to do in CAPITAL) as a method of recovering an investment
in fixed capital. Indeed, it was my hypothesis that in using
this method, capitalists tacitly assume that prices will drop
within the lifetime of the fixed capital. On this matter, I
am assuming that those depreciation funds recovered as fixed
capital depreciates are used for further accumulation and not
simply sitting in hoards only to be used when the fixed
capital needs to be replaced.

In dragging up all this stuff, I see still another matter for
discussion. That is, if we are to separate depreciation from
profit in empirical studies, to whom does one turn for
answers -- the capitalist accountants or the national income