[OPE-L:4008] RE: More Depreciation (Example)

andrew kliman (Andrew_Kliman@msn.com)
Thu, 16 Jan 1997 22:32:11 -0800 (PST)

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A reply to John's ope-l 4001.

John: "In CAPITAL ... the amount of depreciation depends upon the economic
life of the machine not its technological life."

Could you please provide citations? And is the depreciation of which you
speak all part of the value transferred to the product. In my interpretation,
please note, it is also the case that the amount of depreciation (due to wear
& tear *plus* moral depreciation) depends on the economic life of the machine.

John: "For Andrew, the technological life and the economic life seem to the

Au contraire, mon frere. That was my point in giving two examples, one in
which the machine was used for its full technological lifetime (3 years), and
one in which it was used only for 2 years.

Or, for a starker example, assume the machine is bought now (12:11 am) for
$15,000 but becomes obsolete - scrapped and replaced by a BETTER machine - now
(12:12 am), before it is ever used in production. Its technological life is 3
years; its economic life turned out to be 0. It transfers no value to the
product (what product?); it immediately depreciates from $15,000 to $0; all
the depreciation is moral (if indeed it is no longer worth anything at 12:12).

John: "He [Andrew] seems to assume as well that capitalists know nothing of
this until after it occurs."

As I've noted to Gil, unless I say I assume it I don't assume it. I was *not*
discussing how capitalists keep their books. And my conception is that
valuation is not affected by what capitalists know or don't know. So assume
that capitalists know, or don't know, or know imperfectly, it doesn't change
the figures that I computed. (This does not imply that expectations have no
influence on decisions; rather, given that the firm's decisions are what they
are, no variations in expectations can influence the figures I calculated.)

John then puts forth the following figures, partly based on mine:

"Let's look at that first machine which in his example costs 15000 and has a
known technological life of 3 years. Let's assume a rate of profit of 10%, and
set aside those new machines for now.

Year Amt Invested Amt. transferred Profit Output Price
1 15000 5000 1500 6500
2 10000 5000 1000 6000
3 5000 5000 500 5500 "

He asks: "Is the price of the output dictated immediately by the new machine
does the capitalist with the new machine garner a super profit by selling at
an output price of 6000? If the later is the case, then why the first machine
is to be devalued seems mysterious."

Well, it's now your example (it seems as though the price of the machine isn't
dropping, contrary to my assumption. Is that what you mean by setting aside
new machines? You're also setting aside the cheapening of the machine, no?
Or don't I understand this example?), so you tell me what happens to price. I
made NO mention of the output price, because I was only concerned with
constant capital and its impact on the output VALUE. Marx's basic claim
concerning the value/price relation, I'm sure you'll agree, is that the output
value is determined independently of, and before, the output price. Hence, if
we're interpreting Marx's theory, and we want to ask whether and under what
conditions one can calculate "c" (and therefore c+v+s = output VALUE), all
questions concerning the output price are irrelevant.

Note that this also implies that the amount of value transferred to the
product is determined independently of, and before, the output price. Indeed,
depreciation of both types (wear & tear, moral) at the beginning of year 2
must be determined independently of, and before, the output price at the end
of year 2. Otherwise, you turn Marx into a simultaneist. Yet your statement
that "If the later is the case, then why the first machine is to be devalued
seems mysterious" contradicts these basic successivist concepts. Extirpate
simultaneous valuation!

John: "On the other hand, in the former case, it is not at all clear why,
again, capitalists do not anticipate at least a bit of this "moral
depreciation" and include it in their calculations."

Again, I made no claim about capitalist calculation. I'm talking about the
*determination* of value, about which capitalists don't know and don't care.

John then constructs an example with 2 machines that is very unclear to me.
The only comment I can make is that two sources of profit/loss need to be
distinguished: profit from production, and profit/loss from asset
revaluation. As I understand Marx, the former, in the aggregate, is
determined by and equal to surplus-value.

John: "perhaps we need to look at the matter while including circulating
capital and not make any assumption about the technological life of the fixed

When one talks about circulating capital, one is making an assumption about
the technological life of the thing.

John: "That is, let's let capitalism itself put the machine out of its misery
by allowing technical change to be such that it is no longer profitable to
produce with the fully depreciated machine."

By my accounting, the machine is actually fully depreciated only when either
(a) it stops functioning because it is worn out, or (b) the market price of a
replica is zero. (a) satisfies your stipulation.

John: "Note that Andrew has also assumed that machines only get cheaper,
never better."

Wrong. See above. If a machine is scrapped because a better machine comes
along, it transfers no more value, irrespective of how much longer it is
capable of functioning. Period.

John: "In other words, if I can make one of these machines last longer than 3
years, then Andrew's cheaper machines pose no problem to me as a capitalist."

If I understand this, which I'm not sure about, I think I agree. Basically,
the firm has a free means of production after three years.

Andrew Kliman