[OPE-L:4024] Re: More Depreciation Questions

Ian Hun (Ian.Hunt@flinders.edu.au)
Tue, 21 Jan 1997 08:20:59 -0800 (PST)

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This discussion of depreciation puzzles me a bit. My worries are:
1) Competition does not enforce true cost depreciation on capitalists.
Markets in in second-hand capital goods are simply too undeveloped and
technological change is generally too rapid for errors in depereciation
charges to have a substantial impact on capitalists' bottom line. (Given
that errors in depreciation will have little impact on final price it would
take years for competition to do any weeding out of capitalists who failed
to optimise thier use of fixed capital) This is why capitalists depreciate
according to conventions.
2) We can calculate, as Sraffa and others show, the real depreciation of
any item of capital goods, given its lifetime, original cost and what
production process it is being employed in. This may bear little relation
to the capitalist's depreciation charge which is determined by guesswork as
to its lifetime and the accounting convention adopted.
3) One consequence of capital not being employed in general for its
economically optimal lifetime is that the Okishio theorm does not extend to
systems with fixed capital (it would if competition did enforce
economically optimal use of fixed capital)