[OPE-L:4047] The Sinking Fund

john erns (ernst@pipeline.com)
Fri, 24 Jan 1997 09:09:51 -0800 (PST)

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Andrew wrote:

A reply to John's ope-l 4044.

I agree, of course, that reserve funds (to replace depreciated machines, etc.)
can be invested, in the existing line of business, in some financial
instrument, etc. If this happens (as it usually does), then the rate of
profit calculation would need to be modified accordingly. How exactly to
modify it depends on the particular rate of profit one wants to compute. For
instance, looking at a firm's overall rate of return per annum, if the reserve
funds were invested in a bond, I'd add the interest to the surplus-value from
production, but keep the denominator the same.

What I tried to do was simply to give an example of the calculation under the
simplest possible circumstances.

I do not think anything of theoretical significance is at stake here.

John replies:

I, too, am not sure that there is anything of theoretical significance at stake
here at all. I tend to agree that the depreciation funds will be invested
as they are accumulated. Tacitly, I've simply assumed that those funds will
earn a rate of return in an investment similar to the one we are considering.
This keeps interest out of the picture for now and allows us to focus on
the return to the amount originally invested. We can then consider
different methods of depreciation as well as changing prices of inputs and
outputs as the fixed capital depreciates.