[OPE-L:4085] Re: Depreciation -- S.O.S

Michael Perelman (michael@ecst.csuchico.edu)
Wed, 29 Jan 1997 08:20:58 -0800 (PST)

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aramos@aramos.bo wrote:
> B) Moral depreciation example
> Let us suppose a case in which one of the capitals, in the
> second period, has depreciated completely its old fixed
> capital. Then, this capital introduces another fixed
> capital which is cheaper (500f the older). The
> productivity of this machine is, however, the same. The
> modification involves only the price of the machine. So, we
> have a branch with an heterogeneous stock of fixed capital,
> in terms of its cost.

I will not scrap machines because new machines cost less than my
historical costs. Historical costs are irrelevant. If the machine has
phyically worn out, I may buy a new machine, but the value of the old
machine must reflect the value of the replacement machines.

I have said this before [either I am wrong or nobody cares] but the
notion that value is necessarily a fixed quantum may be true in
equilibrium or near equilibrium conditions, but not otherwise.

Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 916-898-5321
E-Mail michael@ecst.csuchico.edu