[OPE-L:4088] Re: Depreciation -- S.O.S

john erns (ernst@pipeline.com)
Wed, 29 Jan 1997 09:19:59 -0800 (PST)

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At 08:20 AM 1/29/97 -0800, Michael wrote:
>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.


I am assuming that Alejandro's cheaper machine costs 500f the older
machine's price when new. Note that the older machine is
completely depreciated and that the productivity of the two machines
is the same. That given, I agree that the old machine will not be
seen as scrap unless it is worn out. I think we agree on this.

I am not sure what your last sentence means. Clearly, in non-equilbrium
conditions, price movements can take things in a lot of differenct
directions. Maybe you can say a bit more.