# [OPE-L:4339] Problems in vol. III

David Laibma (DLaibman@brooklyn.cuny.edu)
Mon, 10 Mar 1997 14:13:36 -0800 (PST)

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IN re John E.'s problem (I'm glad he didn't call it a "quiz"!).

I want to try to figure out the depreciation puzzle, but am having trouble
doing it because of some difficulties in the comparison of the two capitals.
The first capital has a "stock of circulating capital" of 1000 (this phrase
is contradictory: I assume you mean a flow of circulating capital), and
(apparently) no fixed capital at all. The second capital has a stock of 1000
and a flow of 1000.

My problem is this. The profit rate must be calculated EITHER on a flow
basis, OR on a stock basis, and stocks and flows cannot be summed together.
In other words, the calculation 1000 + 1000, which John is apparently using
for the denominator of the profit rate for the second capital, is
illegitimate, if the first 1000 is a stock and the second 1000 is a flow.
The profit rate on a stock basis for the second capital might be s/C, or 20%.
But on a comparable basis, the profit rate for capital #1 is infinite.

Perhaps the comparison could be made on the basis of two capitals, both of
which have (constant) capital stocks, which however differ in their relation
to the relevant flows. The depreciation should be included in c, the flow of
constant capital; in fact, for purposes of this comparison it could
constitute the entire flow of constant capital. If the profit rate is the
same for the two capitals (perhaps these are production-price examples), the
depreciation charge will be proportional to the size of the fixed capital,
and will appear in the value of the product. I get an example in which
capital 2 is twice the scale of capital 1, with no other differences.

John, I am not sure where your \$1900 figure comes from.

Still workin',

David