[OPE-L:4368] Re: Further Comment on John's Example

john erns (ernst@pipeline.com)
Wed, 12 Mar 1997 00:50:58 -0800 (PST)

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Thanks for your "suggestion" concerning the problem I
posed. Here, let me follow up by focusing on what we
have called "Captialist 2."

You wrote (OPE 4361):

* Capitalist 2 has $1000 for materials, $1000 for wages,
$200 profit and $62.75 in depreciation allowance, which he
invests at 10 0n order to end up with $1000 to replace his
machine at the end of 10 years.

My comments:

(We both assume wages are NOT advanced.)

1. You seem to be using what is called the "sinking fund" method
of depreciation in order to arrive at the depreciation charge
of $62.75 per year. I had proposed we use "straight line."
This is not to say that there is anything wrong with using
the "sinking fund" method. Indeed, it was that very method
that Marx himself was curious about back in August of 1867.
What I do not understand about it is how we can reconcile the
idea of labor preserving the value of fixed capital piecemeal
as it creates new value. That is, the value (in price terms)
actually transferred over 10 years in this example would be
10 * 62.75 or 627.50 and not 1000. The difference comes
from the production process in which the accumulation is
invested. I pose this as my dilemma to you as this
"sinking fund" stuff seemed to come to you somewhat

2. Given the annual depreciation charge of 62.75, I'd like
to look at our Capitalist 2's investment in each of the 10
periods and see how THIS investment does.

Fixed Mat
Cap. Cst. Profit

1000 1000 200
937.25 1000 200
874.5 1000 200
811.75 1000 200
749 1000 200
686.25 1000 200
623.5 1000 200
560.75 1000 200
498 1000 200
435.25 1000 200

7176.25 10000 2000 Totals

Now if we look at the overall investment, it would seem that
a profits of 2000 have been produced and that the total
capital advanced was 7176.25 + 10000. Thus the overall
on the investments would be

2000/(7176.25+10000) or 0.116439

However, if we have to discard the machine after the 10th year,
then it would seem we see a loss of 435.25-62.75 or 372.50.
The return then beomes

(2000-372.5)/(7176.25+10000) or about .095

Given our calculations are correct, we seem to have two different
answers when the annual depreciation charge is assumed to be