[OPE-L:4928] Re: The High Cost of Prices

Ajit Sinha (ecas@cc.newcastle.edu.au)
Tue, 6 May 1997 00:46:59 -0700 (PDT)

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John asked me to comment on this. So i will do even though I haven't thought
much about the problems with fixed capital.

John says:

>In most treatments of the transformation problem the
>starting point is either a set of values or a set
>of physical quantities. The values most often used
>are determined by the embodied labor times. To derive
>prices of production from the given, several additonal
>assumptions are made. Here let's focus on one, not often
>acknowledged -- the economic lifetime of fixed capital.
>That is, no matter what we use to perform the
>transformation -- values or physical quantities -- we
>are forced to assume that fixed capital has some given
>lifetime. Indeed, this is the case even when we include
>only the depreciated portion of fixed capital as the
>transformation is carried out.

This characterization would be incorrect. Most of the transformation problem
literature assumes no fixed capital. All constant capitals are taken as
circulating capital. This is, of course, a simplifying assumption. But then,
when simple problems are hard enough, why complicate it even further.
>On what basis do we impute economic lifetimes to
>the quantities of fixed capital involved? Further,
>do we need to know the prices of production themselves
>in order to determine the prices of production? This,
>of course, would mean that deriving prices of production
>from values based upon embodied labor times or from a
>given set of use values is impossible.

I simply do not understand this. But in general, I think when firms buy new
machines they have a good sense of its economic life time. Even when we buy
durable goods such as refrigerators or cars etc. we have a fairly good sense
of its economic life time.
>The simplest way to resolve this dilema is to assert that
>the economic lifetime of fixed capital is given by its
>physical properties. In other words, fixed capital is
>fully depreciated only when it is completely useless.
>That fixed capital can become obsolete because of the
>introduction of better techniques must be ignored.
>Marx's concept of moral depreciation must be set aside
>as the derivation of prices of production takes priority.
>Do we pay too high a price for prices?

Since you have so much problem with fixed capital, why don't you look into
the joint production method, John. The joint production approach should, in
my opinion, take care of most of your major problems with fixed capital. I
had sent you some references privately sometime ago. I still think Schefold
is your man. Cheers, ajit sinha