[OPE-L:5017] Re: RRI and The Rate of Profit

john ernst (ernst@pipeline.com)
Wed, 14 May 1997 10:55:06 -0700 (PDT)

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RE: OPE-L 5007
Chai-on said:

Well, in calculating the sum of discounted expectations of future revenues
and costs, we have to assume a given general interest rate (which I assume
to be equal with the general arte of profit). This terminology is
neo-classical. The concept of the capital gain and losses are originally
from the neo-classical. Duncan's revaluation would have to accommodate the
future market prices of the currently employed machines. If so, his concept
of capital gains and losses should be termed differently so as not to be
confused with the neo-classical terms. I should call them the revaluation
or devaluation.

John comments:

I agree that Duncan's revaluation should take into the future market
prices of machines. It should also take into account the expected
introduction of new and better machines as well as the falling prices
prices of the goods produced with those machines. Put simply, we
should assume that capitalists expect at least of the events we
consistently assume in our understanding of Marx's notion of
accumulation. As we do so, the continual revaluation of existing
capitals becomes unnecessary.

I had written:

>But is not at least some of this loss of capital value, no matter how
>defined, expected? If so, should it not be included in considering
>the rate of profit?
>Put simply, if a machine is to be depreciated over a certain amount
>of time, how is that time determined? For Marx, the determination is
>made not solely upon the basis of physical wear and tear but also upon
>the degree to which it undergoes moral depreciation. How then can
>a rate of profit be computed without reference to the expected time
>a machine will last? In turn, how can we refer to the lifetime
>of the machine without reference to moral depreciation?

Chai-on remarked:

Yes, I agree with you. The moral depreciation would have to be re-adjusted
every period so as to accommodate new situations. Yet, as far as the
transformation of value into PrPr is concerned, we need not take long
periods into account. The transformation is carried out in one period.
On what occasion do you think the RRI matters, by the way?

John comments:

1. Again, I do not think that the amount of "moral depreciation" needs
to computed each period. See above.

2. Given that we acknowledge a "realistic" RRI or, in other words, one
computed with expected decreases in the prices of inputs and outputs,
we can also see that should the RRI exceed the returns on already
existing machinery even if fully depreciated, then that existing
machinery will be scrapped. This gives us one way of estimating
the lifetime of machinery. But note that in doing this we would
need some knowledge of prices. Yet in carrying out the transformation
of values into prices, we assume we know only values.