[OPE-L:5068] valuation of constant capital

fred moseley (fmoseley@laneta.apc.org)
Sun, 18 May 1997 22:25:01 -0700 (PDT)

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I have presented substantial textual evidence that Marx generally assumed
in Capital that constant capital is valued at current costs, not at
historical costs, and Duncan has said that he is persuaded by this
evidence. In his latest post in response to me (5020), John does not
dispute any of this evidence, not does he present any textual evidence of
his own to support his interpretation that Marx assumed that constant
capital is valued at historical costs. Instead, John raises two other
issues: "moral depreciation" and the "rate of return on investment" (RRI),
which I will briefly review.

1. John suggests a highly controversial interpretation of Marx's concept
of "moral depreciation" (I would say a dubious interpretation), and then
seems to argue in effect that this controversial definition of " moral
depreciation" implies that Marx must have valued constant capital at
historical costs. John's controversial definition is that "moral
depreciation" is a kind of accelerated depreciation: because capitalists
anticipate future technical change and the resulting devaluation of their
existing constant capital, they depreciate their constant capital at a
faster rate in order to avoid this devaluation. If capitalists'
anticipations are correct, then capitalists recover their full investment
of constant capital valued at historical costs.

I have argued in several posts over a year ago that John's definition of
"moral depreciation" is not Marx's definition, which is instead the loss of
capital that results from unanticipated technical change. As I remember
it, this is also the way that "moral depreciation" has usually been
interpreted in the literature (although I haven't had the time to check
this out). I know of no one else that defines "moral depreciation" like
John does. (John: if others have a similar definition, please give me the
references). I will not go back over the details of this debate now. But,
however this issue is decided, I think that it has to be admitted that this
controversial defintion of "moral depreciation" is very slim evidence to
justify the conclusion that Marx assumed that constant capital is valued at
historical costs. ESPECIALLY when there is so much direct, explicit
evidence to support the opposite conclusion - that Marx generally assumed
in Capital that constant capital is valued at current costs. Whatever the
merits of John's concept of "moral depreciation", it does not provide
convincing evidence that Marx himself assumed historical cost evaluation.

2. The second issue raised by John is the RRI. I have not followed all
the recent discussion about the RRI, so I may not understand all that is
involved here. But it seems to me that John is saying that his recent
discussions with Andrew made him realize that his definition of "moral
depreciation" is inconsistent with Marx's rate of profit as usually defined
- as the objective, ex-post ratio of the total surplus-value in the economy
as a whole to the total stock of capital invested. However, he argues that
his definition of "moral depreciation" is consistent with the concept of
the RRI - the subjective, ex-ante "rate of return on investment". John
says that, rather than give up his concept of "moral depreciation", he has
decided to give up instead Marx's objective ex-post rate of profit in favor
of the subjective ex-ante RRI (or is at least considering this). This
seems to me to be a very high costs to pay just to hang onto John's
controversial concept of "moral depreciation". But, in any case, this
would clearly be a departure from Marx (John does not seem to dispute
this). And, most important for the current discussion, however one decides
this issue, John's discussion of the RRI cannot possibly be an argument
that Marx assumed that constant capital is valued at historical costs.

Therefore, I think one has to conclude, on the basis of the evidence and
the discussion thus far, that Marx himself assumed in Capital that constant
capital is valued in current costs. We can to on to discuss the other
issues rased by John (at a lower level of abstraction), but unless further
evidence and arguments are presented, this conclusion should be acknowledged.

3. To clarify a point raised by John, I am not saying that Marx assumed
that the devaluation of constant capital as a result of technical change is
necessarily immediate from one period to the next. Marx's theory in
Capital is at a high level of abstraction. He was not trying to explain
actual market prices in each and every period. Rather, he was trying to
explain the long-run tendency of these prices. It seems to me that Marx
argued something like the following:

Small devaluations of constant capital take place all the time as a result
of ongoing technological change. Competition forces prices to be based on
current costs, maybe not in the next period, but sooner rather than later.
These small ongoing devaluations do involve the loss of capital, but they
do not by themselves necessarily cause a crisis.

Furthermore, I think that Marx argued that, in spite of these small ongoing
devaluations (i.e. in spite of the ongoing "cheapening of the elements of
constant capital"), the rate of profit - evaluated in current costs - still
falls, and this fall in the current cost rate of profit evenually causes a
crisis, in which much bigger devaluations take place, as a result of
bankruptcies, which thereby restores the rate of profit and makes possible
a recovery from the crisis.

John commented in an earlier post that he thinks that a decline in the
"current cost" rate of profit in contemporary capitalism is unlikely.
Adding to Duncan's response to this comment in (4968), according to the
available empirical evidence, mine and other's, the CURRENT COST rate of
profit DID DECLINE significantly in the post World War II period, at least
in the US and Mexico, and I think also in the UK and other countries.
(Alan, are your estimates for the UK, which are published in the Dunne
volume, in terms of current costs or historical costs? I can't remember
and I don't have it with me). In other words, Marx's theory of the decline
of the current cost rate of profit is generally supported by the available
empirical evidence for the postwar period (i.e. for "late capitalism").