Re: [OPE-L] Re: Historical Costs

Duncan K. Foley (
Sun, 8 Feb 1998 22:06:38 -0500

Continuing the discussion with John:

John, in discussing the practical importance of moral depreciation, puts
forward the following example:

>Consider the case where there is general price deflation. If each
>$1000 invested before deflation yields profits of $200, the investment
>of $1000 in the period in which there is deflation produces less profit,
>say, $100. Has the rate of profit fallen? It would seem so. But
>if we revalue that $1000 in that same period or devalue the investment
>by 50%, then the rate of profit stays the same as the capitalist writes
>off $500. By depicting the accumulation process using "end of period
>replacement costs" to value the capital invested in any given period,
>we see no change in the rate of profit from one period to the next.

Surely the individual capitalist's wealth is affected in exactly the same
way by a falling rate of profit in production proper and by the ongoing
devaluation of stocks because of generally falling prices. But it seems to
me that there is a great advantage in separating these two aspects of the
situation analytically: one basically has to do with the exploitation of
labor, and the other with the revaluation of existing assets. (Sometimes,
of course, capitalists make a gain through the revaluation of stocks, which
is often the foundation of great fortunes.) The two are connected through
the capitalist mode of production, since it creates the incentives for
capitalists to compete through technical innovation, which is the
underlying force in the revaluation of the assets. But it still seems
important to separate out the two moments of "ex post" profitability, as
Marx does.


Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947