[OPEL:6177] [OPe-L] Re: Historical Costs (Fred)

John R. Ernst (ernst@PIPELINE.COM)
Wed, 11 Feb 1998 21:52:09 -0500 (EST)

Re: Historical costs
Hi Fred,

You asked how other list members felt about this, so here

I do think there is some understanding missing in your
discussions with Andrew. The question is not whether
or not Marx maintains that the valuation of constant
capital is historical or current but rather how the
two methods are related. Let's back away from Marx for
a moment and consider the following example. A capitalist
buys a machine for $1000; in its initial period it produces
an output of $200 and, of course, a one-year old machine.
Now no one can doubt that the machine costs this fellow
$1000. Nor can we doubt that he sells the output for $200.
The question is what is that one-year old machine worth at
the end of the period. Obviously, the difference between
the value of the machine at the beginning of the period and
that of the one-period old machine is the total, including moral,
depreciation that occurred during the period. If, at the end
of the first period, a cheaper machine becomes available, then
that original machine will undergo "moral depreciation." Thus,
a greater portion of the $200 must be seen as depreciation than
would have been had no cheaper machine been produced.

At the start of the next period, the one-period old machine has
the same value it had at the end of the previous period.
We could argue over different methods of depreciation here
but that would divert us from the question, "When and how does
the devaluation of the capital stock take place?"

That Marx thought that the devaluation of constant capital occurred
is not at issue. What is at issue is, again, when and how?

That said, let me comment on some of specifics of your post.

You wrote:

1. I have argued that Marx had a consistent interpretation of
the valuation of constant capital in terms of current costs. This
consistent valuation in terms of constant costs applies both to
the stock and to the flow of constant capital and also applies
both to the case of technological change and to the case of a
change in the value of money. I will leave aside for now the
question of whether "current costs" refer to the beginning or
the end of the current period. The main point for now is that
constant capital is definitely NOT valued at historical cost in
Marx's theory, in the cases of either technological change or a
change in the value of money. Marx always assumed that
constant capital is valued at current costs, not at historical

I comment:

Here you seem to move away from Marx as we never leave that
one period of production to which you refer nor do we have
a clue as to the role of moral depreciation. The revaluation
of constant capital takes place "deus ex machina."

No one is saying that the fixed capital does not undergo
moral depreciation and devaluation; rather, the matter at
issue is how and when that revaluation takes place. To even
deal with this, we are forced to view the capitalist production
process as it takes place in time.

It seems to me that we ought to consider what makes sense first and
then turn to Marx to see if he does. One problem that seems to
occur in finding what makes sense in Marx is that we bring the
idea of simultaneous valuation to his efforts. This is a bit
ironic as he was the first to place time within the analysis of
capitalism; for example, the reproduction schemes.

Fred wrote:

I have presented substantial textual evidence to support this
interpretation, including in OPEL 3507 which I have just
reposted. Andrew seems to agree that Marx SOMETIMES did
assume that the stock of constant capital is valued at current
costs. Indeed, given all the textual evidence, who could deny

I respond:

Here, I can only ask, "To what extent does that textual evidence
take into account the passage of time?"

Fred wrote:

2. However, Andrew argues that Marx did not have one
general assumption regarding the valuation of the stock of
constant capital, but instead had different interpretations for
different purposes. Even though Marx assumed that constant
capital is valued in constant capital in the passages I have
quoted, Andrew argues that, FOR OTHER PURPOSES, Marx
assumed (at least in the case of technological change; I am still
not sure how Andrew interprets the case of a change in the
value of money), that the stock of constant capital is valued in
historical costs. (Although, as I understand Andrew, the flow
of constant capital continues to be valued in current costs, thus
resulting in an inconsistency not present in Marx¹s theory
between the valuation of the stock and the flow of constant

John responds:

I simply have never heard Andrew say much of this. I have spent
some time discussing things with the fellow and nothing like
this has ever been said. Again, my suggestion is that
you think this through a bit more. If stock of capital advanced in
one period is $1000 and worth $900 at the end of the period, then
the difference is the total depreciation of that stock. No one
is saying that the total depreciation does not include moral
depreciation and the devaluation of the capital stock. However,
in real time, that devaluation takes effect at the end of the first
period and the beginning of the second.

I'd be the first to admit that those who can be called TSS'ers need
to think through the changing value of money. However, non-TSS
defenses of Marx's FRP seem to "abstract from" any notion of money
as a way of measuring the numerator and denominator in the formula
for the rate of profit. Any old numeraire will do as all values
are determined only for a point in time.

Fred wrote:

The all-important example of this different assumption
regarding the valuation of the stock of constant capital in the
case of technological change, according to Andrew, is of course
the "falling rate of profit."

Now it seems to me highly unlikely that Marx would assume in
some cases that technological change results in a revaluation of
constant capital, but then when he comes to the crucial
question of the falling rate of profit (which is of course about
the effect of technological change on the rate of profit), that he
would make the opposite assumption that the stock of constant
capital is not revalued. Marx certainly never explicitly said
that, for the specific purpose of the theory of the falling rate of
profit, he was no longer assuming that technological change
resulted in a revaluation of the stock of constant capital, but
was instead making the opposite assumption (but continuing to
assume that the flow of constant capital is revalued in constant
costs!). But let's review Andrew's textual evidence.

John comments:

This discussion of the FRP is a bit premature as we seem to disagree
on how to move from one period to the next, given technical change and
its consequences -- moral depreciation and capital devaluation.

3. Andrew presents three passages as textual evidence to
support his interpretation that in Marx's theory of the falling
rate of profit the stock of constant capital (the denominator in
the rate of profit) is valued in historical costs.
I will first discuss a passage from Section 3 of Chapter 14 of
Vol. 3 (on "cheapening of the elements of constant capital").
This passage is especially important because it is an explicit
discussion of the effect of technological change on the value of
constant capital, as related to the falling rate of profit. Andrew's
passage is the following part of a sentence:

... ³the depreciation of the existing capital (that is,
of its material elements) ...

Andrew then emphasizes Marx's parenthetical remark:

Now, why the parenthetical remark? Is it not to make
clear that the means of production, the material elements of
capital, can be cheapened, although the sum of value already
advanced cannot?

John comments:

Neither Andrew nor Marx are or were insane. How can one not agree with
the idea that "...the sum of value already advanced" cannot
change? Either it was advanced or it wasn't. Andrew would have
to enter an extremely strange world to maintain that the value of
the capital advanced was not advanced. No one, not even capitalists,
can travel back in time to undo what was done.

John concludes (for now):

You've been gathering your textual evidence for some time and
I really have to go through it all. But, from your
other work, it is clear that you do not need simultaneous valuation
of inputs and outputs to understand the transformation problem.
That is, for you fixed capital enters the production process with
a given value. From where did that amount of value come? Clearly,
from its value at the end of the previous period.

The stock of capital is both depreciated and devalued in each
and every period of production given technical change. To the best
of my knowledge, Andrew has never denied this. Indeed, he gave
emphasis to it when, in a recent post, he remarked (paraphrase)
that you can't have devaluation without moral depreciation. To
actually see this, you have to see the accumulation process as
one that takes place from period to period.

The best,