[OPEL:6206] Re: Marx and historical costs

jurriaan bendien (Jbendien@globalxs.nl)
Sun, 22 Feb 1998 16:15:41 +0100

Rakesh writes:

> By physical capital, I think Marx means only raw materials or more
> generally circulating capital costs.

I disagree. I think "physical capital" for Marx involves all the
"physical" elements of constant capital, including fixed capital (plant &
equipment, land & buildings).

I confess I find the debate on historical costs a bit curious, it seems
often we are trying here to figure out how capitalists do their profit
accounting. Obviously both the realised rate of profit and the anticipated
rate of profit are important from the point of view of the accumulation
process, but in different contexts. The point being that given the "anarchy
of production", competition, "business uncertainty" etc. one can never be
completely sure what the actual returns are going to be. Profit
expectations are a crucial factor in investment decisions, but these are
themselves based on (extrapolations of) previous business performance. So
what is the debate really about ? The correct measurement of profitability
in labour value terms ?

In the course of an accounting year, profitability may be affected by such
things as general price inflation, changes in the prices of inventories
(which may be revalued - and which is recognised in national accounts), and
changes in the price of fixed capital due to moral depreciation,
technological improvements, technological obsolescence, capacity
and so on.
The "real" rate of profit is obviously the rate of profit in current
prices or values applicable to costs, sales and realised profits. For
example if the
inflation rate is 12% and the unadjusted profit rate is 10% then a
capitalist will not think his return is really 10% but less, taking into
account the erosion of buying power occurring in the meantime. Within
certain limits, inventory revaluation due to price changes in stocks may
increase reported profits and so on, independently of actual material
production or product sales. It is very difficult to establish empirically
exactly what the "real" rate of profit is, various measurements are
possible, and we can obtain only crude indicators of the trend while
investigating the extent and limits of various factors which may modify
reported figures. I would suggest this is generally the case as well in
business practice, employers are constantly working with approximations and
relative "unknowns" - the "true" rate of profit is only known in
retrospect. That is perhaps the sense in which we should be talking about
"historical costs".


Jurriaan Bendien.