[OPE-L:6355] Re: Historical Costs

John R. Ernst (ernst@PIPELINE.COM)
Wed, 25 Mar 1998 01:26:29 -0500 (EST)

Hi Fred,

Good to have seen you in NYC. You conclude your latest
"Historical Costs" post to Andrew by stating that

"As I have said before, I still have many questions about Marx's
theory of the falling rate of profit, but this is not one of them.
I cannot accept the interpretation that Marx assumed that
constant capital is valued in historical costs in his theory of the
falling rate of profit as a reasonable interpretation. There is no
explicit textual to support this interpretation and much explicit
evidence to contradict it. "

My comment:

Something is wrong here with respect to your interpretation of Andrew's
position. In stuff that I've seen him do concerning depreciation, he
consistently revalues the constant capital at the end of each period.
To be sure, his rate of profit calculation uses the constant capital
actually advanced at the beginning of the period. This is not necessairly
the historical cost of that constant capital. In true TSS fashion, the
input value of a particular commodity does not equal the output value
as technical change takes place.

You continue:

"I hope to return soon to John's posts of several weeks ago in
this same discussion of historical costs, and explore further
some of my unanswered questions. John seems to agree that
Marx assumed that, in the case of technological change, Marx
assumed that constant capital is revalued in current costs. But
John rightfully then asks: what about the capital loss that
results from this devaluation? How does it affect Marx's rate of
profit? This is one of my unanswered questions, to which I
hope to return soon."

John comments:

I'm unclear about what I'm agreeing with here. I would agree that
the input value of a commodity differs from its output value as
technical change takes place. Thus, there is a revaluation of
the existing constant capital left over at the end of the production
period. Given we are dealing with the case of devaluation, the loss
is seen as moral depreciation.

Note that in circulating capital models and examples in which all
of the constant capital is used up in each period such loses do
not appear. In those situations, it is simply a matter of, say,
investing $100 and selling the output for $110. We've got a profit
of $10. No big deal one would think until we encounter simultaneous
valuation. That is, if the $110 of output translates into prices that
are, for example, one half of what they were when the period began,
then the capitalist is told that he invested only $50 and made a
profit of $60. This strikes me as nonsense.

Why does anyone even argue in this fashion? The best reason that
I can imagine is that folk do not want to dwell on the case of
falling prices but want a theory that deals with the rate of profit
regardless of the direction in which prices are changing. Here,
perhaps, we are all a bit confused or confusing as we are trapped
in circulating capital models and examples. For Marxists, I
think this is quite strange since Marx himself never makes any claims
about the rate of profit until he has introduced fixed capital.
Thus, for me, the difficulty of the falling rate of profit is
to show how it can make its appearance as prices are constant or
rising. Without fixed capital, I think the task is impossible
without introducing some rather strained assumptions.

Be well,