[OPE-L:6517] Re: [OPe-L] Re: Obsolesence

Paul Cockshott (wpc@faraday.org)
Mon, 27 Apr 1998 15:19:31 +0100

I suspect that Johns example is rather unrealistic because it assumes
no fixed capital and yet has an organic composition of 6. In my
if one looks only at the constant capital flows, such high organic
are almost non-existent with the possible exception of flour milling (
the fixed capital value of the silos ), and edible oil processing.
In these industries the high organic composition arises from the
character of the harvest. Under these circumstances Johns example might
hold but it is most rare.

Allin Cottrell wrote:

> To return to John's original example:
> > "Let's take an example. Suppose that the annual cost for the
> > stock of circulating capital is $6000 -- $5000 in constant capital
> > and $1000 in variable capital. The output produced at the end
> > of each year sells for $7000. If the fixed capital is
> > fully depreciated, then the return on this investment would be
> > 1000/6000 or 1/6."
> OK, I agree that if you have to put up $6K at the start of the
> year and don't get the $7K revenue till the end, then this
> process can't compete with a new technology offering a 20% rate
> of return. The present value of the old, fully depreciated,
> capital stock is then -6 + 1/(1.2) + 1/(1.2^2) + ... < 0.
> "Can't compete", in the sense that a rational capitalist with
> ready access to funds would prefer to scrap the old plant and
> invest in the new technology, rather than continuing to put $6K
> per year into operating the old.
> At a zero discount rate, -- or a modest rate reflecting the real
> growth rate of the economy -- however, it would make sense to go
> on operating the old plant. Is that, in effect, what you were
> saying would be the socially rational decision?
> As an empirical matter it would be interesting to know: How
> common is it for old processes to get into the position
> represented in your example, i.e. where the present value of the
> fully depreciated means of production goes negative, when
> discounted at the current rate of return, yet the process is
> still capable of generating positive operating profit? (I
> suspect it may be rare.)
> Allin.