[OPE-L:6523] Re: Obsolesence

John R. Ernst (ernst@PIPELINE.COM)
Tue, 28 Apr 1998 12:26:04 -0400 (EDT)

Continuing the discussion with Allin and Paul....

> John comments (on Paul's observations):
> I must say I am surprised. A ratio of constant circulating
> capital to variable capital of 6:1 did not seem high to me.
> Yet, I'd be the first to admit you've seen more data
> than I. Let's say the ratio is 1:1. The question then becomes
> what is the price of the output.

Allin wrote:

My recollection of the data that Paul and I have worked with
tallies with his. That's the main reason why I had reservations
about the example (where the PV of the fully depreciated capital
stock went negative while operating profit was still quite
substantial). Take the 1:1 ratio above, and suppose also that
the rate of surplus value is 100%. Then, if I'm understanding
you right, the maximal rate of profit when the fixed capital is
all paid off would be 50% -- in which case it becomes
implausible than any new technique could make the continued
operation of the old one unprofitable. IMO, the more likely
fates to overtake the old means of production are (a) that they
simple become worn out, or (b) that new technology changes the
nature of the _product_ to such an extent that the stuff you can
make with the old plant is no longer a saleable use value (e.g.
i286 processor chips -- it doesn't matter how cheap they are,
nobody wants them).

John comments:

I'd like to hear a bit more about the data you and
Paul are comparing to the givens in my example. A
circulating constant capital to variable capital ratio
of 6:1 still does not strike me as odd. I am assuming
that your assumption of a 100% rate of surplus value
is not unrealistic with a ratio of 1:1.

I think that you would add to your list (c) that a new
technology replaces the older because the maximum rate of
profit _and_ the present value of the fixed capital
are negative. Without it, obsolescence would only occur when
the output of the process itself becomes obsolete. Thus,
those commodities that have been produced for, say, decades
would be produced by new techniques only when the fixed capital
of the older technique is physically useless. There would be
no obsolete means of production.

I had written:

> I would suggest that the two [i.e. negative PV of old means of
> production and positive operating profit? AC] are more likely
> to coexist in an age where there is a conscious effort to
> maintain prices both on the micro and macro levels. Drops in
> the output price in my example would provide a faster route to
> negative operating profits.

Allin commented:

I'm not quite sure what you're envisaging, with regard to the
divergence of input and output prices. In an interdendent
economy, of course, inputs are also outputs and vice versa. Are
you thinking of the price of manufactured goods falling relative
to that of raw materials? If there were underlying economic
forces making for such a change in relative prices, how would
"conscious effort" serve to prevent it?

John comments:

Sorry about the unclarity. I should simply discuss the case
where output prices are falling. Granted that outputs often
become inputs in an interdependent economy. However,
unless anticipated, this would mean a falling rate of return
for those capitals where the value of fixed capital is greater
than 0. That is, given that the investment in fixed capital
occurred before the price fall, revaluation of fixed capital
would have to be accompanied by some sort of write-off in order
to maintain the anticipated rate of return. Indeed, with falling
output prices, as we look at circulating constant capital, on the
level of the firm it is difficult to convince anyone that returns
should not be based on what was invested but by what it costs to
replace the investment. The replacement the capitalists are most
interested in is M in the relation M-C-M'. Problems due to
inflation are nothing next to those introduced by deflation.

We often hear of inflationary profits but never of deflationary
profits. To get the latter type of profits we'd have to write
off part of investment in money terms. That write-off has to
come from somewhere. Hence, on the macro level, lurking behind
conscious efforts to maintain price stability, we see "fear itself"
when deflation becomes a possibility.