# [OPE-L:4151] RE: Revaluation

From: P.J.Wells@open.ac.uk
Date: Wed Oct 18 2000 - 13:20:46 EDT

```John E [#4093]

Clearly the machine depreciates by aging during its "off" hours or
the other 12 hours.   I think you're saying that that value is simply
lost and not transferred.  Yes?    If so,  how do we figure this
loss as we compute the rate of profit?

Why "clearly"? This sounds like petitio principi to me.

John [#4097]

At first, it seems obvious that if a machine  *never* produces output
it never transfers value.  But let's consider this a bit.  For example,
let's say to make sure he can fulfill orders in a timely fashion
a capitalist buys 5 machines even though he only needs 4 to produce
the output he thinks he can sell.  The 5th is there --"just in case."
Now if he never uses that 5th machine, does its value get transferred
to the value of the output that the other 4 produce?  I'd say yes.
I'm not sure what you would say.
>
Surely it's a question of what is socially necessary? Suppose other
capitalists find it expedient to buy 10 and use 9 -- or alternatively that
they are still accustomed to buying 10 and using 7?

John [#4097]

Here maybe we can jump ahead a bit so that I can better understand how you
deal with "losses"  that occur when not all the value is transferred
from the means of production to the output during the lifetime of
fixed capital.   Let's call the loss, x.   Does "x" enter into your
calculation for the rate of profit?  If so,  how?

Let me say why I think this gets to the matter rather quickly.
If a capitalist buys a machine for \$100 to produce an output
worth \$150 in each of 2 years, then, assuming all other costs
are negligible, given that \$50 of the machine's value is
transferred in the 1st year, he would expect a rate of
profit of   (150-50)/100.   The surplus value would clearly
be \$100 ---  the term in the numerator.   However, if the
machine is rendered useless at the end of 1st year due to
moral depreciation, then the untransferred value would be lost
to him.  His *real* rate of profit would be (150-50-50)/100
or only 50/100.

However,  had we assumed that the moral depreciation of \$50
is transferred to the output, we would get the same result.
That is, (150-50-50)/100 where one of "50's" represents real
depreciation and the other moral depreciation.  The same 50
is deducted from the output no matter how we compute the
transfer of value.

Thus,  I suppose the real question is --  is Marx's falling
rate of profit  computed before or after allowances for
moral depreciation.
>
>
I think the real question is what rate of profit the entrepreneur
had been hoping to achive over what period -- in other words, it matters
whether the moral depreciation was unexpected (hence unplanned for) or not,
and hence what the actual balance sheet looks like compared to the expected
balance sheet at the end of year 1.

In John's example it is clearly unplanned by construction: the
entrepreneur had planned to make 100 per cent profit for each of two years;
they do actually do this for one year, but end up with total assets of (\$150
cash + \$0 machine) at the end of it, instead of (\$150 + \$50 machine) as
planned.

If they borrowed the original \$100 on overdraft at 50 per cent
interest, they are (just about) in the clear -- better luck next time.

If they instead sold \$100 of stock to investors who could have got
75 per cent in a different project, the entrepreneur is in a bind, as the
investors now only have \$150 where they could have had \$175. In this case
the entrepreneur should probably not look forward to any "next time".

On the other hand, if the entrepreneur *had* anticipated the moral
depreciation but went ahead anyway (because, for example, the general rate
of profit was only 25 per cent) the stockholders should be perfectly happy.

Julian
```

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