# [OPE-L:3016] Straight and Moral

John Ernst (ernst@nyc.pipeline.com)
Sat, 14 Sep 1996 06:59:04 -0700 (PDT)

[ show plain text ]

More than a few months ago, we discussed "moral depreciation" as
we found it in CAPITAL. We also dealt with the fall in social value
to the level of individual value as technical change takes place and
is generalized. It may of interest to consider the following example
of a given capital.

Let's say that a capitalist buys a machine
that costs \$800, C, to produce 1000 units of
the commodity, Q. To produce with that machine,
he must invest \$100 in raw and auxiliary
materials, c, and \$100 in variable capital,
v. If the machine is predicted to
last 10 periods, then in each period he
withdraws \$80, y, from the output
should he choose to depreciate the
machine via straight line depreciation.
This means that his invested capital
decreases by that amount, again y,
after production in each period. If
the rate of profit is assumed
constant, say, 15%, this means that the
amount of profit he anticipates over the
life of the machine decreases by 150f \$80 or
\$12 each period. Now let's consider Table I.

TABLE I

C c + v + p = y + c+v+ p1 + p2 = w Q
w/Q

(1) (2) (3) (4) (5) (6) (7) (8)
(9) (10) (11)

1 \$800 \$100+\$100+\$150 = \$80+\$200+\$120 +\$30 = \$430 1000 \$0.43
2 \$720 \$100+\$100+\$138 = \$80+\$200+\$108 +\$30 = \$418 1000 \$0.42
3 \$640 \$100+\$100+\$126 = \$80+\$200+ \$96 +\$30 = \$406 1000 \$0.41
4 \$560 \$100+\$100+\$114 = \$80+\$200+ \$84 +\$30 = \$394 1000 \$0.39
5 \$480 \$100+\$100+\$102 = \$80+\$200+ \$72 +\$30 = \$382 1000 \$0.38
6 \$400 \$100+\$100+ \$90 = \$80+\$200+ \$60 +\$30 = \$370 1000 \$0.37

7 \$320 \$100+\$100+ \$78 = \$80+\$200+ \$48 +\$30 = \$358 1000 \$0.36

8 \$240 \$100+\$100+ \$66 = \$80+\$200+ \$36 +\$30 = \$346 1000 \$0.35

9 \$160 \$100+\$100+ \$54 = \$80+\$200+ \$24 +\$30 = \$334 1000 \$0.33

10 \$80 \$100+\$100+ \$42 = \$80+\$200+ \$12 +\$30 = \$322 1000 \$0.32

In the first period, the living labor adds \$250
or the sum of columns (4) and (5).

In the 10th period, the living labor adds only \$142,
the sum of columns (4) and (5). Thus, by simply
depreciating fixed capital, capitalists unknowingly
anticipate the fall in value that takes place.
Is the rate of profit falling?

Hardly. Our capitalist is obtaining the same rate of
profit in each and every period -- 15%. The price he
needs to get for each unit of output falls and
yet he still holds his own.

(This makes "the history of accounting" a subject
that may well be worth looking over in our
"spare" time.)

Note that for other capitalists to beat out this
character with a new machine they would be forced
to find ways to prodcue at a lower cost in order
to achieve the going rate of profit. Further,
if we move to an 11th period, our fellow can
really drop his price. That is,

11 \$0 \$100+\$100+ \$30 = \$0+\$200+ \$0 + \$30=\$230 1000 \$.23

Thus, to force him to the wall, one needs a machine
that produces the total output of 1000 that sells for less
than \$200 with a rate of profit of 150r more. . Note that
in our example the captialist's profit rate falls when his
output sells for less than \$230.

The point here is that capitalists by using simple straight line
depreciation can and do anticipate "moral depreciation,."