# RE: Addendum, re Marx and historical costs

aramos@aramos.bo
Sat, 7 Feb 1998 21:29:26

Re the PIAF:

> Date: Sat, 7 Feb 98 18:31:17 UT
> From: "andrew kliman" <Andrew_Kliman@CLASSIC.MSN.COM>
> To: ope-l@galaxy.csuchico.edu
> Subject: RE: Addendum, re Marx and historical costs

Andrew:

Thanks for your prompt response who has saved me from many hours
fighting against difference equations. Thanks again!

1. Advanced capital could be defined as:

K[t] = v[o]*f[o] + v[o]*f[1] + v[1]*f[2] + ... + v[t-1]*f[t].

where the "f" are the *additions* to fixed capital carried out at the
beginning of each year, "valued" at the *output* prices of the
*preceding* circuit; there is no circulating capital.

This definition of advanced capital implies that "moral depreciation"
is NOT taken into account. In other words, capitalists never
"revaluate" their assets, "writing down" their losses. As their
assets
are "over-valuated" the profit rate seems lower than the profit
rate they would calculated after acknowdledging the destruction of
value-capital provoked by the technical change.

The formula boils down to:

K[t] = (Lo/Xo)Fo + H*{b + b^2 + ... + b^t}

Lo*Fo*(a-1)
H = -------------
b*Xo

2. Advanced capital could be defined alternatively as:

k[t] = v[o]*f[o] + v[1]*f[1] + v[2]*f[2] + ... + v[t]*f[t]

In this case the "additions" of fixed capital are "valued" at the
(lower, given the usual assumptions) prices prevailing at the end of
each circuit. This would be the so-called "replacement cost"
valuation of the advanced capital and implies a *retroactive*
valuation of the money advanced at the begining of the circuit.

After some manipulation, I think that this boils down to:

k[t] = (Lo/Xo)Fo + h*{b + b^2 + ... + b^t}

Lo*Fo*(a-1)
h = ------------- = H*(b/a)
b*Xo*a

So, the only difference between both formulas is the term H, not
equal to h.

3. Now then, my question is: Is the "moral depreciation" S[t] the
difference:

S[t] = K[t] - k[t]?

Is this term what we need to substract from the numerator of the
profit rate in order to obtain a "non-overvaluated" profit rate?

Are you agree with my formulation of "moral depreciation" in the
preceding post?

Alejandro Ramos