Michael,
A couple of points on your note about Duncan's post,
which commented on mine.
1. I am fairly certain that Duncan did not know he
might be dealing with 19th Century techniques
when he responded to my post.
2. As I recall, Marx in a letter to Engels asked how
he as a capitalist depreciates fixed capital. Engels
response implies a straight-line method of depreciation.
3. Marx also speaks of the "sinking-fund" method of
depreciation.
4. I thought Marx in Theories of Surplus Value (?) notes
that in Ricardo fixed capital simply doesn't depreciate.
5. Last year we dug out quotes from CAPITAL in which
straight-line depreciation was cited as the method
used.
6. If it is staight-line, then it seems to me that those who
think that there are continuous revaluations of fixed
capital with continuous technical change have a
problem. That is, by using the straight-line method
(or sum of digits, declining balance, etc.) we see
that capitalists are anticipating at least some of the
price decreases brought about by technical change.
This manner of calculating depreciation may be the
way in which "moral depreciation" is taken into
account in rate of profit calculations.
John
On Sep 14, 1996 09:53:00, 'Michael Perelman <michael@ecst.csuchico.edu>'
wrote:
>I have to disagree with Duncan insofar as Marx was concerned. At the
>time, the common practice was to regard fixed capital as being
>comparable to the indestructable powers of the soil. Instead of
>depreciation, capitalists would deduct the cost of maintaining the
>capital intact. You can read Ricardo to see this treatment of fixed
>capital.
>
>Marx was a pioneer among economists in looking at depreciation. We have
>to be careful about reading him in the context of modern accounting.
>
>Duncan K Foley wrote:
>>
>> On Sat, 14 Sep 1996, John Ernst wrote:
>> (among other things)
>> >
>> >
>> > 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.
>>
>> This actually isn't the standard method of calculating the rate of
profit
>> in this type of situation. The more common method would be to regard the
>> machine as an investment involving the outlay of $800 in the initial
>> period, and returning the cash flow over the ten periods of its useful
>> existence. You have to specify the price of output and then you can find
>> the profit: the cash flow would be the sum of the depreciation ($80 per
>> period in your example) and the profit (unspecified in your example).
The
>> rate of return that would equate the discounted present value of the
cash
>> flow to the initial outlay would be the relevant rate of profit on the
>> machine (which might depend quite a lot on what you assume about the
path
>> of the price of the output).
>>
>> Yours,
>> Duncan
>
>--
>Michael Perelman
>Economics Department
>California State University
>Chico, CA 95929
>
>Tel. 916-898-5321
>E-Mail michael@ecst.csuchico.edu