[OPE-L:842] evaulation of inputs and moral depreciation

Fred Moseley (fmoseley@laneta.apc.org)
Wed, 24 Jan 1996 06:55:32 -0800

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I tried to send this message twice yesterday, but it was returned due to
"delivery problems." I noticed that a few other messages got through, so I
don't know what the problem is. But I will try again. Here goes.

Thanks to John for the clarification of his interpretation of "moral
depreciation."
This post is a preliminary reply to John. (I am still recovering from an
all night party Saturday night - a guided tour of night clubs in Mexico
organized by a friend (Mario Robles whom some of you know) as a birthday
party for his wife. Mexicans really know how to party. Most were still
dancing strong at the end.
I was asleep on my chair.)

I will continue to concentrate on what Marx to say about the valuation of
inputs and leave for later discussion the extent to which Marx's treatment
of the valuation of inputs can be applied to contemporary capitalism.

John's comments consist of two main points:

1. ANTICIPATING RESULTS

John argues that, in the passages I quoted from Marx (in which I maintain
that Marx clearly stated said that the prices of the means of production are
determined at current replacement costs and not at actual historical costs),
Marx was anticipating the result that technological change would lead to
falling prices, but did not explain how these falling prices actually
occurred.

The textual evidence presented by John to support this interpretation is not
from any of the passages I have quoted, but rather is from Chapter 12 of
Volume 1 on Relative Surplus-Value, in which Marx derived capitalism's
inherent tendency toward technological change. John argues that Marx
anticipated the result that technological change would lead to falling
prices because he did not describe the process by which, after the
introduction of an innovation in the production of a commodity, the price of
that commodity falls, or the individual value of the product of the
innovator becomes the social value of the commodity.

In response, I argue that in Chapter 12, Marx did not "anticipate" the
result that
technological change would cause prices to fall. Instead, this result
follows directly from Marx's labor theory of value (assuming a constant
value of money; the value of money is another important issue with regard to
the valuation of inputs that I will discuss in a later post). This result
is crucial to Marx's theory of relative surplus-value that is presented in
this chapter. If technological change did not cause the price of the means
of subsistence to fall, then relative surplus-value could not be produced.
Perhaps Marx did not explain fully and concretely how prices would fall as a
result of technological change. But this effect is nonetheless a simple
logical deduction of the labor theory of value and the key feature in Marx's
theory of the dynamics of capitalism.

Marx did not explicitly discuss in this chapter the effect of technological
change on the price of previously produced means of production, which is the
issue I have raised. On the other hand, all the passages I have quoted in
my previous post indicate that Marx continued to assume this result in this
specific case; i.e. he continued to assume that the price of previously
produced means of production is determined as the current reproduction costs
of these means of production and this price will fall from the time the
means of production were purchased to the current period if there is
technological change. Marx never discussed (to my knowledge) any alteration
in this assumption (please correct me if I am wrong). This assusmption may
turn out ot be wrong, or have to be modified, but that nonetheless was Marx'
s assumption.

2. MORAL DEPRECIATIOIN

John's second point: even if the price of machines do fall as a result of
technological change, Marx covered that base quite well with the notion of
"moral depreciation". By "moral depreciation", John means (I think) that
capitalists anticipate that future innovations will reduce the effective
life of the machine, so that depreciation charges are calculated over a
shorter life span and hence these charges are greater than what they would
be if calculated over the physical lifetime of the machine. The extra
depreciation charges are what Marx called "moral depreciation".

Algebraically, John's interpretation of "moral depreciation" may be
expressed as follows. The depreciation charges of a given machine - without
"moral depreciation" - is determined according to the following equation:

(1) d = P / n

where d is the annual depreciation charges,
P is the price of previously produced means of production
and n is the expected lifetime of the means of production.

Alternatively, the depreciation charges of this machine - WITH "moral
depreciation" (as defined by John) - is determined according to equation (2):

(2) d* = P / n*

where n* is the shorter expected lifetime due to "moral depreciation"
and d* is the greater annual depreciation charges also due to "moral
depreciation".

According to this intepretation, the quantity of "moral depreciation" (md),
is given by:

(3) md = d* - d

In John's example: d* = 150, d = 100, and md = 50.

Note that in this intepretation, P remains the same. d changes because n
changes.
Another name for this method of accounting is "accelerated depreciation".

This faster acceleration with a given P is something altogether different
from what Marx was talking about in the passages I have quoted. Instead,
Marx was talking about a situation in which P changed as a result of
technological change. John seems to be arguing (1) that, in order to avoid
the type of devaluation of the means of production described by Marx,
capitalists use such a method of accelerated depreciation, (2) that Marx
assumed that capitalists use such a method of accelerated depreciation, and
(3) that Marx's concept of "moral depreciation" was intended to refer to
this accelerated depreciation. Let's set aside for the moment the question
of whether capitalists actually use this method and examine the passages
John has cited to see if they support his interpretation of "moral
depreciation".

2a. The first passage cited by John is from Chapter 15 of Volume 1 of
Capital on Machinery.

In addition to the material wear and tear, a machine also undergoes what
we might call a moral depreciation. IT LOSES EXCHANGE-VALUE, either
because machines of the same sort are being produced more cheaply, or
because machines of the sme sort are entering into competition with it.* In
both cases, however young and full of life the machine may be, ITS VALUE IS
NO LONGER DETERMINED BY THE NECESSARY LABOR-TIME ACTUALLY OBJECTIFIED IN
IT, BUT BY THE LABOR-TIME NECESSARY TO REPRODUCE EITHER IT OR THE BETTER
MACHINE. IT HAS THEREFORE BEEN DEVALUED TO A GREATER OR LESSER EXTENT.
(C.I. 528; Penguin ed.; emphasis
added.

I think that this passage supports my interpretation that the price of
previously produced means of production is determined in the current period,
not in the past periods in which they were produced. I also think that this
passage suggests a different meaning of "moral depreciation" than John's
definition.

I think this passage says:

1.. At the time of the purchase of the machine, its value is determined by
the labor-time necessary to produce it at that time.

2. As a result of innovations, the value of the machine is redetermined by
the labor-time necessary to reproduce it at the current time.

3. Therefore, as a result of innovations, the machine "loses exchange-
value" or is "devalued". This loss of exchange-value is what Marx 1
meant by moral depreciation. Note again the first two sentences.
This passage does not say anything about capitalists anticipating
innovations and accordingly calculating higher depreciation charges
over a shorter life span.

This definition of moral depreciation (which I argue was Marx's definition)
may be expressed algebraically as:

(4) md = P - P*

where P is the price of the means of production at the time they were
purchased and P* is the current (lower) price of these means of production.
Compare this definition of moral definition with John's definition (equation 3).

2b. John also mentions the footnote to this passage (its location is
indicated by
the * above). This footnote consists of a quote from the London Times about
a "Manchester spinner" who:

enumerates, as part of the of mechinery, "AN ALLOWANCE FOR DETERIORATION
OF MACHINERY. It is also intended to cover the loss which is constantly
arising from the superseding of machines before they are worn out, by
others of a new and better construction."

I agree that this passage does say that capitalists do try to anticipate
future innovations and that capitalists make an allowance to cover future
losses due to such innovations. But it does not say exactly how this
allowance is made. Specifically, it does not say that this allowance is made
by reducing the expected lifetime of the machine and increasing the annual
depreciation charges accordingly. Another type of allowance is to set up a
"reserve fund", which is a one-time deduction from profit, with the annual
depreciation charges remaining the same.
It is not clear from this passage which type of allowance the Manchester
spinner made or which type of allowance Marx intended to infer.

In any case, Marx did not say in this footnote that this allowance, however
it is made, is what he meant by moral depreciation. Such a definition
would contradict the definition given in the text.

2c. The other passage cited by John is from Chapter 8 of Volume 2 on Fixed
and Circulating Capital. This passage says:

Finally, as is the case throughout large-scale industry, moral depreciation
also plays its part. After ten years have elapsed, it is generally possible
to buy the same quantity of carriages and locomotives for $30,000 as
previously cost $40,000. A DEPRECIATION OF 250N THE MARKET PRICE thus
must be reckoned with on this material, even if there is no depreciation in
use-value. (C.II. 250; Penguin ed)

It seems to me that this passage says that moral depreciation is the 25%
decline in the price of the carriages and locomotives, the same definition
given in the other passage just discussed. Nothing is said in this passage
about capitalists anticipating innovations and calculating higher
depreciation charges over a shorter life span.

Therefore, I conclude that John's interpretation of "moral depreciation" is
not supported by either of the passages he cites. To the contrary, both of
these passages seem to suggest that moral depreciation refers to the loss of
exchange-value suffered by previously produced means of production as a
result of technological change.

Furthermore, the passages John cites, like the passages I have discussed in
my previous post, support my interpretation that the price of previously
produced means of production is determined as current reproduction costs and
falls over time as a result of technological change.

There remains the question of whether capitalists actually use the type of
accelerated depreciation suggested by John and, if so, how this can be dealt
with
in Marx's theory. I will leave these questions for another post.

What do other people think?

P.S. I have come across another passage from the Theories of Surplus-Value
which clearly supports my interpretation that Marx assumed that the price of
previously produced means of production is determined by the current
reproduction costs and not by actual historical costs.

The value of this part [constant capital] reappears, it is reproduced in
the product. In what proportion it enters into the value of the whole
product depends entirely on its actual magnitude - provided the
productivity of labor does not change; but however, the productivity may
change, this part of the constant caiptal will always have a definite
magnitude...

AS A RESULT OF THIS INCREASING PRODUCTIVITY OF LABOR, HOWEVER, A PART OF
THE EXISTING CONSTANT CAPITAL IS CONTINUOUSLY DEPRECIATED IN VALUE, FOR ITS
VALUE DEPENDS NOT ON THE LABOR-TIME THAT IT COST ORIGINALLY, BUT ON THE
LABOR-TIME WITH WHICH IT CAN BE REPRODUCED, AND THIS IS CONTINUOUSLY
DIMINISHING AS THE PRODUCTIVITY OF LABOR GROWS. (TSV.II. 415-16;
emhasis added)