[OPE-L:3034] Re: Straight and Moral

Michael Perelman (michael@ecst.csuchico.edu)
Mon, 16 Sep 1996 13:52:14 -0700 (PDT)

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John Ernst wrote:
>
> 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.

yes.
>
> 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.
> yes again. Marx often wanted to reduce things to mathematical simplicity to prove his point.
there was a quantitative marx and a qualitative one. He never quite worked out the two lines.

I follow the latter one mostly.

> 3. Marx also speaks of the "sinking-fund" method of
> depreciation.

I only recall him talking about it once with regard to McCulloch, but yes you are correct again.
>
> 4. I thought Marx in Theories of Surplus Value (?) notes
> that in Ricardo fixed capital simply doesn't depreciate.

Yes, and he is correct. Ricardo thought that it just needs maintenance.
> 5. Last year we dug out quotes from CAPITAL in which
> straight-line depreciation was cited as the method
> used.
> Already noted. yes.
> 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.
> This is where the qualitiative, quantitative split comes in. He goes both ways.

Why the hell don't you write this up. You have an excellent command of all this.
I could join you in the endeavor if you wanted.
> 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

--
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 916-898-5321 E-Mail michael@ecst.csuchico.edu