[OPE-L:4159] depreciation and financing

Gerald Lev (glevy@pratt.edu)
Thu, 6 Feb 1997 08:25:46 -0800 (PST)

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Alejandro R has advanced the idea in [4082], [4087], [4092], and
[4095] that capitalists, even in a "simple depreciation example", finance
their purchase of constant fixed capital "through a debt (credit)" to

Why must we examine credit and bank capital in the simple case regarding
depreciation, including moral depreciation? Isn't it possible for us,
instead, to initially assume that the money capital required for financing
expenditures on constant fixed capital can be "internal" in origin, i.e.
these sums of "money-value" can be obtained by the firm with the money
capital obtained after sales?

It would also seem to me on logical grounds that it would be more
appropriate to consider the case where there is "internal financing"
before we then complicate matters by introducing credit.

What do you think about the above, Alejandro?

In solidarity, Jerry

>From Alejandro R's #4082:

> A) Simple depreciation example
> Consider a branch with 2 capitals. In this case their fixed
> capital is identical in terms of technology (productivity)
> and cost.
> Both capitals finance their fixed capital through a debt
> (credit). The amounts of annual payment coincide with the
> amount of depreciated fixed capital, so that the whole
> amount of $ recovered through the sale of commodity
> correponding to the fixed capital is paid to the bank.
> In the table we can have two columns: one for the amount of
> annualy depreciated capital (i.e. "depreciation") an
> another corresponding to the "payments" to the bank. In
> this simple depreciation example, both columns would have
> the same numbers. <snip>
> B) Moral depreciation example
> <snip> It is obvious that this
> "average" will be lower than the precedent situation, so
> that the capital with the old machine can no longer cover
> the payments due to the bank. The amount it has to pay for
> the credit is higher than the amount of allowed
> depreciation. Bankrupcy could be in the future.