[OPE-L:4178] Depreciation SOS

john erns (ernst@pipeline.com)
Sun, 9 Feb 1997 11:36:57 -0800 (PST)

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You wrote:

A one-week belated continuation of the dialog with John:

> Alejandro:
> (snip)
> For USA the machine is worn
> out and capitalist A must replace it at the end of 1993.
> When he bought the new machine, he finds that it is 50%
> cheaper and then borrow a credit for only 500f the
> precedent. His "amount for depreciation" at the end of 1994
> will be only one half of the precedent year, let us say
> $500, while this year capitalist B must still pay to the
> bank $1000.
Ok. Now I think I really get it. B can't get the
money together because A (and others?) are producing
with cheaper machines. Poor B, he overestimated the
the (economic)life of the machine. Does A now think that
his machine will last as long as his first machine, given
he sees B having problems?

Note that you stated A replaced his first machine because
it is worn out. B's machine is "worn out" a year later.
But given the falling costs of the machines and B's problem,
it would seem to wise to shorten the time a machine will last
in making estimates of depreciation charges.

We then moved to a discussion of sending machines in worn out
condition into non-US countries rather than simply scrapping
them. Indeed, an obsolete but not worn out machine could be
a candidate for such a journey as well. By obsolete, I
mean a machine that cannot be used in, say, the US because
the costs (esp. wages) are too high. Capitalists in the US
can garner a higher rate of return with a new machine than
they could even if the depreciation charges were 0 on the
old machine. At this point, the old machine is clearly
obsolete but perhaps not worn out. Lower wages in, say,
Costa Rica may well breathe new life into this orphaned

Given the machine makes the trip to the sunny shores of
Costa Rica, you raise an interesting question concerning its
valuation. If we assume that it was fully depreciated in the
US and the lower wages of Costa Rica now revive it, what is
its value. I would say that the capitalists took too much
in depreciation charges during its US life and underestimated
its "scrap value." The machine will not travel abroad without
a price. Here we see the situation that Marx describes in
CAPITAL. A handicraft industry will fail to innovate if
wages are so low that it pays to remain at the handicraft
or less productive technique rather than invest in a new
technique that increases productivity.