[OPE-L:4223] depreciation and demand

Gerald Lev (glevy@pratt.edu)
Sat, 15 Feb 1997 07:38:09 -0800 (PST)

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John wrote in [OPE-L:4222]:

> Given that capitalists choose techniques on what
> basis do they do so? We assume that the choice
> will be based upon the various anticipated rates of
> profit. But how do they figure the rate of profit?

It might be useful here to distinguish between the expected rate of
profit calculated _ex ante_ and the rate of profit observed _ex post_.

Let's consider the role of demand:

Prior to the investment of money capital in c + v in period t,
individual capitalists anticipate a rate of profit (rb)
based _in part_ on a demand projection for output. That is, they
expect (assume) that if they produce x units of y, then they will
sell x units of y. The quantity of money capital invested in constant
fixed capital and the depreciation schedule of firms must take the
demand projection for y into account.

After capitalists have invested a given amount of money capital in fixed
capital, the rate of profit realized by the firm (ra) can be more or less
than (rb).

For instance, let's assume that capitalists in branch Z during time t
spend $1000 for fixed capital assuming that it will depreciate in a
straight-line manner over a 5 year period. In deciding that they should
invest $1000, projections for moral depreciation and demand were both

To their dismay, the capitalists in branch Z realize that the quantity
demanded for output during time t is 1/2 of what they expected _ex
ante_. How will these firms readjust their decisions regarding
depreciation and investment in fixed capital now that there has been a
shortfall in demand for y? Didn't their _ex ante_ projection for
depreciation make some assumptions about capacity utilization which now
have to be re-calculated given the decrease in demand for y? That is, in
calculating the "pay-back" period for fixed capital, they had to make
_ex ante_ projections about capacity utilization which now have to be

Now things take another unanticipated turn turn during time t + 1 -- the
demand for y drops off to -0-! What becomes of the value invested in
constant fixed capital? Here we have to take the concrete _use-value_ and
_material form_ of the elements of fixed capital into account.

In _some_ cases, capitalists may well be able to sell their means of
production to other capitalists (at some loss, of course). In other
cases, the concrete material form that the means of production take may
mean that the m of p may not have a use-value (and an exchange-value) to
other capitalists. For instance, during the period of "modern industry,
some m of p may be designed such that they were _only_ able to function
as m of p for the process of producing y. For capitalists in other
branches of production, they may only have value as "scrap." On the other
hand, other (concrete, material) forms of machinery may be able to be
used in the production of goods other than y and may, therefore, be in
demand (at a reduced money-value) by capitalists in other branches of
production. For example, certain forms of "flexible automation" like
industrial robots may retain their value precisely because they may
continue to have a use-value in the production of other commodities.

If there is no use-value now for the m of p -- given its concrete
material form -- doesn't that mean that the value represented by the m of
p drops off to merely "scrap" value? On the other hand, in the case of
the industrial robots, wouldn't the value be greater than "scrap"
because of its different material form which would cause its demand to be

In any event, isn't the separation between _ex ante_ projections
regarding the rate of profit inherently different from what the actual
rate of profit becomes due to the very nature of the processes of
capitalist production and circulation? Doesn't this mean that any
attempt to know what the magnitude of the _ex post_ r will be before the
fact (_ex ante_) is doomed to imprecision?

In solidarity, Jerry