Chai-on writes in OPE-L 4987
As regards the RRI in the discussion between John and Duncan, I should add
some more points on the capital gain and loss.
There are three kinds of gains and losses.
(A) When there is a change in the expectations of future revenues and
costs, or in the expectations of interest rates or in both.
(B) When the revenues and costs are realized differently from those that
are expected before, thus making new expectations rendering capital gains
and losses.
(C) Investment gains and losses that occur when the market price of capital
goods deviates from the present value of the sum of the expected revenues
of the capital goods.
In either (A) or (B) or (C), the general (fixed) rate of profit (an
interest rate) is presupposed as given in calculating the capital gains and
losses.
So, I think, we should not take the capital gains and losses into account
when discussing the falling rate of profit?
John comments:
I think that both Duncan and I are attempting to follow Marx's
notion of the rate of profit. Duncan wants to track the gains
and losses of the stocks of capital due to revaluations separately
from the rate of profit. I have claimed that since Marx's notion
of depreciation includes moral depreciation, his rate of profit
calculations include the expected gains and losses stemming from
the revaluation of fixed capital.
In (A), you seem to have jumped ahead of me. That is, are you
saying that the rate of profit does take into account expected
losses and gains in capital value?
With respect to (B), I agree that expectations may change. But
I still wonder if we have agreement that expectations are at
all to be included the rate of profit calculation.
In (C), you use a term foreign to Marx but one I would agree must
be used -- present value. As I said in previous posts, accountants
in the United Kingdom had no notion of this until after Marx's
death. Without it, it is difficult to fully incorporate the
idea of moral depreciation and "ordinary" expectations into the
rate of profit calculation.
You conclude by saying that
"In either (A) or (B) or (C), the general (fixed) rate of profit (an
interest rate) is presupposed as given in calculating the capital gains and
losses. So, I think, we should not take the capital gains and losses
into account when discussing the falling rate of profit?"
Not that in all three, assuming that expectations include the revaluation
of capital, capital gains and losses are taken into account when
discussing the falling rate of profit.
In OPE- L 4988, you state:
"In addition to the other post of mine on John and Duncan.
Devaluation = When the market price of a machine currently being used is
produced with less labor and thus having less value, the capital value of
the machine currently being used is devalued proportionately to it. This is
different from the capital loss I discussed in the other post.
Moral depreciation = when a new invention in the present industry has
occurred requiring a new machine quite different from the current one, the
machine that has been used in the industry in question may become less
efficient or obsolete. The capital value of the machine must change
drastically irrespectively of its physical depreciation costs. This, too is
not premised on a pre-given interest rate.
So, in conclusion, as far as the devaluation and the moral depreciation are
concerned, the capital gains and losses are irrelevant. "
John comments:
But is not at least some of this loss of capital value, no matter how
defined, expected? If so, should it not be included in considering
the rate of profit?
Put simply, if a machine is to be depreciated over a certain amount
of time, how is that time determined? For Marx, the determination is
made not solely upon the basis of physical wear and tear but also upon
the degree to which it undergoes moral depreciation. How then can
a rate of profit be computed without reference to the expected time
a machine will last? In turn, how can we refer to the lifetime
of the machine without reference to moral depreciation?
John