Continuing some of the threads in John's RRI and the Rate of Profit
The Dumenil and Levy paper I mentioned is actually entitled "The Great
Depression: A Paradoxical Event", and is in English as a CEPREMAP working
paper. I imagine they will be glad to send you a copy.
>John notes:
>
>As I recall, the IRS of the US began to allow forms of depreciation
>other than the straight line method after WWII. What "accelerated
>depreciation" does is shift what we would call profit into
>depreciation in the early part of the lifetime of fixed capital as
>measured by straight line depreciation. As fixed capital ages, the
>opposite would be the case.
Duncan comments:
True enough, but a tax deferred is a tax avoided to a large degree. It is
to avoid the distortions in the measurement of the undepreciated capital
stock inherent in the tax code that most economists (Marxist and others)
try to estimate the capital stock by a perpetual inventory method that
cumulates gross (not net) investment and then depreciates each vintage
separately according to the "Windfrey tables". I guess I'm a bit puzzled at
the Marxist interest in this problem, since the notion of "measuring" the
"stock of capital" is bound up with the _use-value_ of capital and the
neoclassical idea of a production function relating real output to the
"real" capital stock. Since Marx's idea is that the value of capital is
just the accumulation of value in the production process due to the
time-delay in production, I tend to think of the money accounts as being
more important than an artificially constructed index. As long as the cash
flow from the capital suffices to pay the debt service the capitalists have
incurred to finance it, it doesn't seem to make too much difference
dynamically whether they account for it as profit or depreciation.
John continues:
>But, in theory at least,
>we Marxists have given scant attention to the notion of stratification.
>Did Marx himself?
Duncan:
There is a passage, whose citation I can't run down right now, possibly in
TSV, where Marx puts forward the skeleton of a theory of fluctuation based
on echo effects due to vintages of gross investment.
...
John continues:
>Why is this important? First, if we are looking at the rate of
>profit as some sort of indicator that capitalist use to make
>investments how they compute it would seem to be of import.
Duncan:
But why, exactly? If they have imperfect or systematically biased
depreciation estimates, they will misallocate the investments to some
degree, but why should this bother us?
John:
>Second, if we really want to deal with how capitalists see their
>rate of profit, net of taxes, then the manner in which their
>depreciation schedules can be developed would seem to be both
>a factor in making as well as a consequence of investment decisions.
>Further, given that capitalists use an anticipated RRI and
>not the rate of profit, the profit net of taxes would be influenced
>by the manner in which depreciation is computed.
Duncan:
I think most business schools now teach mbas to value assets using the
cash-flow method, precisely to avoid arbitrary depreciation assumptions. I
suspect that in the U.S., at least, the concept of "profit" is largely a
tax issue, not a real economic issue.
Cheers,
Duncan
Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
(212)-854-3790
fax: (212)-854-8947
e-mail: dkf2@columbia.edu