[OPE-L:5874] Re: BEA and Depreciation

John R. Ernst (ernst@PIPELINE.COM)
Sat, 20 Dec 1997 15:22:10 -0500 (EST)

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I had written:

>If all we see is a depreciation
>charge of 100 hours in the first year, who is to say what it will be
>in the second year? That is, what prevents the second year charge for
>becoming 90 hours or 100f 900 hours, the value of the machine at
>the beginning of the 2nd year? For me, these are real questions
>concerning Marx's own view of the matter despite their rather
>fundamental nature.

Duncan responded:

I'm all in favor of a serious investigation of the ins and outs of
depreciation, but I'm a little disturbed at the suggestion that we can't
pretty good estimates of the key Marxian ratios (the rate of
exploitation, for example) for real economies until we resolve these very
knotty problems. I also doubt that Marx had any view of these very
technical and complex accounting issues, as a matter of fact.

John comments:

1. For me, the question is not to estimate or not to estimate but rather
what to estimate. Given the unclarity surrounding the manner in which
depreciation takes place, the separation of value transferred and value
added is no mean task.

Granted that a rising profit to wage ratio translates into a rising rate
of surplus value, we still face the problem of separating depreciation from
profit. My fear is that in making such estimates we are forced to make
assumptions that may blind us to the problematic nature of the accumulation
process. Here are a few of the difficulties.

a. The idea of using imputed depreciation charges for the vast majority
of types of fixed capital is not without flaws. That is, as we have
seen the capitalists themselves are busy reckoning depreciation as they
compute their RRI's. We can ignore that they do this and using straight-
line, declining-balance or some other accounting method of depreciation
obtain an estimate of the rate of surplus value. In my questions above,
I attempted to approach the problem of calculating a rate of surplus value
at the end of each period assuming that depreciation is not straight-line.
To be sure, over the lifetime of a machine the total output cannot
contain any more value than that transferred plus the value added by
living labor. The difficulty here is that the focus is shifted to that
of an economy moving from one year to the next as we attempt to estimate
an annual rate of surplus value.

b. Further, as we know, whenever possible the BEA will try to reckon
depreciation charges by observing prices in used capital markets.
Thus, on the one hand, in computing an overall rate of surplus value
one hand, we would be using data obtained according to an accounting
rate of depreciation and, on the other, according to an economic rate of
depreciation. To be sure, we could ignore this inconsistency and come
up with a profit/wage ratio over time. But in so doing, we have to
abstract from the possibility that, at times, some sectors of the
economy grow faster than others. The ratio of economic depreciation
to accounting estimates of depreciation contained in the BEA data
may be changing over time.

c. We know that at times the capacity to produce can grow faster than
the economy itself. This would mean that the depreciation charges
are growing faster than the economy as well assuming that the capacity
for growth translates into the "over production" of fixed capital.
Thus, with this type of boom, estimates of the rate of surplus value
would be low since the rate itself for individual capitals increases
as fixed capital ages.

d. By using BEA data to estimate the rate of profit, the rate of surplus
value, etc., we obtain estimates of the various ratios for the aggregate.
Is this aggregation useful for describing the behavior of capital in
general? If so, it would seem extremely difficult to move from that
level of abstraction to that of "the many capitals" since the individual
capitals would and should pay little attention to the depreciation
imputed to their capitals by the BEA. Again, they are using economic
depreciation to compute their rates of return and the BEA generally
is using accounting depreciation to compute these aggregates.

Basically, I think we need an economic model of the economy for which
estimates are to be made prior to making the estimates. Yet, I see
no need to postpone any examination of the data until we do this since
that analysis can and does give us greater clarity in constructing that
model. In this category, I would place Dumenil and Levy's work
concerning the increasing stratification of fixed capital prior to
and during the Great Depression.

2. Duncan, I think you're right about Marx's view on accounting issues.
But I would add the following.

a. As we know, even after the publication of Vol. 1 of _Captial_ he
was still asking Engels how capitalists depreciate their fixed

b. Some time ago, Michael Perlman wrote that after the publication
of Vol. 1, Marx spent a great deal of time trying to work out
matters concerning depreciation.

c. In editing Vol. 3, Engels reported that he found nothing but a
blank page for the chapter, "The Effect of Turnover on the
Rate of Profit."

d. Using present values to separate depreciation and profits was
not known until after Marx's death.