Moral Depreciation

John R. Ernst ernst at pipeline.com
Sat Nov 25 08:57:40 MST 1995


Dear Juan, 
 
Here we go again.    
 
Juan says: 
Quoting John 
 
 
>2. "Moral depreciation."   When capitalists or their accountants 
>     say that a given piece of fixed capital can be used for some 
>     period of time as capital, they are, indeed, guessing based on 
>     experience how long the fixed capital can be used profitably 
>     by them in the process of production. For Marx, to fully develop 
>     this concept he would have had to work out the relation between 
>     the turnover of fixed capital and the periodicity of crisis.  He did 
>     not do this but stated rather explicitly that the turnover of fixed 
>     capital would form the material basis for that periodicity. (See 
>     BK II, CAPITAL, p185, Int. Ed.) 
 
At first, John tried to convince us that such thing as the "moral 
depreciation" of the capital materialized in the means of production didn't

exist, since it didn't fit into his concept of the falling rate of profit 
that he associates with "historical valuation." Now, it seems that he is 
telling us that moral depreciation exists even when it doesn't exist. 
 
John says: 
I have no idea where you get the idea that "moral depreciation" 
did not exist.  Maybe we are using the term in different ways. 
For Marx, it meant that since the economic life of fixed capital  
was shorter than its physical life, the length of time that that 
fixed capital was to be depreciated over had to take this into  
account.  Let's take an example.   A capitalist buys machine which 
his engineers tell him will last for 15 years.  The cost of the 
machine is $1500.  If he were to listen only to his engineers, 
he would allow $100 per year for the depreciation of that machine 
in determining the costs involved in his production process.  His 
accountants, however, note that machines generally last about 10 
years before they must be replaced since in the 11th year using 
machines have not has not been as profitable. Thus, to recover 
the cost of the machine, the capitalist must allow not $100 for 
depreciation in a given year, but $150.  The extra $50 is what 
I term "moral depreciation." 
 
Note that "moral depreciation" is used to take into account the 
difference between its economic life in capitalism and its  
physical life.    
 
Juan says: 
 
The number of productive processes in which the use-value of a certain 
means of production will be used, and therefore, the amount of its value 
that will be transferred to the product in each circuit, cannot take into 
account even the certainty of its moral depreciation. Such consideration 
would mean that the social labor once allocated in the means of production 
has to be taken as more social labor now that the means of production are 
in use. Reflecting this fact of the general regulation of social production

and consumption, such things as "accelerated depreciation" are ruled out by

the generally accepted principles of accounting. So it is not through moral

depreciation that the turnover of fixed capital determines the periodicity 
of a specific type of crisis and, rather, of a specific cyclical movement 
of capital accumulation. 
 
 
John says: 
Here I have two questions concerning your comments: 
 
1. Does the ever-increasing productivity of labor affect the 
   turnover time of fixed capital or what I call its economic 
   life? 
2. Do you accept Marx's idea that the turnover of fixed capital 
   would form the material basis for a theory of crisis? 
 
No matter what your answer is to the second question, I think 
we can agree that Marx himself did not complete this task. 
 
 
Juan says: 
 
>Must accountants see falling 
>     prices to take into account "moral depreciation"?  For me, 
>     that's not a simple question.  I'm still working at it, but, right 
>     now, I would say they do not. 
 
John tries to deal with something he really has no idea about. He has 
already proved it when he showed the most complete ignorance about such an 
elementary accounting principle as "cost or market, the lowest" through 
which accountants reflect "moral depreciation" in the books and, therefore,

in the reality of the individual capitalist. And he goes on showing it now,

by claiming for "accelerated depreciation." Contrary to John, I do know 
that accountants _must_ see falling prices to take into account "moral 
depreciation." And I do know this fact for a very simple reason: I am an 
accountant myself (motive #1: to avoid being politically pressured or 
pushed into the ideological studies and practices of vulgar economy, for a 
job) 
 
 
John says: 
 
I let you explain further the various terms of the accounting  
profession.  The question about "moral depreciation" involves  
over what period of time capitalists think they will recover the 
cost of a piece of fixed capital.  Who determines this the  
engineer or the accountant?  My moneys on the later.  How?  
Generally, by past experience.   
 
Note as well.  Neither you nor I are practicing economists. 
 
 
 
A Remaining issue: 
 
More than a few times, Marx asked Engels how he has as a  
capitalist depreciated his fixed capital.  At one point, 
he was rather explicit in telling Engels that he did not 
want any theory but rather a simple description on how it 
was done.  As you are the practicing accountant, I'll ask 
you the same question.  If one purchases a folding machine 
for a capitalist enterprise for, say, $10,000, how does one 
depreciate it?  Over what period of time?    
 
 
A Note: 
 
Both you and Jim Miller have forced me to think of issues 
I haven't dealt with in some time.  Despite our rather 
harsh words at times, I am getting something out of this. 
 
 
With thanks, 
 
John 
 
    
-- 
John R. Ernst 


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