1) Harman mentioned "moral depreciation" elsewhere - he didn't overlook it
2) Harman is discussing "current cost accounting", a well-known term to all including, I assume, him, which assumes depreciation ("The current cost is usually calculated by adjusting the historical cost for inflation, in addition to the usual adjustments such as depreciation." http://moneyterms.co.uk/current-cost/). Since (it appears) he assumed depreciation, this would then make his conclusion logical "current market value is less than what was laid out on it: the rate of profit will appear higher than it actually was". That is, current market value (including depreciation) undercounts the actual outlays originally made to purchase it.
Profit = $100,000 Equipment = $1,000,000 when new Depreciation on equipment = $100,000 due to productivity, inflation, etc. Current equipment market value = $900,000 now
Rate of profit using current-account method = 100,000 / 900,000 = 11% Rate of profit if using true historical outlays = 100,000 / 1,000,000 = 10%
On Sat, Mar 5, 2011 at 11:40 PM, Shane Mage <shmage at pipeline.com> wrote:
>
> On Mar 5, 2011, at 11:14 PM, Peter Fay wrote:
>
>> Chris Harman, 2010 - http://www.isj.org.uk/?id=613 :
>> "aggregating the different investments made at different times in a
>> particular period is a necessarily complicated procedure, and most
>> attempts
>> to measure national rates of profit use a different procedure—that of
>> current cost accounting. The profit made in a given year is measured
>> against
>> the market value (ie the replacement cost) of the structures and equipment
>> used. This necessarily leads to a distortion in the figures since any
>> increase in productivity since the investment was made will mean that its
>> current market value is less than what was laid out on it: the rate of
>> profit will appear higher than it actually was.
>>
>
> There are striking errors here. The "market value of the structures and
> equipment" is not their "replacement cost" but their *depreciated*
> replacement cost (original cost times inflation rate since purchase divided
> by depreciation rate) and that depreciation rate is in part a function
> precisely of "increase in productivity" since that increase in productivity
> is a cause of the obsolescense of the fixed capital stock (what Marx called
> "moral wear and tear.") And Harman is precisely wrong that his notion of
> "market value" will understate the value embodied in the fixed-capital
> stock--because depreciation is excluded it will overstate that value just as
> the flow of reported profits will also be overstated for the same reason,
> leaving the effect on realized profitability calculations indeterminate.
> But it has no significance anyway, because the decisive variable in Marxian
> theory is not the average rate of profit--it is the *incremental* rate of
> profit, the rate of profit on *new* investment (what Keynes called the
> Marginal Efficiency of Capital).
>
>
>
> Shane Mage
>
> "All things are an equal exchange for fire and fire for all things,
> as goods are for gold and gold for goods."
>
> Herakleitos of Ephesos, fr, 90
>
>
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>
-- Peter Fay http://theclearview.wordpress.com