“Much
more important than appreciation is the
question of capital depreciation. In my
view, capital appreciation and depreciation have neither an
equivalent nor symmetrical impact on profit rates. The devaluation of
capital values - either as a result of Marx’s ‘moral
depreciation’ or in an economic crisis - is not simply cancelled
out. Capitalists as a whole can lose - aggregate exchange value can
be wiped out and this has an impact on the aggregate economy.”
Once more,
as with Nick's inability to defend his position in relation to the
valuation of commodities, this smacks of running away from the
argument. Marx in Capital Volume III in discussing the effects of
price fluctuations on the Rate of Profit discusses both appreciation
and depreciation, and does so in the same terms. If Nick's argument
cannot be sustained in relation to appreciation, but only
depreciation, then his theory falls. Having said that, he is correct
that there is a difference between appreciation and some forms of
depreciation. It is not a difference that undermines Marx’s
approach of calculating the Rate of Profit based on current
reproduction costs, as opposed to historic costs. Once again the
difference comes down to an analysis based on Capital as opposed to
Nick's analysis based on individual Capitalists.
The
fundamental tenet of Nick's argument in the above statement, is not
merely flawed, but it is quite clearly empirically falsified. Put
simply, we can look at numerous examples, in history whereby Capital
was devalued, and the immediate result was not the kind of crisis for
Capital that Nick envisages, but the exact opposite. In fact, as
stated earlier, one of the basic tenets of Marxist analysis, and
indeed of the argument put forward by Andrew Kliman in his book -
“Yet
the destruction of Capital value would indeed be a solution to the
systemic problems I have outlined – unless it led to revolution or
the collapse of the system. A massive wave of business and personal
bankruptcies, bank failures, and write-downs of losses would solve
the debt overhang. New owners could take over businesses without
assuming their debts and purchase them at fire sale prices. This
would raise the potential rate of profit, and it would therefore set
the stage for a new boom.” (Andrew Kliman – The Failure of
Capitalist Production p 4.) -
is that it
is the devaluation of Capital, which provides the basis for a sharp
increase in the Rate of Profit, which in turn spurs Capital
investment!
 |
| Cobden & Bright |
It is
precisely for that reason that Marx argues that Capital continually
tries to devalue, i.e. reduce the price of, capital, be it Constant
or Variable Capital. It was for that reason that Capital sought to
abolish the Corn Laws so as to reduce the price of food, so as to
reduce the value of Labour Power, but alongside the abolition of the
Corn Laws went the abolition of duties on a range of imported raw
materials too, like cotton. The consequence of this devaluation of
Capital was not the problems for Capital that Nick envisages, but a
large rise in Surplus Value production consequent upon the cheapening
of Variable Capital, and a rise in the Rate of Profit consequent upon
the cheapening of Constant Capital! It led not to the crisis Nick
envisages, but to a boom!
If we look
at the period after WWII, we see something similar. The introduction
of a range of new technological developments brought about a “moral
depreciation” of large swathes of existing Capital. The
consequence once again was not the kind of crisis that Nick
envisages, but one of the most powerful, and long lasting booms that
Capital has so far experienced, based on a sharply rising Rate of
Profit.
The Marxist
Theory also supports the empirical evidence. If we look at the
situation described above we have:
C 1000 + V
1000 + S 1000 = E 3000.
Let us
assume then that instead of there being appreciation, we have
depreciation as requested by Nick. Let us assume that the
labour-time required to produce C halves. In that case on Marx’s
method we have:
(3) C 500 +
V 1000 + S 1000 = E 2500.
Now, the
rate of profit is 1000/500+1000 = 66.6%. How exactly, does Nick
believe that this is a bad result for Capital? The rate of profit
has risen considerably as a consequence of the devaluation of the
Capital! The benefit for capital is easily seen by the fact that the
Surplus Value of 1000 can now buy twice as much Constant Capital as
it could before its price fell. Now, of course, from Nick's
subjectivist viewpoint, which focusses on the fortunes of individual
Capitalists rather than on Capital itself, this situation could
indeed be rather disastrous. That is the case, if the particular
Capitalist borrowed the Money from a Money Capitalist in order to
make the initial investment. In that case, this Capitalist will need
to recover in the price of the final product an amount equivalent to
the Money Capital they borrowed. But, because the Value of the
Constant Capital now passed into that product has halved, they will
find this impossible. Moreover, because the Value of this Capital
has fallen, if they shut up shop and sell this Capital, they will
make a Capital Loss on its sale, or if they are unable to pay, the
Money Capitalist, who lent the money will make that loss.
 |
| Industrial Robots are an example of how new innovations bring about a "moral depreciation" of existing Capital, thereby making possible a higher rate of profit on the reduced Capital Value laid out. |
However,
this is only the reverse of the situation that affected individual
Capitalists in the case of an appreciation of Capital, as opposed to
the position of Capital itself. The reality is that some new
Capitalist can now purchase this devalued Capital at its current
Value, and as a consequence will make the new higher rate of profit
on it. In the previous case of the appreciation of Constant Capital
the owner of this Constant Capital made a Capital Gain that was
cancelled by the Capital Loss of the Money Capitalist who bought it
from them. Here, the Capital Loss consequent upon the depreciation
of the Constant Capital, is cancelled by the Capital Gain made by the
Money Capitalist who subsequently buys it. Once again when we stop
trying to analyse Capitalism in terms of the individual fortunes of
Capitalists, and instead analyse it in terms of Capital itself, the
real situation is revealed. In fact, in Volume III of Capital, Marx
describes precisely this situation. Moreover, demonstrating the
falsity of Nick's argument in trying to present the situation in
respect of Capital in General as different, he writes,
“Appreciation
and depreciation are self-explanatory. All they mean is that a given
capital increases or decreases in value as a result of certain
general economic conditions, for we are not discussing the particular
fate of an individual capital. All they mean, therefore, is that the
value of a capital invested in production rises or falls,
irrespective of its self-expansion by virtue of the surplus-labour
employed by it.”
There could
hardly be a clearer refutation of Nick's position, or in fact of the
TSSI.
But, further
refuting Nick's position, Marx continues.
 |
| The individual Capitalists that owned Northern Rock went bust. A new individual Capitalist, Richard Branson, was able to lay out the now much reduced amount of Capital to operate the business at a profit. |
“After
machinery, equipment of buildings, and fixed capital in general,
attain a certain maturity, so that they remain unaltered for some
length of time at least in their basic construction, there arises a
similar depreciation due to improvements in the methods of
reproducing this fixed capital. The value of the machinery, etc.,
falls in this case not so much because the machinery is rapidly
crowded out and depreciated to a certain degree by new and more
productive machinery, etc., but because it can be reproduced more
cheaply. This is one of the reasons why large enterprises frequently
do not flourish until they pass into other hands, i. e., after their
first proprietors have been bankrupted, and their successors, who buy
them cheaply, therefore begin from the outset with a smaller outlay
of capital.”
 |
| The Abolition of the Corn Laws also brought abolition of a range of dutiues on imported raw materials, like Cotton. That brought about a "Moral depreciation" of Constant Capital, allowing Capital to make higher profits, buy more Cotton, and exploit more Labour-power. |
The fact is that whether the Capitalist themselves employed their own
Money Capital to purchase the Constant and Variable Capital, or
whether they borrowed it from the bank, the situation facing Capital
as opposed to the individual capitalist remains the same. Suppose
the Capitalist had borrowed the money from the Bank, and could not
repay the loan. Suppose then the bank takes possession of the firm,
and becomes the new owner. What situation does it face. Certainly,
its original sum of Money Capital has disappeared, but that
disappeared as soon as it was used to buy productive capital, just as
the money spent by a worker to buy food disappears as soon as they
buy the food. The worker buys food not to make a Capital Gain on it,
but to reproduce their Labour Power. Capital buys means of
production and labour power, not to make a Capital Gain on it, but to
reproduce and expand Capital. It can only do that by being able to
exploit more abstract labour, and thereby create more Surplus Value.
As Marx makes clear in Volume I of Capital, the condition for that is
not at all dependent upon the Value of the Constant Capital employed,
but upon its physical quantity! That is with a given technical
relation – say 1 worker to 4 machines, or 1 worker to 100 kilos of
cotton – the number of workers that can be employed depends upon
the number of machines employed, the quantity of cotton to be
processed. Has the depreciation of the Constant Capital made this
harder or easier? As set out above it has made it easier! It is no
different than for the worker who sees falling food prices. There is
no point crying over spilt milk in response to the higher price they
paid for last week's food, instead they celebrate that next week's
food bill will be lower, meaning they can buy more food!
The bank having taken over the firm now faces the production function
described in (3) above. Although, the actual amount of Surplus Value
remains constant compared to the situation prior to the devaluation
of the Capital, the Rate of Profit has risen from 50% to 66.6%. The
importance of this can be seen if we look at the situation in the
next production cycle.
Had the Capital not been devalued then the 50% profit, if all of it
had been accumulated, would have resulted in production function,
(4) C 1500 + V 1500 + S 1500 = E 4500.
However, after the depreciation it is,
(5) C 833 + V 1666 + S 1666 = E 4165
In other words, not only has the Rate of Profit risen as a a
consequence of the depreciation of the Constant Capital, but as a
direct result of that the accumulation of capital increases, and the
actual amount of Surplus Value created also now rises from 1500 to
1666! Yet according to Nick the depreciation of the Constant Capital
represents a loss to Capital!
There is a situation whereby depreciation does represent a loss to
Capital as opposed to the Capitalist. It is where depreciation
occurs not due to the introduction of better machines (moral
depreciation) or a reduction in the labour-time required to produce
it, but purely as a result of age, or lack of use. In that case, the
current replacement cost of this Capital remains unchanged, but its
cost cannot be recovered in the value of the end product, because the
depreciated Constant Capital can only pass its depreciated value on
to it. In this case, it is as though someone has simply stolen or
destroyed a portion of the Capital, and taken it out of the circuit
of Capital altogether.
 |
| Del Boy could buy shoddy goods at a depreciated Value, but then had to also sell them at a lower price. If he wanted to buy new video recorders to replace the shoddy ones he had sold, his Rate of Profit is more accurately reflected in the Capital he has to lay out for the new replacement than what he paid for the shoddy ones he is replacing. |
Another capitalist who bought this depreciated Capital would only buy
it at its current value, reflecting the fact that its Use Value was
depreciated (Marx gives the examples of machines that have rusted, or
material that has become deteriorated). But, when they come to
reproduce this Constant Capital they will have to add additional
Capital of their own, to purchase this replacement. As Marx
describes it is to avoid this depreciation that Capital seeks to use
up Constant Capital as quickly as possible. It is one reason for
firms introducing Just In Time systems. But, this does not at all
help Nick's argument, because the relevant Rate of Profit calculation
here is not based on the historic cost of this depreciated capital –
either that paid by the original capitalist or the one who buys it
from them – but on the cost of its replacement! That is
illustrated by the fact that, the Capitalist who buys it is still
unable to cover the loss suffered by its depreciation, and in order
to replace it, therefore, has to inject their own additional capital!
The same thing is true about the destruction of Capital due to an
economic crisis. No one doubts that under such conditions Capital is
destroyed – though properly speaking as Marx and Engels describe a
crisis of overproduction, the Capital overproduced was never Capital
in the true sense to begin with. But, this is not at all the same as
the question under discussion of whether to calculate the Rate of
Profit based on historic cost, or current replacement cost. In fact,
even under these conditions, the relevant measure remains the current
replacement cost, because it is this, which will determine how much
Capital can be bought given the current volume of profit!
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