Thursday, 31 October 2013

Capital II, Chapter 8 - Part 11

The distinction between expenditures that are for maintenance, for repairs, or for replacement, tends to be flexible. It is ultimately a matter of accounting, but the flexibility is used to obtain financial benefits by charging expenditure to either the capital or revenue accounts. In the 1990's, Local Government used this flexibility to advantage, for example, as a means of achieving required spending cuts on its revenue account. Expenditure for repairs and maintenance on things like playgrounds was taken out of the revenue account and placed in the Capital Account.

Marx details with various testimony, the practice on the railways that even with the “new” replacement engines and carriages, they would frequently utilise existing wheels, boilers etc. from rolling stock that was being scrapped, and so it was accounted for out of revenue, as though it were a repair rather than a replacement.

“The same with coaches:

“In the course of time the stock of engines and vehicles is continually repaired. New wheels are put on at one time, and a new body at another. The different moving parts most subject to wear are gradually renewed; and the engines and vehicles may be conceived even to be subject to such a succession of repairs, that in many of them not a vestige of the original materials remains.... Even in this case, however, the old materials of coaches or engines are more or less worked up into other vehicles or engines, and never totally disappear from the road. The movable capital therefore may be considered to be in a state of continual reproduction; and that which, in the case of the permanent way, must take place altogether at a future epoch, when the entire road will have to be relaid, takes place in the rolling stock gradually from year to year. Its existence is perennial, and it is in a constant state of rejuvenescence.” (Lardner, op. cit., pp. 115-16.)” (p 183)

Taking a branch of industry, or social production as a whole, this process of continual replacement of fixed capital occurs in the same way that Lardner describes for a railway. For the most durable forms of fixed capital, like canals, bridges, etc. the amount of wear and tear may be infinitesimally small, because they are expected to last for such a long time. For these kinds of structure, then it is not this wear and tear whose value is mostly transferred to the end product, but their necessary repairs, undertaken annually etc.

In Volume I, Chapter 3, it was shown how money is divided in society into a hoard and money in circulation. Money is in circulation when it is being used as a means of purchase or means of payment. But, there are always periods when money has been received, but is not immediately used again for purchase or payment. So, it forms part of a hoard.

The value of fixed capital transferred to the end product as wear and tear, is reproduced in that product, and assumes a money form. It then is stored in a reserve fund to be used to replace that fixed capital at the end of its working life. So far as it is stored, in this reserve fund, it forms a part of the money hoard in society. When it is used, to replace the fixed capital, it goes out as one lump sum, into circulation once more. But, no sooner has this occurred than the replacement fixed capital begins transferring its value piecemeal to the end product – this value itself then being circulated – whilst its money equivalent once more returns to be built up into a new hoard.

“With the development of the credit system, which necessarily runs parallel with the development of modern industry and capitalist production, this money no longer serves as a hoard but as capital; however not in the hands of its owner but of other capitalists at whose disposal it has been placed.” (p 185)

Forward To Chapter 9

Back To Part 10

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