Depreciation

Depreciation is often confused with the wear and tear of fixed capital. The essential differences are that wear and tear is a function of use, whereas depreciation is a function of time; wear and tear of fixed capital represents a transfer of value, to the final product, and is thereby reproduced and recovered within it, whereas depreciation forms no part of the production process, so that no value is transferred to the end product, and is not, therefore, reproduced or recovered within it, meaning it represents an absolute capital loss; wear and tear applies only to fixed capital, representing a portion of the fixed capital's use value consumed in production, whereas depreciation can apply both to fixed capital and to circulating capital, for example, materials can deteriorate in storage.

In fact, as Marx set out in Capital I, it is the fact that an element of productive-capital is not used that causes it to depreciate. A machine, for example, when it is being used, is also, as part of that usage, cleaned and maintained. It is regularly oiled and greased etc. That keeps its working parts lubricated and functioning, and prevents the material of the machine from rusting etc. Where usage causes a machine or some other piece of fixed capital to lose some of its use value, and so value, as a result of wear and tear, that same usage acts to prevent the fixed capital from becoming depreciated. Likewise, a lack of usage will see a machine depreciate. Its fabric will rust, its moving parts will begin to seize up, and so on.

But, it is not just fixed capital that suffers depreciation. In Capital II, Marx makes the point that materials kept as a productive supply still constitute circulating rather than fixed capital, or to be more precise, they exist as commodity-capital rather than productive-capital, and so represent capital in circulation, rather than circulating capital. For example, a textile company might buy a quantity of cloth, and of yarn. It will not process all of this material in one labour process. The same applies to a business that buys coal to power its steam engines to provide power to its machines. It might buy in a tonne of coal, whilst only using a tenth of this amount each day.

But, Marx says, in both cases, these materials constitute circulating rather than fixed capital. For the material that is actually consumed in the labour process, it is all consumed. It transfers all of its use value, and its value to the end product during that process, leaving none fixed within itself, as is the case with fixed capital. A textile business might process 100 metres of cloth, and 1 kilo of yarn in producing garments, in a day. It might use 0.10 tonnes of coal to power its steam engines, to run the machines during that day. The firm is then able to send all of its output to market, thereby turning over this capital, ready to buy materials, energy and labour-power once more.

But, because it is more economical, due, for example, to transport costs, it may buy 1,000 metres of cloth, 10 kilos of yarn, and 1 tonne of coal at any one time. It then keeps some of this stock as a productive-supply. But, it all comprises circulating rather than fixed capital. It is only when the capital is actually advanced to production that it actually comprises advanced productive-capital. Here again is a difference with fixed capital. A machine with a value of £1,000 is advanced in its entirety to production, as soon as it takes part in the production process, even though it may lose only 1% of its use value, and value through wear and tear during any particular labour process. But, a productive-supply of 1 tonne of coal is not advanced in its entirety to the production process, during one working period, or labour process. That part of the productive-supply that is not advanced, still comprises commodity-capital rather than productive-capital. It is just commodity-capital now in the hands of this producer, rather than its supplier. It is then still capital in circulation, and so neither fixed nor circulating capital, at this point, because those categories only apply to the productive-capital.

But, all such capital can suffer a depreciation. I worked for a company such as that above (though it used electric to power its machines not coal), and, on a number of occasions, the factory was plagued by mice, that began to chew the productive-supply of cloth, making some of it unusable. That represented a depreciation of its use value and value. This depreciation had nothing to do with the labour process, of which it had not yet entered. It was effectively the same as if a portion of the stock of materials had been stolen. This is a difference between depreciation and wear and tear. The wear and tear of fixed capital is a necessary element of the production process, and a portion of the value of the fixed capital is transferred to the end product, and reproduced within it. But, depreciation occurs outside the production process, it involves no such passage of use value or value to the end product, and represents, therefore, simply a capital loss for the particular capital.

In other words, the reduction in the value of fixed capital, due to wear and tear, is equally matched by a transfer of value, via the production process, to the end product, and this value is thereby recovered in the value of that product, and realised via its sale. It thus enables the fixed capital to be reproduced, when it is worn out, because its value has been reproduced in the end product. However, the reduction in value due to depreciation is not transferred to the end product, and not reproduced within it. A machine or tool that is stolen is a capital loss to the firm, and can only be replaced by an equivalent injection of capital, or, alternatively, profit that would otherwise have been used to accumulate additional capital, now has to be used simply to replace the stolen machine or tool. In the same way, materials, machines, and so on that lose value as a result of depreciation represent a capital loss to the firm, and that loss can again only be made up by an injection of additional capital.

That depreciation can also apply to labour-power. In Capital I, Marx makes the point that capital benefits from a number of things for which it does not pay. Capital buys labour-power, for which it pays the equivalent amount of exchange value as wages. But, the worker in selling their labour-power to capital thereby also enables capital to obtain an amount of labour/value, for which it does not pay. The greater the value produced by labour, the greater the labour/value obtained by capital for which it has not paid. So, when the division of labour leads to labour being undertaken co-operatively, this results in a higher productivity of labour, and this higher productivity means that the proportion of surplus labour to necessary labour increases. Yet, capital does not pay anything for this additional labour/value it obtains as a result of co-operative labour.

Similarly, the longer and more regularly labour is employed the more proficient and productive it becomes. The more a worker carries out certain functions, the better they become at them; increased skills and so on, get passed on from one generation of workers to another, so that each generation tends to become more productive. Again capital pays nothing for this improvement in the use value of the labour-power employed, or the additional value it produces. But, the opposite also applies.

During periods of chronic and persistent unemployment, workers skills tend to deteriorate as they are not practised; one of the things that capitalism introduces, as opposed to peasant production, is labour discipline, and again this is lost. After long periods of unemployment, therefore, this depreciation of labour-power represents an absolute capital loss for capital. In order to restore those lost skills, labour discipline and so on, additional capital has to be introduced for training etc.

There are some exceptions to this, as Marx sets out in Capital II. For example, he discusses the situation in agriculture. The seasonal nature of agriculture means that some machines can only ever be used for part of the year, and then lie unused for many months, during which time they depreciate. But, in this case, this depreciation is a normal part of the production process during the year. Every capital involved in agriculture faces this same condition. This depreciation is then an integral aspect of the value of agricultural products.

It is rather like the situation with “cotton dust”. In Capital I, Marx describes the situation that in textile production a quantity of raw material is processed, and so the value of this raw material is all transferred to the end product. However, as a natural part of this production process, not all of the raw material is consumed and transferred into the end product. An element of natural wastage arises. But, although this part of the raw material ends up on the factory floor, rather than in the end product, all of its value is transferred to the end product.

But, it is this exception that proves the rule in relation to the difference between wear and tear, and depreciation.