I will put my comments in capital letters. Behalf Of Ann Davis(nib)
If I were to attempt a (somewhat elementary) Marxian treatment, I would start with the purchase of a machine with a monetary advance. The machine would be used to employ labor and [THE LABOR WOULD CREATE] [RATHER THAN to incorporate] surplus value in a product. Upon sale of the product, money realized from the sale would [PARTIALLY] reimburse the initial outlay for the machine [ASSUMING THAT THE FIXED CAPITAL LASTS MORE THAN A YEAR] (presumably cash advanced or borrowed). If the purchase of this machine is considered "sunk costs," it seems to me that this initial outlay of finance is still extremely relevant. [THE ONGOING RESPONSIBILITY OF REPAYING THE OUTLAY WOULD, BUT SUCH A RESPONSIBILITY OF REPAYING A DEBT WOULD NOT AFFECT THE DECISION OF WHETHER TO USE OR DISCARD THE MACHINE] .... Re: the 90% bridge, I think Michael's example of translating it into a complete bridge for 10% of the normal costs ignores the reality of discrete products, rather than continuously differentiable production functions. [YES, IN THE SENSE, THAT I AM ASSUMING THAT WE WERE DISCUSSING THE DECISION ABOUT WHETHER TO COMPLETE THE CONSTRUCTION] This is a point the Goodwin, Ackerman, Nelson, and Weisskopf also make. It seems more realistic to me to consider the money tied up in the partially complete bridge and expended but needing to be returned through sale or completion. [ONCE THE MACHINE IS IN PLACE, IT MAKES NO DIFFERENCE WHY THE DEBT WAS INCURRED; ALSO, THE DECISION TO USE THE MACHINE WOULD NOT BE AFFECTED WHETHER THE MACHINE WAS A FREE GIFT OR DISCARDED BY ANOTHER. THAT IS WHY THE EMPHASIS ON FINANCE CAN BE CONFUSING, IF NOT MISLEADING] Focusing on the financial dimensions seems to make the past very relevant. Cash expended to purchase raw materials or equipment must somehow be returned (or accounted as a loss, or leading to a declaration of bankruptcy). Even mainstream micro has a "shut-down" decision if price is less than AVC (and AFC >0). [WHAT IS THE AVERAGE VARIABLE COST; IS YOUR VARIABLE COST A MARGINAL COST; FIRMS DO NOT NECESSARILY SHUT DOWN IF THE AVERAGE COST IS MORE THAN THE PRICE; JUST IF THE MARGINAL COST IS MORE THAN THE PRICE, AND EVEN THEN FIRMS MAY CHOOSE TO STAY IN BUSINESS JUST TO WEATHER A STORM THAT MAY PASS IN THE NEAR FUTURE] Comments most welcome and thanks again for your consideration. Ann ----- Original Message ----- From: "Michael Perelman" <[email protected]> To: "Progressive Economics" <[email protected]> Sent: Saturday, September 5, 2009 11:49:33 AM GMT -05:00 US/Canada Eastern Subject: Re: [Pen-l] Presumed "irrevelence of sunk costs" I did not think that I said that. Sunk costs are irrelevant. Economists' confusion about stocks and flows makes microeconomics irrelevant. On Sat, Sep 05, 2009 at 09:34:52AM -0400, Julio Huato wrote: > Maybe I just don't understand Ann's concern. To me, sunk costs are > irrelevant because value -- and, therefore, money, capital, and financial > wealth in general -- is an expectation. And I don't understand what Michael > Perelman says: Is the notion of irrelevant sunk costs wrongheaded because > economists confuse stocks with flows or vice versa? I don't think so. > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu michaelperelman.wordpress.com
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