O.K. comments are helpful.
But I'm still puzzled about the differentiation of the financial
decision (paying off the debt) vs. the use of the machine, once purchased.
If the use of the machine is considered separately from the financing
of it, then why not use it forever as if it were free?
Would you respond that the use of the machine depends on wages,
surplus value production, and market for realized product? That is,
the use of the machine would depend solely on the rate of suplus
value, rather than the financial circuit, M - C - M' (where the
initial M is the outlay for the machine and workers)?
To me, the M - C - M' circuit is the relevant analysis, and shows
that history does matter (vs. neoclassical reasoning).
I understood Marx to be analyzing the use of the machine and worker,
each of which transfer/produce value to the product....both in value
and in price terms.
Thanks again,
Ann
PS
To me the stock is the machinery (dead labor) and the flow is the
living labor/value production. Please correct if different from your
understanding.
At 03:07 PM 9/5/2009, you wrote:
Content-Language: en-US
Content-Type: text/plain; charset="utf-8"
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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