Thanks. This is much more clear.
But it is important in "getting the sequence straight" (linear) to
remember the context of the financial circuit (circular), M - C - M'
The capitalist obtains the machine with the intention to use it in
the future, and lays out an increment of money. But the accuracy of
that forecast affects the ability of the firm to actually repay the
money with profit remaining........Furthermore the history of that
specific venture affects the firm and its access to credit, reported
profit, and future valuation by the investing community.
So I still think history is relevant in Marx, although not in neoclassical.
It is possible to theoretically separate the real vs. financial
decisions, but ultimately they are integrated in the "bottom line."
Thanks again,
Ann
At 05:51 PM 9/5/2009, you wrote:
On Sat, Sep 05, 2009 at 04:16:06PM -0400, Ann Davis wrote:
>
> But I'm still puzzled about the differentiation of the financial
> decision (paying off the debt) vs. the use of the machine, once
> purchased.
The key is getting the sequence straight. The decision to buy and the
taking on of the debt occurs because of the INTENTION TO USE THE MACHINE IN
THE FUTURE.
LATER ON, THE DECISION TO USE THE MACHINE IS INDEPENDENT OF THE DEBT,
EXCEPT FOR THE OPTION TO SELL THE MACHINE TO ELIMINATE THE DEBT.
>
> 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?
THAT IS THE POINT. ONCE THE FIRM HAS THE MACHINE, IT IS FREE, EXCEPT FOR
MAINTENANCE.
>
> 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)?
>
VALUE IS INVISIBLE TO THE INDIVIDUAL CAPITALIST. ONLY PRICES, PROFITS, ...
> 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.
>
THE CAPITALIST HAS THE EXPECTATION THAT THE MACHINE CAN TRANSFER VALUE, BUT
THE MACHINE CAN UNDERGO DEVALORIZATION, OR EVEN AN INCREASE IN
VALORIZATION, DEPENDING ON MARKET CONDITIONS AND TECHNOLOGY.
>
> 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.
YES, ONCE IN PLACE, THE DEAD LABOR, LIKE NATURE, PRODUCES NO REAL VALUE, IT
ONLY AMPLIFIES THE VALUE PRODUCING POTENTIAL OF LABOR. THAT IS WHY IT IS
CALLED DEBT. THIS STATEMENT COMPLICATES THE EARLIER DISCUSSION OF THE
MACHINE TRANSFERRING VALUE.
>
> 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
>> _______________________________________________
>> pen-l mailing list
>> [email protected]
>> https://lists.csuchico.edu/mailman/listinfo/pen-l
>
> _______________________________________________
> 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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