Wednesday, May 14, 2014
Capitalist Accountants on the Logic, Science, and Ethics of ‘Technodepreciation’.
Capitalist Accountants on the Logic, Science, and Ethics of ‘Technodepreciation’ Accounting.
Once again, we delve into the discourse, among capital’s scientific/ideological servants, about the capitalists’ deadly problem of ‘technodepreciation’.
Marxians can definitely gain -- a great deal -- from intensively observing, examining, and analyzing such discourses ‘‘‘psychohistorically’’’, that is, equipped with the <<organon>> of the Marxian paradigm of ‘psychohistorical materialism’.
See, for yourself, a case in point, below.
My commentary regarding these extracts is imbedded within them, in separated paragraphs, beginning with the label ‘M.D.: . . .’.
1. [ D. R. Anderson and L. A. Schmidt, Practical Controllership, Irwin, Inc. [New York: 1961] ] --
“Estimating the life and residual value of assets is a necessity in the calculation of depreciation...”
“In the past, it has been common to assume that physical factors could be estimated more certainly than the economic factors.”
“This assumption was usually carried to the point of setting up the life estimate of the asset on the basis of the physical factors only, with obsolescence treated as a special situation when it actually caused the discarding of the asset. A variant of this attitude was to set up a general reserve for obsolescence not related to particular assets and intended to smooth out the impact of the actual charges for obsolescence as they became necessary.”
“The concept of depreciation based only on physical factors is still the formal, acknowledged, basis of most depreciation accounting today.”
“Actually, the pressure for shorter, “more realistic”, life estimates of a great many units is an implicit recognition of the fact that few assets live out their full physical lives under modern conditions.”
M.D.: The sentence immediately above is an impressionistic attestation to the ‘‘‘lawful’’’ trend of accelerating technological innovation in the design of fixed capital plant and equipment that is immanent in the mode of production founded upon the capital-relation -- upon the capital social-relation-of-production -- immanent, in particular, in the profit-incentives generated by the capitals-system.
“What this amounts to is an acknowledgement that, in a much broader sense than originally assumed, the impact of obsolescence can be estimated and therefore the depreciation should be set up on the basis of the probable life of the unit, whatever the expected cause for its termination. If the specific assets must be scrapped before even these conservative life estimates have run, there will be the familiar adjustment of “Loss on Retirement of Plant Assets”, which, when it becomes more than nominal, is actually the loss caused by unforeseen obsolescence.”
M.D.: The remedies proposed in the paragraph just above are quite correct, per the logic, and the elements of science, and the elements of an economizing ethic, that are operative in the uncorrupted traditions of the accounting profession. However, these prescriptions will not cure capitalism of its fundamental, fatal flaw. As the fixed capital composition of total capital -- in mass, and to a lesser extent, in economic value -- rises, as a reflection of the growth of the social forces of production, and as the rate of technological innovation in fixed capital plant and equipment accelerates, further accelerating the growth of the social forces of production, and hence also inducing a concomitant acceleration in the rate of technological obsolescence depreciation of fixed capital plant and equipment -- a kind of “premature” depreciation, from the point-of-view of wear-and-tear, physical “amortization” -- the “Loss on Retirement of Plant Assets” account, will, in the net, drag down the revenue accounts even in aggregate, ultimately, eventually swamping them, inducing net losses, and eventual insolvency, wherever the capitalist ruling class allows competition to continue, if the growth of the social forces of production is also allowed to continue unfettered. Hence, the core of the capitalist ruling class, beginning around the turn of the 19th century, desperately turned to forces, and to means, a lot less “gentlemanly”, than those associated their accountancy servants. E.g., they did so in their reaction to the ‘Great Techno-Deflation’ of the late 1800s, in their reaction to the massive uprising in Russian in 1905, and in their contrivance of the 1907 depression as part of their plot to terrorize the majority U. S. public -- especially the working class -- into accepting their 1913 imposition of the Federal Reserve System of managed exponential inflation, and their imposition of the U.S. Federal Income Tax [in large part, to help them to finance their military servant-dictators’ violent suppression of the growth of the social forces of production in the semi-periphery of the ‘meristemal’ regions of the advent of the global capitals-system, especially in the U.K, in France, and in the U.S. -- e.g., to finance the violent suppression of industrialization in that semi-periphery, i.e., in the soon, thereby, to be “Third World” -- all to be financed out of U.S. workers’ wages, and out of the profits of the plurality of subordinate, smaller U.S. capitalists], and their imposition of World War I.
[pp. 352-353, emphases added by M.D.].
2. [ Again, Anderson and Schmidt, Practical Controllership, Irwin, Inc. [New York: 1961] ] --
“In all calculations involving the replacement or discarding of existing plant assets a distinction should be made between costs which are the result of the proposed future expenditures and those which are the result of past expenditures which cannot be recovered -- or, as Grant puts it in his book*, between “increment costs” and “sunk costs”.”
“This principle is frequently violated in one or both of two ways: (a) by adding to the investment required for a proposal the undepreciated book value of the old assets which are to be replaced or (b) by calculating depreciation on the old assets, for the purpose of costs comparisons and savings calculations, by applying regular depreciation rates to their original cost, or by spreading their undepreciated book value over their estimated remaining [ M.D.: physical ]life.”
M.D.: The ‘psychohistorical force’, generated by a capital-relation-centered society, that regularly reproduces the cited violations of principle -- a principle which reflects the elements logic, of science, and of the whole-community-beneficial economizing ethic, of ascendance-phase capitalist accountancy -- and the «mentalité» which rationalizes these violations, is at least two-fold, in the experience of this observer: (1) this ‘psychohistorical force’ stems, quite consciously, from the desire of capitalists, and hence of their servants also, to avoid reporting, and to avoid actually suffering, losses -- “Losses on Retirement of Plant Assets”, and; (2) this ‘psychohistorical force’, far less consciously, stems from the impression, and from the belief, on the part of the personifications and the agents of the capital-relation, that dead, physical capital assets themselves produce profit, and that, somehow, the “magic” of profit creation still resides, hidden, even in obsolescent capital assets, in an amount, that is, “naturally”, measured by the as yet undepreciated historical/book value of those obsolescent plant/equipment assets.
“While this error is obvious to those who have thought the matter through, it merits specific attention both as a caution to relative newcomers and because in more complicated situations it may be so disguised as to be missed by the more informed unless care is applied to every analysis.”
“The basic error in these rather common fallacies is the failure to recognize that future profits can be affected only by changes in future income or future expenditures and that the money invested in old assets is a “sunk cost”, except for the amount that can be realized by selling the assets or turning them in on new assets.”
“The investment required for any given proposal is the difference between the total expenditures required for the purchase and installation of the new assets and the amounts that can be salvaged by disposing of the assets replaced; to increase this “investment” by adding the [M.D.: remaining, undepreciated] book value of old assets will make the proposal appear less profitable than it actually is.”
“On the other hand, if, as is usually the case, depreciation based on the original cost or on the remaining book value of the assets is greater than the depreciation based on their current realizable value, the future costs of continuing to use the old assets are overstated by using the higher figure, and the savings resulting from the proposed investment are thus made to look more attractive than is justified.”
M.D.: The psychohistorical error of the fetishism of the continuing “capital-value” of the unamortized historical/original/book value of competitively obsolete fixed capital plant and equipment is a “double-edged sword”. It “cuts both ways”, in some cases, discouraging the growth of the productive force of an individual capital industrial enterprise by fictitiously making a new investment seem too expensive in relation to the expected net profit returns that it will generate, in other cases dangerously inflating the expected net returns of the installation of new fixed capital plant and equipment, even risking the insolvency and liquidation-dissolution of the individual capital.
“As these two fallacies are surprisingly prevalent, it will be useful to understand the viewpoint of those who hold to them and sometimes defend them with almost emotional fervor. The loading of a proposed investment by adding to it the undepreciated book value of assets to be replaced is often justified on the grounds of conservatism, on the theory that the business cannot afford to make reckless investments and must recover somehow the money it spends on plant assets; this argument is particularly likely to be advanced if the business has had some unfortunate experiences with rapid obsolescence of equipment.”
M.D.: Given the nature of the ‘‘‘self-evolving’’’ and ‘self-meta-evolving’ Human-Phenome/Human-Genome complex unity, psychohistorical forces are not only cognitive forces, but are affective forces as well. As the capitals-system develops along its immanently self-guided, ‘‘‘lawful’’’ course, more and more competitive-sector manufacturing businesses will increasingly encounter “unfortunate experiences with rapid obsolescence of equipment”. These searing experiences will generate an ever-intensifying new incentive to monopolization and competition-restriction among those who are able to pursue those measures, and all manner of other desperate and affectively-charged attempts to escape from the bankrupting, centralizing, consolidating, and concentrating consequences, upon capital, of capital itself in its manifestations as productive force growth acceleration, technological innovation acceleration, technological obsolescence depreciation, and falling returns on fixed capital investment, due to aperiodically recurring write-offs of unamortized book value on ‘technodepreciated’ capital plant and equipment. Its upshot, for the core ruling plutocracy, is the adoption of the strategy of continual wages reduction, by means of managed exponential inflation, that was imposed with the Federal reserve act in 1913, and the secret, publicly-undeclared ‘war against the productive forces’, and the “Eu”-genics, and other ‘humanocidal’ policies, pursued by that core ruling class, with increasing intensity, ever since.
“In answer to this, it can be pointed out that the proper way to reflect conservatism is in the making of the actual decision rather than to distort the calculations by injecting estimates known to be too high or too low or by injecting quantities such as past expenditures which have no causal connection with the problem at issue.”
“Actually, it is more truly conservative to acknowledge a loss that has been incurred as a loss than to attempt a decision on calculations that regard the old value as still significant as an asset.”
M.D.: The logic of the ‘‘‘true conservatism’’’ set forth above is valid, but its full adoption by the capitalist class and its servants would require them to acknowledge, once the ascendance phase of the capitals-system has brought itself to an end, the fundamental and fatal flaw of the capitals-system, and to take the advice given by the growing trend of secular productive-force-increase induced negative returns on fixed capital -- of net losses instead of net profits -- “. . . [M.D.: self-]destruction of capital . . . is the most striking form in which advice is given it to be gone and to give room to a higher state of social production . . .” [Karl Marx, «Grundrisse», pp. 749-750, emphases added by M.D.]. Unfortunately, and tragically, for millions of human lives horrifically lost already, and for more such true losses still to come, the ruling core of the capitalist class decided, in 1913-1914, and before -- and ever since -- to take a different, and ‘humanocidal’ direction in response to this wise and truly conservative advice.
“The strongest objection to cost comparisons in which depreciation and interest on old assets are based on their current realizable, rather than on original cost or net book value [M.D.: net of the portion of original cost already expensed-out as “wear-and-tear” depreciation charges], come from production men, who naturally are interested in having the most modern equipment and who frequently feel that comparisons on this basis make it difficult to justify any improvements, however desirable.”
“The answer to this comes back to the question of what is meant by “desirable”, and here it must be recognized that other considerations besides the calculated savings and profits enter into the picture...”
“But these intangible factors, however important they may be, should be considered separately, on their own merits, and should not be allowed to influence the method of calculating comparative costs and savings.”
M.D.: The ‘‘‘entering into the picture’’’ of “other considerations besides the calculated savings and profits”, cited in the sentences above -- once become systematic, and once become democratic -- is, in fact, a description of the basis, as in the Equitists’ new Constitutional / Human Right of “Citizen Externality Equity”, of “higher state of social production” to which Marx alluded in the quote above.
“*[Eugene L. Grant, Principles of Engineering Economy, Ronald Press [New York: 1950]]. ”
[pp. 488-489, emphases added by M.D.].