Capitalist Accountants on the Logic, Science,
and Ethics of ‘Technodepreciation’ Accounting.
Dear Reader,
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.
Enjoy!
Regards,
Miguel
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.].
SOLUTION –
‘Equitist Political-ECONOMIC
DEMOCRACY’;
BOOK:
THE MISSING BLUEPRINTS
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