Abstract
We dealt with an important part of fixed cost, i.e., the depreciation expense in managing a shipping company owning 20 intangible fixed assets (ships), characterized by different vintages (ages), and book values. Keynes drew our attention to the importance of capital for the economy, and he dealt with the ways not only to increase it, but also to keep it in tact, through replacement. When economists tried to make Keynes dynamic, however, (known as Keynesian growth theory), they faced with the problem that not only capital’s productivity depends on capital’s vintage, but also its embodied technical progress depends on age. In shipping, we use the concept of “sister1 ship”. We used also a questionnaire on shipping depreciation filled-out by 45 Greek shipping companies. The existing theory of depreciation is, for shipping, wrong, we believe! While accountants want capital to be replaced after its death, they “condemn” shipping firms to end, prematurely, when a severe cycle occurs! Depreciation is related to gross profits, instead of to market’s conditions! Thus, we proposed an alternative shipping depreciation policy, using also an inexpensive statistical tool—a regression line—between ship age and price. When accountants etc. proposed depreciation for the first time, they ignored cycles, inflation and (shipping) depressions! We were surprised to find-out that economics … forbid “economies of scale”, when average cost exceeds marginal cost, AC > MC! Any society which wants a faster growth, has to adopt embodied technical progress, reducing both capital and labor, than hitherto, and especially capital! Moreover, Society committed the mistake to create unequal income and wealth since Keynes’s time (1936), something which re-appeared in its most grandiose form in 2019-2021, among a crisis and a pandemic, providing $13.1 trillion to just 2755 fellow citizens only, worldwide!
Highlights
Economists distinguish Economics into: “Macro” and “Micro”, the latter known as “Price Theory”2
When economists tried to make Keynes dynamic, they faced with the problem that capital’s productivity depends on capital’s vintage, and its embodied technical progress depends on age
The existing theory of depreciation is, for shipping, wrong, we believe! While accountants want capital to be replaced after its death, they “condemn” shipping firms to end, prematurely, when a severe cycle occurs! Depreciation is related to gross profits, instead of to market’s conditions! we proposed an alternative shipping depreciation policy, using an inexpensive statistical tool—a regression line—between ship age and price
Summary
Economists distinguish Economics into: “Macro” and “Micro”, the latter known as “Price Theory”. A company, we believe, needs a motive in order to embark on the production of the means for the satisfaction of the needs held by consumers. Adam Smith (1723-1790) “beatified” the profit motive (1776), we believe, by inventing “the invisible hand” One has three invisible hands (divine, human and that of the market) Another pillar of the human system is that one has to work, and to work hard! We do not know what economic theory Smith would have written, if he knew that the two systems, (divine and human), were not converging. Economists avoid defining the exact % of profits, and especially normal ones. The dual role of demand and supply in determining price, confused the first economists. Some argued that cost only determines price, and others that demand only determines it. Marshall (1920) (1842-1924) solved this dilemma in 1890 by arguing that both demand and supply determine price in exactly the same way that a pair of scissors cuts a piece of paper
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