Depreciation Principle

Ownership of a product moves from producer to consumer (or producer), yet neither production nor consumption occurs at that time. The producer hoards the product before the trade and the consumer hoards it after. The product exits and is eventually traded between two people. The terms "producer" and "consumer" are names for the objectives (production and leisure) of the two primary economic actors. The producer intends to create (appreciate) capital, while the consumer intends to destroy (depreciate) it. But the producer's hoard (inventory) depreciates the product just as does the consumer's.

The common use of the term "consumption" conflates interest and depreciation. The fact of a product sale represents investor interest, not depreciation. The depreciation of a product is actual consumption, and represents the extraction of service to its owner (utility). A producer who only owns does not produce and a consumer who does not own does not consume. Only depreciation reflects actual consumption just as only creation reflects actual production. The net proceeds of a sale from producer to consumer is interest, even if is capitalized through reinvestment. Only action is relevant to the economic meaning of consumption, not the name of a given role.

Wealth, defined as capital accumulation, is the sum of products. All products are always hoarded and depreciating. Production creates products, where interest is both the cost of, and return on, doing so. The price of a product is the sum of its interest return on investment and the cost of all products consumed in its production. Any product incorporated as a component of the final product is fully depreciated as an independent product and appreciated in the new product. Given that costs equate to investment principal, the net increase in products is simply interest. Capital accumulation rate is therefore the amount that interest exceeds depreciation. Notice that the absolute amount of capital (i.e. product value) is not relevant to these ratios.

growth-rate  = interest-rate - depreciation-rate
growth-rate  = (wealth-today - wealth-yesterday) / wealth-yesterday
growth-rate * wealth-yesterday = wealth-today - wealth-yesterday
wealth-today = wealth-yesterday + wealth-yesterday * (interest-rate - depreciation-rate)

The following examples demonstrate the effect of depreciation on economic growth.

growth-rate = interest-rate - depreciation-rate
5.0% = 10% - 5%
0.5% = 10% - 20%

If sale and full depreciation of products occurs immediately after production, the products exhibit an infinite rate of depreciation, or no durability. While production still earns interest, there is full economic contraction (no wealth). On the other hand, if products exhibit no depreciation, economic growth is the interest rate.

growth-rate = interest-rate - depreciation-rate
-∞% = 10% - ∞%
10% = 10% - 0%

All property exhibits depreciation. To the extent money exhibits use value, it depreciates as any good. Fiat money, such as Bitcoin or the U.S. Dollar, is presumed to have no use value. However money value also depreciates due to the opportunity cost of interest foregone and demurrage.

money-growth-rate = interest-rate - (interest-rate + demurrage-rate).
-1% = 9% - (9% + 1%)

Monopoly money also exhibits depreciation via seigniorage.

monopoly-money-growth-rate = interest-rate - (interest-rate + demurrage-rate + seigniorage-rate).
-4% = 9% - (9% + 1% + 3%)