[OPE-L:4140] Re:

aramos@aramos.b (aramos@aramos.bo)
Tue, 4 Feb 1997 13:22:44 -0800 (PST)

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Thanks to Andrew for the tables in ope-l 4136. It seems
that the matter begins to be clarified, at least for me. To
be frank, I was left unclear about what was the
"replacement cost" table.

Now my problem is with Rieu's tables. Andrew says in
post 4136:

> Rieus new example, however, uses the expected prices of
> the following year instead.

I think, Rieu's reasoning is that the cost-price actually
paid at the beginning of period t is not relevant. What
would be relevant is the "replacement price", prevailing
at the beginning of period t+1. So, in order to calculate
the profit rate, Mr Wolf does not take into account the
money he paid (or owes to the banker), but the price he
will pay, when the components of cost price are replaced.

However, for me this is not clear in Rieu's tables.
I would be gratefu if he clarifies the point. (I case
1, is A used as input in both sectors, or only in B? In
case 2, is B used as input in both sectors, or only in A?)

In any case, if this were Rieu's position I find difficult
to say that it is a possible ("realistic") behavior. Why?
Let us assume that the bussiness is carried out through a
credit, and that the prices of the inputs go down during
period t.

In this case Mr Wolf cannot "ignore" the price paid at the
beginning of t. To put this in another words: BEFORE
replacing the machines at the beginning of t+1 (at lower
prices), Mr Wolf must pay to the banker, and the money he
is owing depends on the (higher) prices prevailing at the
beginning of t. If Mr Wolf does not pay to the banker, I do
not know how he could "replace" the machines because,
firstly, "the firm" (Great Marshall!!) had gone bankrupt.
So he had nothing to "replace".

Alejandro Ramos M.