[OPE-L:4147] Re: New & New New Quiz

RYU DONG MI (rieudm@kiaeri.co.kr)
Wed, 5 Feb 1997 00:03:51 -0800 (PST)

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A reply to Andrew & Alejandro :

Thank you, Andrew for kindly summarizing the position of TSS(to be frank
with you, I still don't know what TSS stands for) in [OPE-L:4130]. It
helped me to understand the theoretical background of 'TSS'. Especially,
the statement on 'past', 'present' & 'future' was novel, at least, to

Although I don't know much about the position of 'simultaneists', I
think Andrew are too simplifying the position of them.
Let's return to original quiz in [OPE-L:4046].

>>Assume a two-sector economy, with circulating capital only, in which
production takes 1 year in each sector. The profit rate in sector A
next year will be 10%, and the profit rate in sector B will be 8%, if
prices remain the same. However, in the past several years, the price
of A's product has been falling by 10er year, and the price of B's
product has been rising by 10er year. Analysts forecast that these
trends will continue, and judge the two investments to be equally risky.
All else being equal, in which sector would you invest?<<

Yes, Andrew clearly noted that analysts forecast that these trends will
Then, Mr. Wolf(our capitalist who is 'simultaneist') will ignore these
analysts' unanimous forcast? I don't think so. No rational capitalist
will think that the prices of commodities remain unchanged. Furthermore,
if he is going to start new business or enter new industry, he will
surely consider the change in price conditions.

Furthermore, Andrew wrote in [OPE-L:4136] as follows.
>>Hence, in effect, they[the simultaneists - Rieu] compute both today's costs and next year's revenues using today's prices. That is exactly what the "replacement cost" profit rate does...<<
In this passage, Andrew is talking about the way capitalists'
expectation are formed, not about simultaneists' way of thinking. Here
Andrew assume that simultaneist capitalist expects statically. Namely,
adaptive expectation (P* = P(t-1), where P* denotes expected price of
period t) is posited.
If the point of quiz is to show that rational expectation is better than
adaptive expectation(or the latter is wrong), I can agree with Andrew on
the passage above. But if it is to show that simultaneist way of
thinking is wrong, the passage quoted above seems to be beside the

In [OPE-L:4136], Andrew said,