Me:
> "My thinking is that A will be preferred, if the capitalist is thinking of
> investment in each of the possible ventures as a 'going concern', since A
> offers a prospective gain in the form of a 'release of fixed capital' while B
> does not. The capitalist investing in A can use the "saving" - owing to his
> ability to replace the means of production more cheaply -- either for
> consumption, or to extend the scale of his operations.
Andrew:
> What "going concern" means here is not what it usually means. What it means
> here is that capital is IMMOBILE. The "capitalist is thinking of investment
> in each of the possible ventures as" something s/he is "locked into,"
> something s/he cannot or will not exit, once the initial decision is made.
My point does not require full "lock in" or perfect
immobility of capital -- it merely requires that the costs
of moving from one real sector of production to another are
appreciable, as they obviously are. Andrew's dismissal of
my point rests on the very strong assumption of *perfect
mobility of capital*: it costs nothing whatsoever to quit
making cars and start making semiconductors or furniture or
toothpaste instead.
> What this has to do with capitalism, I don't know. If investment B gives a
> higher historical rate of return but a lower "replacement cost" rate, it is
> preferable to A, even though re-investment in B next time would mean lower
> consumption or less expansion of one's investment, precisely because B gives
> you more VALUE, which you can use HOWEVER and WHEREVER you want next time,
> subject only to some constraints on capital mobility. (The widespread
> existence of stock markets makes these constraints negligible for large
> investors.)
The stock market is not relevant here. We're talking about
the mobility of industrial capital, not arbitrage on
financial markets. If I'm an industrial capitalist, and I
find that I've invested in a line of production that offers
a less than optimal gain, it's no comfort to me to find that
the stock market has marked down the shares in my business
so that they afford the standard rate of return ex ante.
Allin Cottrell
Department of Economics
Wake Forest University