I want to thank Duncan for replying to my note:
Duncan K. Foley wrote:
>
> In reply to Michael P.'s OPE-L:5023
>
> >Let me ask a simple question about valuing capital at current costs. I
> >will first propose a rather bizarre situation. Suppose that a firm is
> >in an industry with lightening speed technical change. It invests a
> >huge amount in some capital good, which becomes obsolete in the course
> >of a year. Next year, it finds itself in the same situation, investing
> >in new equipment, which becomes obsolete. At the end of several such
> >years, it is bankrupt.
> >
> >Could this firm have been profitable each year? If I understand Fred
> >correctly, it could.
>
> It could have in the sense of profit on production per se, but not in
> "bottom line" sense, since the investment would have had an ex post
> negative rate of return, taking into account the capital losses.
Yes, this was the point that I was trying to make. I suspect that these
capital losses were a key part of Marx's falling rate of profit. A
couple of decades later, after the U.S. Civil War, this realization
became commonplace -- so much so that the American Economic Association
was founded in large part to oppose the Laissez Faire policies that were
leading to the sort of falling rate of profit that I described as
bizarre above. To my knowledge, Marx was the first to put his finger on
this phenomenon, other than Charles Babbage.
-- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 916-898-5321 E-Mail michael@ecst.csuchico.edu