Paul, responding to Ajit, wrote, in part:
<snip>
Paul wrote referring to the Okishio stuff:
If one assumes that accumulation occurs as an exogenous constraint,
unexplained at this level of micro analysis then the above assumption
and the theory as a whole falls. It becomes possible to have investments
in technologies which on a flow basis ( as dealt with in the standard
input output model ) are more efficient, but which entail a higher
stock of fixed capital, which depresses the profit rate.
My comment:
A question or two:
1. Are we talking about the rate of profit or the rate
of return on investment?
2. Are you referring to the possibility that the new investment
could have a lower profit and a higher RRI?
Paul wrote:
One can readily come up with plausible arguments as to why such an
exogenous constraint on investment may exist. In an economy in which
most firms are private companies and in which mobility of capital
is less than perfect, a private capitalist may be faced with the
option of either obtaining a zero profit on his surplus if he
leaves it as a hoard, or obtaining a lower profit than on his
previous capital but still a positive profit if he invests it.
Under those circumstances investment, even if it entails a lower
rate of profit is a rational use of an otherwise idle hoard.
My comment: As you imply below, the hoard when deposited in a
bank will earn interest.
Paul wrote:
In an economy with a well developed financial system the same
argument holds, except that here the alternative is not a zero
rate of return on a hoard, but obtaining the prevailing rate
of interest on it. Under these circumstances investment is
sensible so long as the firm expects a rate of return above
the rate of interest. If the rate of interest is held below the
mean profit rate for the economy, then net accumulation of
fixed capital can occur, and from the standpoint of i/o analysis,
be treated as an exogenous constraint.
My comment: I don't quite see this. Let me say why. Let's
assume that the average rate of return is 25%; on an additional
investment in one's firm the expected rate is 20%. The rate
of interest is 15%. To invest or not to invest would seem to
be the decision at hand. Here, let's back up a bit. Who is
making these new techniques that earn a lower rate of return
than the old technique? Why are they doing this? Assuming
an answer to these questions, let me ask if you know of any
examples of this type of behavior. (A strange request coming
from me to you.)
John