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Differential Profit Rates and Convergence to the Natural State
Author(s) -
Ganguli Partha
Publication year - 1997
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00081
Subject(s) - economics , ex ante , profit (economics) , profit rate , microeconomics , competition (biology) , convergence (economics) , mathematical economics , macroeconomics , ecology , biology
In establishing convergence to the “natural state”, we examine the allocation of capital by the “captains of industry” who respond to profit‐rate differentials. Such allocations unleash the equilibration forces of competition. It is constructively shown that the problem of capital allocation engenders a self‐referential system whereby the ex post profit rates depend on the dynamics of ex ante profit rates while the latter depend on the dynamics of ex post profit rates. We establish the existence of, and the convergence to, the “natural state” in the light of this self‐referential system.