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Neoclassical theories of stationary relative prices and the supply of capital
Author(s) -
Fratini Saverio M.
Publication year - 2019
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12250
Subject(s) - economics , capital (architecture) , endowment , prices of production , capital good , relative price , factors of production , fixed capital , value (mathematics) , production (economics) , microeconomics , monetary economics , financial capital , capital formation , profit (economics) , philosophy , archaeology , epistemology , public good , machine learning , computer science , history
Abstract In the traditional versions of the neoclassical theory of value and distribution, the stock of existing capital, understood as either an amount of value or an endowment of capital goods, was taken as given together with the available quantities of labour and natural resources. This characteristic of the early neoclassical theories is analysed through comparison with the modern neo‐Walrasian models of stationary equilibrium, where the stock of capital is not among the givens. It is shown here that the attempt to present capital as a factor of production on a par with labour and land led the early neoclassical authors to write the zero‐net‐accumulation condition, which was required by the stationarity of relative prices, in the form of a market‐clearing condition for the supply of and demand for capital. The rate of interest was therefore understood as the price determined by this market. As is known, however, the view of capital as a factor of production and the rate of interest as the price for its use failed to work and involved several problems, some of which are discussed here.