Economics Dictionary of ArgumentsHome
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| Rate of return: In economics, the rate of return is the percentage gain or loss on an investment over a specific period, relative to its initial cost. It measures profitability and efficiency, encompassing income (e.g., dividends, interest) and capital appreciation. It is crucial for comparing investment performance and guiding financial decisions. See also Returns to scale, Profit._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Geoffrey C. Harcourt on Rate of Return - Dictionary of Arguments
Harcourt I 167 Rate of return/technical progress/Harcourt: „Malleability“ ((s) that technical equipment and thus progress can be seen as malleable as a construction kit)…. 'Malleability' - no redundancy – gets rid of D. H. Robertson's grumble, see Robertson [1949](1); all existing capital goods may be used and workers may remain, if they wish, teetotal. >Marginal product of labour/Robertson. The high number of techniques confines the distance which p may move away from r*. And, most striking of all, if we let the techniques become very many, approaching an infinite number, so that the change in the magnitude of r needed to go from one to another becomes infinitesimally small then, due to the 'unobtrusive postulate', the differences in values of capital goods and outputs per man likewise become smaller and smaller. ((s) the 'unobtrusive postulate': the 'unobtrusive postulate' implies that there can be only one switch point between any two techniques and that there is a definite ordering on either side of the switch-point techniques, properties associated with the physical rate of return (…).) Harcourt: In the limit, both change instantaneously, the switch point becomes irrelevant (as in the artificial case) and 'at any level of the rate of profits, there always is one technique which is the most profitable one . . . at the same time any change in the rate of profits, no matter how small, always causes a change in the most profitable technique', Pasinetti [1969](2), p. 521. Such, perhaps, is the post- (technical) revolution which lies behind Irving Fisher's pre-revolution investment-opportunity schedules, as brought into the modern era by Hirshleifer [1958](3). I add 'perhaps' because Fisher's examples are always for individuals. It does, however, seem-and this is confirmed by Stigler [1941](4) -that the early neoclassicals were after bigger game than a partial analysis of an individual firm or industry and the scope of the questions examined by Dewey [1965](5) in the book he is pleased to call Modern Capital Theory confirms that this view still appeals to some. What Marshall was after we can never really be sure; for, characteristically, he always shied away from openly committing himself. (Keynes [1933](6), pp. 223-4, though, had no such scruples in his assessment of Marshall's stand - except on the subject of French letters, for which see Holroyd [1968 (7)], pp. 514-15, n1.) But the results of the reswitching and capital-reversing debate show that there is no justification at all for the 'unobtrusive postulate', for we know that in a heterogeneous capital-goods model (where capital goods are really so and not just jelly in disguise), a lower rate of profits may well be associated with a lower output per head, with a lower value of capital per head and with a lower net output-capital ratio. Harcourt I 168 Rate of profit: Moreover, the same technique may be the most profitable at two widely separated rates of profits. Technical progress: Nearness of techniques as assessed by the rate of profits at which they are most profitable may tell us nothing at all about how close (or far apart) are their values of capital or outputs per head. And - most damaging of all for RF2 as a surrogate for a well-behaved physical rate of return, i.e. a marginal product which declines as the value of capital increases - the difference (r - p(r)) may become indifferently positive or negative at any level of the rate of profits, so losing the properties of a physical rate of return. >Surrogate production function, >Rate of profit, >Rate of return/Economic theories. 1. Robertson, D. H. [1949] 'Wage Grumbles', Readings in the Theory of Income Distribution (American Economic Association), S. 221-36. 2. Pasinetti, L. L. [1969] 'Switches of Technique and the "Rate of Return" in Capital Theory', Economic Journal, LXXIX, pp. 508-31. 3. Hirshleifer, J. [1958] 'On the Theory of Optimal Investment Decision', Journal of Political Economy, LXVI, S. 329-52. 4. Stigler, George J. [1941] Production and Distribution Theories: The Formative Period (New York: Macmillan). 5. Dewey, Donald [1965] Modern Capital Theory (New York: Columbia University Press). 6. Keynes, J. M. [1933] Essays in Biography (London: Macmillan). 7. Holroyd, Michael [1968] Lytton Strachey: a Critical Biography. Vol. 11 The Years of Achievement (1910-1932) (London: Heinemann)._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Harcourt I Geoffrey C. Harcourt Some Cambridge controversies in the theory of capital Cambridge 1972 |
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