Hi Julio,
I too am a bit frustrated by this discussion, so maybe we should take a break. Plus, as you say, Spring semester is starting. A brief response to your latest: I am discussing marginal productivity theory that I find in the textbooks and the literature. Your interpretation seems to be something different from that. Who would you say has presented an interpretation of marginal productivity theory that is the most similar to yours? Which micro textbook would you recommend on marginal productivity theory? The price variable that is determined by the S and D of K is the price of capital, i.e. the price per unit of capital goods. As I have said, the price of capital goods is usually defined as: PK = PG (d + r) + π, where PGis the actual market price of capital goods, d is the depreciation rate, r is the rate of interest, and π is the producing firm's profit (which = 0 in LR equilibrium) (e.g. Nicholson, *Intermediate Microeconomics*). All the variables on the RHS of the equation are taken as given in marginal productivity theory, and thus are not determined by this theory (except π which = 0 in the LR). If producing firms own their capital goods, rather than rent, then (rPG) would go to the producing firms, but r would still be taken as given. You say that, even though r is not determined by marginal productivity theory, it is determined in an inter-temporal bond market. This would have to be examined in more detail, but my guess is that in the end the "future returns" in this market would also be taken as given, not explained. In any case, r is not determined by marginal productivity theory. In other words, marginal productivity theory does not explain the return to capital by the MPK, and that is my main point. Julio, thanks again for the discussion. Although it has been frustrating at times, I have learned from it and I hope you have too. Comradely, Fred P.S. One final comment (for now): As I mentioned in one of my RWER papers, marginal productivity theory is quietly disappearing from the textbooks, both undergraduate and graduate, especially the marginal productivity theory of *capital*, which is almost never mentioned. Varian is currently the best-selling intermediate micro textbook, and it hardly mentions marginal productivity theory at all. Bits and pieces here and there, like dismembered body parts, but no systematic presentation. The best-selling graduate micro text is Mac-Collel, Whinston, and Green, and there is no discussion whatsoever of marginal productivity theory (or distribution theory in general) in a thick book of 1000 pages. It is all value theory and welfare economics. It seems to me that the reason for this disappearance of marginal productivity theory from the textbooks is the very serious logical problems in this theory. On Sat, Jan 19, 2013 at 8:27 AM, Julio Huato <[email protected]> wrote: > Quick clarifications and corrections on my last reply to Fred (which, > again, didn't make it to the list archives): > > > Supply: K=f(r) > > Demand: K=g(MP_K) > > Equilibrium: f(r) = g(MP_K) > > > > Again, K=f(r) says that K is positively related to r (or not so > > negatively related as g). K=g(MP_K) says that K is negatively related > > to r (or not so positively related as f). > > If r is the opportunity cost, why do I say that the K supply function > f is increasing in K. Doesn't cost make people supply less of > something? > > Again, this way of presenting things is by analogy to the simple > textbook market model people are used to; although people on PEN-L > probably despise it. Like in every market, there are two sides here, > buyer and seller, or in this case, the investor and the entrepreneur. > What is a cost for the entrepreneur is a benefit for the investor. If > investor and entrepreneur are the same person, then the cost is > imputed. > > Readers may also think by analogy to the usual textbook way of > presenting the labor market. The demand curve is the MP_L curve, > decreasing in L, and the supply curve is the wage rate (a cost for the > entrepreneur but an incentive for the worker), increasing in L. > > > Fred, you're switching the context again! With due respect, if you're > > doing it on purpose, it is not funny. If you are confused, then you > > need to go back and review this stuff a bit more carefully. > > Here I managed to sound paranoid and patronizing at once. Sorry about > this, Fred. I'm taking it back with apologies. >
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