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Neoclassical theories of stationary relative prices and the supply of capital

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  • Saverio M. Fratini

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.

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  • Saverio M. Fratini, 2019. "Neoclassical theories of stationary relative prices and the supply of capital," Metroeconomica, Wiley Blackwell, vol. 70(4), pages 723-737, November.
    • Handle: RePEc:bla:metroe:v:70:y:2019:i:4:p:723-737
    DOI: 10.1111/meca.12250
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    More about this item

    JEL classification:

    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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