[OPE-L:1933] depreciation, profits, and subjectivity

Michael Perelman (michael@ecst.csuchico.edu)
Wed, 24 Apr 1996 08:45:03 -0700

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Capital values are, at least in part, subjective. Revaluations
do not come instantaneously. They come about via competition.
Here is an example: my wife's best friend has a print shop with
outdated equipment. It is failing. It has a negative profit.
Should she shut down their business? So far, they are convinced
that "things will turn around." I think that she is typical in
that respect. They hope to hang on, somehow believing that their
investment still has value. It does not.

We cannot specify how many period are required for market
conditions to make themselves felt in capital revaluations.
Maybe it will take a call from her banker.

Keynes described something like this in his descriptions of the
Manchester texile industry.

Maybe things will turn around after all. We cannot know without
perfect information about the future. To value capital precisely
would require "rational expectations marxism." Is Robert Lucas
on this list?


Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 916-898-5321 E-Mail michael@ecst.csuchico.edu