Re: (OPE-L) Ajit's paper (costs)

From: ajit sinha (sinha_a99@YAHOO.COM)
Date: Wed Jun 09 2004 - 09:08:28 EDT

--- Phil Dunn <pscumnud@DIRCON.CO.UK> wrote:
> >--- Phil Dunn <pscumnud@DIRCON.CO.UK> wrote:
> >
> >  >
> >>  Hi Ajit
> >  >
> >>  Not good enough.  You fail to distinguish
> between a
> >>  general rise in
> >>  prices and a rise confined to just x and y.
> >>  If the rise is confined to x and y then the rate
> of
> >>  profit is indeed
> >>  20%.  Whether the business person decides to
> >>  continue operations
> >>  depends, inter alia, on whether she can make a
> >>  profit when x and y
> >>  are $40 instead of $25.
> >>  That depends on the dollar price of z in the
> second
> >>  period and
> >>  inflation).  The money capital required can be
> >>  borrowed.
> >_____________________
> >I don't mean general inflation. I mean changes in
> >prices of x and y. Let's suppose I go to you to
> borrow
> >money for my next round of production. I tell you,
> >look I just made 20% profit in this business, so
> >please lend me some money to reinvest in it. Given
> >that you follow TSS logic, you gladly lent me the
> >money. But again the same thing happened. The
> prices
> >of x and y rose to $80 each and my z is now priced
> at
> >$96. So I again go to you asking to borrow more
> money
> >to carry on my business. Tell me for how long you
> will
> >keep faith in TSS and keep lending me money?
> Economics
> >needs to know which sector is viable and which is
> not.
> >The viability of a sector depends upon whether it
> can
> >keep producing at the same level. So you will see
> that
> >what I wrote was good enough once you start to
> think
> >of yourself as the person who may have to lend
> money
> >to a TSS business fellow. Cheers, ajit sinha
> Hi Ajit
> Of course, rising costs are a concern to a business
> and its bankers
> -- but only if the costs cannot be passed on to the
> customers.  Here
> we have a case where we assume costs can always be
> recovered and
> where there is a historical cost profit and a
> replacement cost loss.
> In every year loans can be repaid with interest with
> a bit left over
> for the proprietor.  This is a rock solid business
> proposition.
> Everybody is in the money (except the workers who
> are assumed to live
> on air).  There is no inflation and so the value of
> money is
> unchanged.
> Thanks, Ajit, you have provided a refutation of
> replacement cost accounting.
> Phil

Not so fast Phil! You forget that after every round of
production I have to come to you for a larger amount
of money. So, no matter how rich you are, sooner or
later you will run out of money and I will have to
close my factory. And if you have power to print
money, you will create hyper inflation just to keep me
and TSS in business. Cheers, ajit sinha

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