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Neoclassical theories of stationary relative prices and the supply of capital

Fratini, Saverio M. (2017): Neoclassical theories of stationary relative prices and the supply of capital.

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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 by the comparison with the modern neo-Walrasian models of stationary equilibrium, in which the stock of capital is not considered among the data. We show that the attempt to put capital on the same footing as labour and land—i.e. to present it as a factor of production—led the early neoclassical author to write the zero netaccumulation condition, which was required by the stationarity of relative prices, in the form of a market clearing condition between supply of and demand for capital. The rate of interest was then understood as the price to determine by this market. However, as is well known, the conception of capital as a factor of production—and of the rate of interest as the price for its use—did not work and involved several problems, some of which are discussed in this paper.

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