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The reconstruction of capital theory: the true meaning of capital in a production function

Obregón, Carlos (2018): The reconstruction of capital theory: the true meaning of capital in a production function.

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Abstract

The purpose of the present article is to explore the possibilities of a reconstruction of a Theory of Capital capable of taking into account the Reswitching phenomenon. In Section 1 a new measure of capital-time, for neoaustrian processes of production, is introduced. The main outcome of the use of this proposed new measure of capital is this: it can be shown that, even when Reswitching occurs, there is still always an inverse relationship between the rate of interest or profit and the quantity of capital-time. In Section 2 the results of Section 1 are extended for the case of two good technologies examples. In Section 3 a surrogate production process is introduced. By developing this surrogate production process it can be shown that in general there is an inverse relationship between the interest rate and the quantity of surrogate capital per man, the surrogate capital/output ratio, and between the interest rate and the newly defined steady-state consumption per capita. Section 4 presents further comments on the results of the previous sections. Section 5 introduces numerical examples.

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