It will have been noticed that in Part II of this book we made hardly any use of a capital aggregate, however measured. There was indeed only one way in which we even appeared to make use of such an aggregate. This was when we allowed ourselves to assume that saving was a fixed fraction of profits—profits which were taken to be determined by the application of a market rate of interest (r) to a capital value (K). Such a capital value, we now see, must be a forward-looking value. It will however be remembered that it was only for the determination of the steady state path that such a rule was invoked; and in the steady state there is no forward-backward difference. Forward and backward measures—value at current prices and value at constant prices, which are the current prices—are identical. When we leave the steady state they cease to be identical; and precisely at that point the rule in question loses its convenience. When we work with a Take-out (Q) that is given exogenously, we can calculate the path of the economy without any reference to a capital aggregate. That is in fact what we did in our Traverse analysis.
It will nevertheless be useful, at the point we have now reached, to consider how the story would have run if it had been told in terms of capital aggregates; or at least to examine what would have happened to the aggregates in the course of the Traverse. This is an exercise that can be performed on our model, taking it quite strictly, with all its assumptions intact. Since the path of the economy was fully determined by our previous analysis, no difference can be made to our previous results by this re-statement. We shall merely be putting them in a different way, so as to make them more comparable with the results reached by others, and by the present author in other places.
I begin, as in Part II , with the Fixwage path—which turns out, in this place, to be more than usually instructive. For it enables us to set out the relations between the aggregates in a manner which is quite clear-cut. The Fixwage theory is more