CHAPTER 11
THE EVALUATION OF CAPITAL

IN the perfect tranquillity of a golden age, with a constant rate of profit, expectations about the future are definite and confident, so that the earning power of capital goods is believed to be known, and their value has a precise meaning.

At first sight, therefore, it might appear quite a simple matter to compare the ratio of capital to labour at different positions of the mechanisation frontier, provided that the conditions of a golden age obtain at each; but in fact we shall find that such comparisons raise a number of perplexing problems. We think that we know what 'output', 'profit' and 'capital per head' mean until we begin to try to formulate a precise and simple definition.


OUTPUT, CAPITAL AND LABOUR IN A GOLDEN AGE

The problem may be discussed in terms of a comparison between separate economies, isolated from each other, each enjoying a golden age appropriate to its own circumstances. In each economy there is a different wage rate, or if wages in two economies are at the same critical level (Beta-Alpha or Gamma-Beta) the mixture of techniques in use is different. A different wage rate implies a different rate of accumulation,1 and the conditions of a golden age require that the rate of growth of population shall be in harmony with the rate of accumulation, or that there is just the right rate of neutral

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1
This follows from the assumption that there is no consumption out of profits. If we assumed that part of profit is consumed, we could compare economies with different wage rates and the same rate of accumulation, provided that the thriftiness of the capitalists was different in a compensating manner. See below, p. 259.

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