On 6/7/2012 10:43 PM, Shane Mage wrote: > Anyway, I thought that the neo-classical (Marshallian) theory of profit > says that the normal profit rate tends to zero because price tends to > equal long-run average cost (for any non-borrowed capital the accounting > profit is exactly offset by the [virtual] interest on that capital). So > a positive normal profit rate implies an uncompetitive market structure > that provides monopoly rents.
Nope, For the Marshall branch of neo-classicism, normal profit is an opportunity cost. In Marshall's words: "the supply price of average business ability and energy." This does not tend to zero for reasons similar to why wages don't tend to zero. On the other hand, pure profit, which is the amount over and above all opportunity cost payments, is the value that tends to zero. The problem with the Marshallian idea of normal profit is that it can not enter a production function like other "factor" inputs -- it is not a quantity, and therefore is not divisible, and it is not homogeneous. Thus, it does not have a marginal product and the product exhaustion theorem fails. The Walras branch of neo-classicism evades this problem altogether: "in a state of equilibrium in production, entrepreneurs make neither profit nor loss. They make their living not as entrepreneurs, but as land-owners, laborers or capitalists in their own or other businesses." (And, by the time we get to Fisher [1930], rent and wages are eliminated too: "interest is a part, but the whole, of income.") Most of the current undergraduate textbooks that I've looked at follow the Walras path: the return to the entrepreneur's "ability and energy" is a wage payment. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
