Peter Lewin

Quotes From

Capital in Disequilibrium (1999)

• Equilibrium is not only a relationship between individuals at a point in time, it is necessarily also a relationship between actions over time.#
• The [average period of production] is crucially dependent on being able to identify the stages of production. It is assumed that the process begins at stage 1 and ends at stage n. In this way any kind of “looping” (coal is used in the production of iron and vice versa), where the output of one stage becomes available as an input of an earlier stage, is ruled out. Second, if the output is a flow (as it usually is), then we must also have some way to connect inputs that occur at time periods n—t with precisely that output that arrives at time period n and separate them from those that need to be connected to outputs occurring at time periods n+j where j is an index of time periods occurring after n. In other words, if the production process is a flow input—flow output process, a set of inputs are used to produce jointly a set of outputs occurring over time and the measuring of T becomes more problematic. Similarly, we must be able to identify the amount of labor time l that is used. This obviously presumes that it is possible to reduce any labor heterogeneity to comparable terms, like efficiency units, and then to measure the number of such units supplied per period of time.#
• Production plans, considered as a whole, are typically in disequilibrium—are based, at least in part, on inconsistent expectations, not regarding the “rules of the game,” but regarding the viability of the product or the productive technique. There is no way to derive an aggregate measure of capital in this situation. The net present values as (assumed to be) computed by each individual planner are based on inconsistent futures.#
• Whereas the “wealth effects” of Neoclassical economics are usually assumed to be small enough to be neglected, the capital gains and losses of Lachmann’s world are the most important forces driving changes in the capital structure. #
• Lachmann’s view of capital accumulation and economic progress is in many ways very prophetic of the revolutionary kind of economic change that has characterized the twentieth century, including the last quarter of the century. It is, in this view, impossible to separate the phenomena of technical progress and capital accumulation; capital accumulation always proceeds hand in hand with technical change.#
• An asset is specific when its opportunity cost is substantially below the value of its current contribution to production. In other words, the price that the asset could fetch in the market for employment in its next best use is substantially below (the discounted sum of) its current marginal value product(s)#
• The institutional (organizational) structure overlays and is intimately related to the production structure in such a way that it is impossible to characterize accurately the production structure without bringing in business organizations.#
• The more dynamic the environment, the more abstract the nature of the organization’s constitution needs to be for it to survive, the more it needs to be like an order.#
• Organizational changes themselves can sometimes bring improvements in productivity. This underlines the problems associated with physical notions of the capital stock.#
• Firms derive their rationale from the fact that the organization of production matters for its results.#
• For measuring the (contribution to) output, there is no avoiding certain elements of convention (judgment). What the institution of the firm does (together with the institutions of money and accounting) is to provide these conventions.#
• Market prices emerge when assets are generic enough, have enough multiple uses in the market, that people’s judgments of their worth become embodied in the stock of information available to decision-makers in general.#
• The finiteness of the payoff period [i.e. the human lifespan] is an important reason for the existence of diminishing returns to investments in human capital.#
• [The] institutional structure encompasses and gives meaning to the financial structure, the set of financial instruments and practices that facilitate the formation and mutation of the capital structure. The financial structure is volatile and cannot be designed; but in its absence the capital structure has no meaning and no value.#