The purpose of this paper is that of considering the choice of production techniques
from the point of view of both the capitalist entrepreneur maximising the present
value of his firm's assets at a given interest rate and the socialist planner maximising
the consumption per head associated with the maintenance of a given growth rate.
A model of production is set up, in which output is made of a
versatile consumption and production good, called putty, and of the machines which
are made of putty and are necessary to assist labour in order to produce putty. It
is assumed that technical choice is irreversible, i.e., that putty is moulded and
baked into clay machines of given specifications, which cannot be turned back into
putty or into machines of different specifications. Also, their use is not affected
by technical progress, which improves the design of new machines but not the operation
of those already constructed. The assumption of the costless transformation putty
into clay and the use of gross measures evade this fundamental issue of capital theory.
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