Subjectivism and Economic Analysis: Essays in memory of Ludwig ...

MAURIZIO CASERTAtheory. Here an exogenous variable is a variable that underlies aparticular policy, and hence a particular theory, while anendogenous variable is a variable that can assume whatever value,as there is no policy and no theory for it.Dutt assumes a closed capitalist economy that produces one goodusing two factors only: homogeneous labour and capital.Technology is given and exhibits fixed coefficients and constantreturns to scale. Moreover, capital is eternal and all firms areidentical. No government or money is included in the model. Thebasic structure of the system is made up of two equations, aproduction equation and a price equation. Production is eitherconsumed or invested. So we have:X=CL+gKwhere X is total output, C consumption per worker, L employment,g the rate of growth of capital and K productive capacity. Sinceconstant returns to scale have been assumed, unit coefficients can beused instead. Thus we get:1=Ca 0+ga 1where a 0is the labour coefficient and a 1the capital coefficient,obtained by dividing L and K by X. K/X, however, is made up of twodifferent components, a technical coefficient and a given degree ofcapacity utilisation. This becomes clear when we divide both K andX by full capacity output X f:(K/X f)/(X/X f)where the numerator represents the capital coefficient proper, andthe denominator the degree of capacity utilisation. Only if currentoutput equals full capacity output, i.e. when X=X f, will the capitaloutputratio be equal to the capital coefficient. It follows that in thegeneral case the capital-output ratio will be different from thecapital coefficient a 1. Thus the production equation is best kept inthis general form:1=Ca 0+g(K/X).Price per unit of production goes to wages or profits. We havetherefore the following price equation:116