ABSTRACT

In Mrs. Robinson’s celebrated article, ‘The production function and the theory of capital’, 2 it is not made clear whether the ‘man of words’, whose doings are contrasted with those of the ‘man of deeds’, is an economist or an accountant. It is assumed in this article that he is an accountant; and it is proposed to examine how accurate is the accountant’s measure of the rate of profit under ‘Golden Age’ conditions where uncertainty is absent, expectations are fulfilled, and the rate of profit has an unambiguous meaning. 3 The following question is asked: would the answer obtained by using the accountant’s measure of the rate of profit correspond with what is known, under the assumed conditions, to be the right answer, namely, that the ex post rate of return equals the ex ante one. This does not seem to be an entirely pointless exercise, since a number of ‘men of words’, economists this time, have used the accountant’s measure in their empirical investigations, 4 and conclusions have been drawn from both the relative and absolute sizes of their estimates. Thus, Minhas used cross-section studies of the rates of return in the same industries in different countries to test his hypothesis about factor-reversals; and Nevin was depressed by the stable, low level of rates of return in British manufacturing in the post-war period. But if it can be shown that the measure is faulty even in the equilibrium conditions of a ‘Golden Age’, it is unlikely to prove a realistic measure in real world situations.