ABSTRACT
In Mrs Robinson’s celebrated article ‘The production function and the theory of capital’ (1953–4, reprinted in part in J. Robinson 1960b: 114–31; all subsequent references are to the second source), 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 chapter 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. 1 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 (see, for example, Kuznets 1952a; Phelps Brown and Weber 1953, especially pp. 272 and 283–8; Barna 1957, especially pp. 25 and 30; Lutz and Hague 1961: 82–5; Minhas 1963, chapter 5; Nevin 1963, especially p. 646), and conclusions have been drawn from both the relative and the absolute size 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.
