Why Fixed Capital Cannot Transfer its Value to the Product

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Abstract

Almost all of the various economic theories consider that fixed capital, although it is defined as a final good, transfers its value to the product. This short note will show that this amounts to considering fixed capital also as an intermediate good. Going back first to the specific characteristics of intermediate goods and final goods, we will show that it is not logically possible to consider fixed capital both as a final good and an intermediate good, because this erroneous starting point leads to insurmountable contradictions. The postulate that fixed capital transfers its value to the product must therefore be abandoned.

Posted for comments on 14 Oct 2020, 2:20 pm.

Comments (1)

  • Daniel Hinze says:

    Flamant makes a simple yet radical proposal in this paper that warrants wider discussion. Having accepted the transfer of value from fixed capital to final good as self-evident, I expect that the majority of economists reading this paper might struggle with the idea. Effectively the argument is that the value of final goods that have been sold on the market at the end of the production process cannot be realized and counted a second time (or more). Of course, at the end of their useful life, fixed capital goods are disposed of, destroyed or recycled and their value can be considered to have disappeared – but this value has not been transferred.
    Capital owners demand a depreciation charge that is included in the price of the good – but one should not be interpret this price mechanism as the outward appearance of a transfer of value. What happens is not a transfer of value from fixed capital to final goods but a transfer of value from labour to capital – it’s not a ‘technical’ but a distributional issue. A simple but brilliant insight. Unfortunately, the conclusion doesn’t explore the many implications including on the ‘transformation problem’ of values into prices. Well worth a follow-on paper!

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