Why Capital is Overvalued

Michael Perelman michael at ecst.csuchico.edu
Fri Mar 5 08:46:25 PST 1999


Max asked why investors should over value outdated equipment. The answer, in the sense, comes from Minsky. So long as the firms are earning money, even though these earnings float atop of a fragile bubble, investors capitalize this stuff. During the bubble time, weak competitive forces allow the efficient and the inefficient alike to remain profitable. Once competition breaks out, the apparent value of the outdated equipment disappears. --

Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901



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