Why Capital is Overvalued

[Michael Perelman]

Max asked why investors should over value outdated equipment.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the outdated equipment disappears.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