Alfred Amonn’s review essay examines Friedrich and Vera Lutz’s integration of production and capital theory, tracing its implications for investment, replacement, financing, and valuation. He introduces the work under review:
Als jüngste Frucht dieser Arbeit ist vor kurzem das von Friedrich und Vera Lutz gemeinschaftlich verfasste und von der Princeton University Press herausgegebene Werk «The Theory of Investment of the Firm» erschienen.
English translation: As the latest fruit of this work, the volume "The Theory of Investment of the Firm," written jointly by Friedrich and Vera Lutz and published by the Princeton University Press, has recently appeared.
Amonn presents the book’s analytical progression from simplified production conditions to intertemporal decisions involving capital. Its method separates cases so that the effects of equipment durability, investment horizons, financing, and uncertainty can be examined systematically. He marks the transition from methodological orientation to substantive analysis explicitly:
Dies, was das methodische Vorgehen und das methodologische Ziel betrifft.
English translation: So much as regards the methodical procedure and the methodological aim.
The central substantive problem is time. Durable equipment generates returns across successive periods, but its acquisition cost cannot be uniquely allocated to particular outputs or accounting intervals. Depreciation conventions therefore cannot by themselves establish profitability. The alternative evaluates the anticipated stream of quasi-rents:
Diese Reihe von in Aussicht stehenden Quasirenten diskontiert zum Marktzinssatz gibt uns den geschätzten Kapitalwert (V) der Ausrüstung.
English translation: This series of prospective quasi-rents, discounted at the market rate of interest, gives us the estimated capital value (V) of the equipment.
The difference between this capital value and initial cost, V−C, termed “goodwill,” becomes the organizing investment criterion. Amonn follows the comparison of maximizing this difference with maximizing a return-to-cost ratio, the internal rate of return, or the return on the entrepreneur’s own capital. These objectives can diverge outside competitive equilibrium. Their relationship depends on how long funds remain available, the horizon of investment within the firm, and opportunities for reinvestment.
The review then connects investment calculation with operating decisions. Distinctions among operating, planning, and contract periods prevent “the short period” from becoming an undifferentiated category. Resources already held must be valued by their best alternative use rather than their historical acquisition cost. Avoidable costs consequently guide short-period output, whereas sunk expenditure does not. Amonn also emphasizes the comparison with business conventions such as full-cost pricing, customary profit margins, and historical-cost inventory valuation. Such practices can intensify fluctuations relative to the marginal solution, linking accounting procedures to wider economic effects.
The extended discussion of technique and equipment life moves from variable-input combinations to durable assets whose efficiency remains constant or declines. Economic life differs from technically possible service life. Replacement decisions also change according to whether the calculation concerns a single machine, a finite succession, or an indefinite chain. Anticipated obsolescence further qualifies the result; minimum-unit-cost rules may therefore recommend replacement either too early or too late.
Financing introduces additional interdependence. Rising borrowing rates influence both investment scale and technique, while complementarities between equipment and goods in process obstruct separate profitability calculations. Amonn stresses distinctions among investment demand, marginal efficiency, and demand for capital. Payments under earlier contracts, debt service, and dividends can require funds without constituting current investment. These distinctions qualify simplified investment schedules and the acceleration principle.
The later analysis brings debt maturities, financing sources, uncertainty, liquidity, and valuation into the same framework. Under uncertainty, financing matters through its effects on prospective net profits, not simply through stated interest charges. Optimal investment scale and financing choice must therefore be considered jointly. Yet theoretical consistency does not guarantee practical usability: prospective-income valuation requires difficult reassessments, and probability-based decisions may exceed the calculations entrepreneurs can realistically undertake.
Amonn’s concluding judgment combines appreciation with two unresolved questions: how the firm-level findings contribute to broader economic theory, and when their practical application justifies its demands. He regards the systematic treatment of investment problems as a substantial achievement and recommends the work as training in economic reasoning. The review’s interpretive emphasis remains the productive tension between an exact theory of intertemporal entrepreneurial choice and workable business procedures.
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