r-JK-GT-26

unresolved What does ‘disinvestment’ mean here? (see r-JK-GT-26.1)

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An entrepreneur’s user cost is by definition equal to $A1+(G^{\prime }-B^{\prime })-G$, where $A_1$ is the amount of our entrepreneur’s purchases from other entrepreneurs, $G$ the actual value of his capital equipment at the end of the period, and $G^{\prime }$ the value it might have had at the end of the period if he had refrained from using it and had spent the optimum sum $B^{\prime }$ on its maintenance and improvement. Now $G-(G^{\prime }-B^{\prime })$, namely the increment in the value of the entrepreneur’s equipment beyond the net value which he has inherited from the previous period, represents the entrepreneur’s current investment in his equipment and can be written $I$. Thus $U$, the user cost of his sales-turnover $A$, is equal to $A_1-I$ where $A_1$ is what he has bought from other entrepreneurs and $I$ is what he has currently invested in his own equipment. A little reflection will show that all this is no more than common sense. Some part of his outgoings to other entrepreneurs is balanced by the value of his current investment in his own equipment, and the rest represents the sacrifice which the output he has sold must have cost him over and above the total sum which he has paid out to the factors of production. If the reader tries to express the substance of this otherwise, he will find that its advantage lies in its avoidance of insoluble (and unnecessary) accounting problems. There is, I think, no other way of analysing the current proceeds of production unambiguously. If industry is completely integrated or if the entrepreneur has bought nothing from outside, so that $A_1=0$, the user cost is simply the equivalent of the current disinvestment involved in using the equipment; but we are still left with the advantage that we do not require at any stage of the analysis to allocate the factor cost between the goods which are sold and the equipment which is retained. Thus we can regard the employment given by a firm, whether integrated or individual, as depending on a single consolidated decision—a procedure which corresponds to the actual interlocking character of the production of what is currently sold with total production.