First Objection: On the Hotelling's Rule
The assumption of a given flow of oil (fi )seems to be in conflict with the Hotelling’s rule. In fact, if we apply the equation to
two contiguous periods of time, it allows
The model neither prevents nor imposes that the stock left in the ground undergoes a revaluation at a rate equal to the general rate of profit in order to induce the owner of the stock to keep it in situ.
Similarly, the assumption of given quantities in supply and demand includes a given demand for investment, but is compatible (not inconsistent) with a separate theory of investment based on the assumption of choices under uncertainty and long-term expectations. It should be noted that in his book Sraffa does not mention a price of land calculated as a rent capitalized at the ruling interest rate. The prices of production determined as a solution to his equations are indeed consistent with the existence of a host of real assets (land, imperfectly known deposits of exhaustible natural resources, inventories of commodities and obsolete machines) that may receive a rent or quasi rent determined by the same equations, whereas the prices of their stocks remain undetermined, without implying a violation of Jevon’s law of the unique price. A simple definite relation may not exist between the price (royalty) of a flow of oil determined by Sraffa’s equations and the market value of its total amount left in the ground. Furthermore, from an empirical point of view, the rate of appreciation of the resource in situ can be negligible compared with the differential rents obtained by the owner.105.2