Differential profit rates and convergence to the natural state

In establishing convergence to the "natural state", we examine the allocation of capital by the "captains of industry" who respond to profit-rate differentials. Such allocations unleash the equilibration forces of competition. It is constructively shown that the problem of capital allocation engenders a self-referential system whereby the ex post profit rates depend on the dynamics of ex ante profit rates while the latter depend on the dynamics of ex post profit rates. We establish the existence of, and the convergence to, the "natural state" in the light of this self-referential system.