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The Cambridge Controversies in Capital Theory
Abstract
The controversy between Cambridge (UK) and Cambridge (US) in capital theory is one of the few examples in economics of a debate in which "hard" results were produced. The fact that some of the very participants in the debate continued to ignore these in subsequent work raises interesting question about what kind of discipline economics is. The explanation of this and other features lies in the fact that economists confuse different levels of idealization: the often try to solve local puzzles thinking they are addressing "global" (in the theoretical sense of general) problems.
... Various numerical counterexamples were presented during the Cambridge capital controversy in the 1960s and 1970s (e.g., Bruno et al., 1966, Garegnani, 1966, Sato, 1976, Laibman & Nell, 1977, Perz, 1980 and reported in literature reviews including Birner (2002), Cohen and Harcourt (2003), Mata (2004), Backhouse (2014), Hagemann (2020) and, in this journal, Rosser (2020. They are still generally considered internal contradictions of the marginalist theory of production and distribution (e.g., Baqaee & Farhi, 2019: 2-3). ...
Paul A. Samuelson’s (1966) capitulation with his Austrian model during the so-called Cambridge controversy on the phenomenon of re-switching of techniques in capital theory had implications not only in pointing at the supposed internal contradiction of the marginal theory of production and distribution but also in the pursuit of vested interests in the academic and political world to this day. The present paper is aimed at demonstrating that Samuelson’s capitulation was logically groundless from the point of view of the economic theory of production by considering the interest rate in the role of the real price of capital goods instead of the stationary real rental prices as correctly suggested by Leon Walras, Knut Wicksell, John Hicks, and others. Because of the non-linear effects of the interest rate on relative input prices, the Sraffian re-switching of techniques noted in the range of the interest rate always disappears in the space of the corresponding real input prices in the stationary equilibrium.
... La idea de homogeneidad del trabajo fue trascendida por la "Teoría del Capital Humano", pero ésta redujo el trabajo humano a la condición de capital acumulable mediante inversiones en educación y entrenamiento. Además de ser objetable en el plano ético, esta teoría contiene un sofisma ideológico a merced al cual los trabajadores también aparecen, en cierta forma, como capitalistas (Birner, 2002). ...
El presente artículo propone realizar un análisis de la encíclica Laudato si' a la luz de la crítica y superación de los mitos fundacionales de la civilización occidental moderna que plantea dicho documento. El estudio destaca el importante papel que puede desempeñar la encíclica como referente ético, moral y social que permita concebir un nuevo estilo de vida; orientado a la construcción de un planeta habitable, socialmente más justo y ecológicamente sustentable. Palabras clave: crisis civilizatoria, desarrollo sustentable, encíclica Laudato si'. mitos fundacionales, paradigma dominante.
... The "perverse" behavior found by Hatta (1976) in Samuelson's example is defined concerning the above formula (2) featuring rental prices of capital goods rather than the interest rate as the price of (financial) capital in the reduced form (1). From an empirical evidence in the economic reality, Morrison and Berndt (1981), for example, have obtained numerous instances of labor-equipment complementarity and perverse in their empirical evidence on the US manufacturing industries (although these authors missed noting it explicitly). Samuelson's (1966) capitulation in the Cambridge capital controversy seems to confirm the fallacy of "implicit theorizing" noted by Leontief (1937) (Birner, 2002;Coen and Harcourt, 2003;Mata, 2004;Backhouse, 2014) have failed to reach a consensus on why the re-switching of techniques would derive from a convex technology. This state of things poses questions on the way science progresses. ...
Paul A. Samuelson's (1966) capitulation during the so-called Cambridge controversy on the re-switching of techniques in capital theory had implications not only in pointing at supposed internal contradiction of the marginal theory of production and distribution, but also in the pursue of vested interests of vested interests in the academic and political world to this day. Based on a new non-switching theorem (Milana, 2019), the present paper demonstrates that Samuelson's capitulation was logically groundless from the point of view of the economic theory of production.
The chapter deals with some of the major controversies of the period between the end of the war and the mid-Seventies. Firstly, the methodological controversy between Cowles Commission (represented by Tjalling Koopmans) and NBER (represented by Rutledge Vining), known as the “Measurement Without Theory” controversy, is examined. Secondly, the main mainstream methodological controversy on Milton Friedman’s Methodology of Positive Economics, which involved two of the most important economists of the period, Paul Samuelson and Herbert Simon, is analyzed. Lastly, the chapter deals with “the reswitching of techniques” theoretical controversy which involved economists of the two Cambridges (Cambridge, England, and Cambridge, Massachusetts) in a debate which concerned the measurement of capital goods in a way consistent with the requirements of neoclassical economic theory.
The Cambridge controversies on capital theory opposed heterodox economists, mainly from the University of Cambridge, UK, to mainstream economists, mostly based at the Massachusetts Institute of Technology, Cambridge, USA. The controversies started in the 1950s and occupied the pages of some of the most influential journals. Their primary outcome was the broad acknowledgement of flaws, which we retrieve, in the concept of aggregate capital. Despite that acknowledgement, aggregate, homogeneous capital remains a staple of contemporary macroeconomics, as if the Cambridge controversies had never existed. To account for this apparent paradox is the aim of this article. We examine the arguments seeking to justify the enduring commitment to the aggregate capital approach and argue that they indicate an implicit commitment to instrumentalism. The indifference to the results of the Cambridge controversies is a consequence of methodological conformism and has shaky foundations.
Resumo Este artigo procura reexaminar as aparentes inconsistências lógicas da teoria neoclássica identificadas durante a Controvérsia de Cambridge, mas posteriormente desconsideradas na literatura mainstream, com base no argumento que essas inconsistências não estão presentes nos modelos de equilíbrio geral de Arrow Debreu. Nesse sentido, apresenta os principais problemas envolvidos, assim como exemplos numéricos que procuram tornar mais clara a argumentação desenvolvida. Além de uma perspectiva crítica, pretende ter uma função propedêutica, a qual, contudo, se vê naturalmente limitada pela complexidade do tema e dos argumentos usados pelos autores que o têm abordado.
Subject. This article deals with the issues related to non-price methods to measure the quantity of capital and value as a basic postulate of economic theory that defines the interpretation of all key characteristics of social production. Objectives. The article aims to develop a model that can help determine the state of the economic system using no abstract concepts of labor and utility. Methods. For the study, I used the methods of logical and mathematical analyses. Results. The article presents a mathematical model of material reproduction that links the range of products produced and prices in terms of material resources and time. Conclusions. Material factors of value formation can be determined. The alternative to the subjectivist approach includes the potential realized both in empirical studies on the economy and in the practice of macroeconomic regulation and planning of areas' economic development.
The current understanding of capital theory suffers from insufficient clarity about the logic of the marginal/neoclassical approach. A central point remained unclear throughout the Cambridge controversies: the traditional versions of that approach needed a given ‘quantity of capital’ not because assuming an aggregate production function ‒ they were fully disaggregated ‒ but because aiming to determine long-period equilibria, centres of gravitation of time-consuming adjustments, and accordingly left the relative endowments of the several capital goods to be determined endogenously, but then needed a given ‘quantity of capital’ to render the equilibrium determinate. A simple model confirms this fact.
This clarification allows further insights. Walras was simply contradictory because aiming at determining a long-period equilibrium while taking the endowments of the several capital goods as given. The derivation of the traditional interest-elastic investment function from the demand-for-‘capital’ function needs the continuous full employment of labour; without this assumption investment is indeterminate. The current reference to intertemporal equilibria as the microfoundation of mainstream macro is a smokescreen, hiding a continuing faith in the traditional marginalist adjustments refuted by reswitching. Finally, the neoclassical approach operates as blinkers, blinding mainstream economists to the adaptability of production to demand, which makes it obvious that output and growth are governed by aggregate demand.
Structural reforms have failed to bring about convergence in the Eurozone. This argument is made here by comparing two countries – Italy and Germany – assumed to embody contrasting economic models. Three main points are made in the paper. First, the generalisation of the macroeconomic strategy of the northern countries threatens to undermine political support for European integration, as the disparities it engenders drive the electoral successes of Eurosceptic parties. Second, Italian performance does not display the traits commonly associated with the southern European syndrome. Third, Italy’s core economic problem – its persistently low GDP and productivity growth – is due to its prolonged efforts to reduce a public debt which originated in the 1970s and 1980s. The paper argues for the need to return to a macroeconomic analysis, as opposed to the focus on the microeconomic issue of competitiveness, and for the need to consider other policies in addition to the completion of the banking, financial and fiscal unions.
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