ANDRÉS LAZZARINI Andrés Lazzarini, Ph.D. in Economics from Roma Tre University, is a Visiting Fellow at the Institute of Advanced Study – Jawaharlal Nehru University, New Delhi. He has been Visiting Assistant Professor of Microeconomics at the University of Alicante, Spain, in 2010, and Research Fellow and Lecturer of History of Economic Thought at the Department of Political Economy and Quantitative Methods, University of Pavia, in 2008 and 2009. His main research areas are: History of Economic Analysis, Methodology of Economics and Economic Development in Historical Perspective. E-mail: [email protected] / [email protected] Revisiting the Cambridge Capital Theory Controversies: A Historical and Analytical Study Analytical and Historical A Controversies: Theory Capital Cambridge the Revisiting This book deals with the Cambridge capital theory controversies both from a historical and from an analytical standpoint. In the first part the author addresses the basic analytical and methodological issues underlying the neoclassical theory, with special emphasis on how the problem of a measure of capital arises within the marginalist theory of value and distribution. The second part surveys the most relevant contributions to the Cambridge debates in the light of the salient results of ‘reswitching’ and ‘reverse capital deepening’, and shows how the implications of these results, which touch the principle of factor substitution, brought about different strategies pursued by neoclassical scholars to overcome these theoretical problems. Andrés Lazzarini The book concludes that since the results of this debate touch the foundations of the theory, and hence are of a general character, it is hard to accept that the contemporary versions of the theory are free of capital problems, while at the same time the Cambridge controversies are absent in the current literature used for training economics students. The book should Revisiting the Cambridge Capital Theory therefore be useful to the undergraduate and graduate students, as well as to scholars devoted to the History of Economic Analysis. Controversies: A Historical and Analytical Study Texts published by Pavia University Press in the series “Editoria scientifica” have been peer-reviewed prior to acceptance by the Editorial Board. www.paviauniversitypress.it/scientifica ISBN 978-88-96764-17-6 € 22,20 PP Pavia University Press Edizioni dell’Università degli Studi di Pavia Editoria scientifica Editoria scientifica ANDRÉS LAZZARINI Revisiting the Cambridge Capital Theory Controversies: A Historical and Analytical Study Lazzarini, Andrés Revisiting the Cambridge capital theory controversies: a historical and analytical study / Andrés Lazzarini. – Pavia : Pavia University Press, 2011. – VI, 172 p. : ill. ; 24 cm. ISBN: 978-88-96764-17-6 1. Economia – Teorie – Gran Bretagna – Sec. 19. – 20. 330.1 CDD-22 – Economia, sistemi, scuole, teorie © Andrés Lazzarini, 2011 – Pavia ISBN: 978-88-96764-17-6 Texts published by Pavia University Press in the series “Editoria scientifica” have been peer-reviewed prior to acceptance by the Editorial Board. www.paviauniversitypress.it/scientifica. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the author. The cover shows: The Mathematical Bridge, Cambridge (UK), Margarita Olivera, 2007 Publisher: Pavia University Press – Edizioni dell’Università degli Studi di Pavia Biblioteca Delle Scienze - Via Bassi, 6 – 27100 Pavia <http://www.paviauniversitypress.it> Printed by: Print Service – Strada Nuova, 67 – 27100 Pavia Contents Preface and Acknowledgements ................................................................................ V Chapter 1. Why a study on the capital theory controversies? 1.1. Capital as a factor of production and the capital theory debates .............................1 1.2. The relevance of this conflict to contemporary economic analysis .........................3 1.3. A first phase in the capital controversies ................................................................5 1.4. A second phase in the capital controversies............................................................6 1.5. Radically different views on the meaning of the critique for the contemporary versions of the theory .............................................................................................9 1.6. Sketch of this study ..............................................................................................10 PART I. Analytical and Methodological Issues in Neoclassical Economics: Setting the Ground to Understand the Capital Controversies Chapter 2. Understanding the foundations of neoclassical economics: The principle of factor substitution and the problem of capital 2.1. The data of the Marginal Theory. The direct mechanism of factor substitution....17 2.2. The indirect mechanism of factor substitution......................................................18 2.3. From ‘employment’ functions to ‘demand’ functions (I)......................................19 2.4. From ‘employment’ functions to ‘demand’ functions (II).....................................21 2.5. The capital supply function ..................................................................................23 2.6. Key role of the downward-sloping shape of factors’ demand curves....................24 2.7. Problems connected with the heterogeneity of capital goods................................25 2.8. Supply-side role of capital....................................................................................27 2.9. Persistence character of the determining circumstances: The traditional method of ‘normal positions’ ............................................................................................31 2.10. Demand-side role of capital: Conclusion............................................................34 Chapter 3. ‘Reswitching’ and ‘Reverse Capital Deepening’: Introduction to the heart of the controversies and their implications 3.1. Some premises......................................................................................................39 3.2. Economies with heterogeneous capital goods. The wage curve............................42 3.3. The wage-frontier. Economies with more than one system of production.............46 3.4. Implications for the basic premises of the theory: Conclusion..............................49 Andrés Lazzarini – Revisiting the Cambridge Capital Theory Controversies PART II. The Capital Theory Debates in a Historical Perspective and the Transformation of Dominant Theory Chapter 4. A first phase in the controversies: Samuelson’s 1962 intervention, the 1966 Symposium, neoclassical reactions and the highest point of the debates 4.1. Introduction..........................................................................................................55 4.2. Samuelson’s (1962) model with heterogeneous capital goods ..............................57 4.3. Samuelson’s ‘special sub-class of realistic cases’.................................................59 4.4. The neoclassical ‘parable’: ‘Surrogate’ capital and the ‘Surrogate’ production function ................................................................................................................60 4.5. What did Samuelson actually demonstrate?..........................................................63 4.6. There is no heterogeneous capital goods model in Samuelson’s (1962) ...............68 4.7. Levhari (1965) and the 1966 Quarterly Journal of Economics Symposium ..........70 4.8. Pasinetti (1966a)...................................................................................................73 4.9. Garegnani (1966)..................................................................................................74 4.10. The meaning of the 1966 Symposium: A turning point in the controversies.......75 4.11. Neoclassical reactions: Samuelson (1966a) ........................................................78 4.12. Further neoclassical reactions after the Symposium: Ferguson (1969) ...............80 4.13. Garegnani’s 1970 critique of the marginal theory...............................................85 4.14. Bliss’s 1970 intervention. Prelude to the shift to neo-walrasian equilibria and the beginning of a second phase in the debates.....................................................87 4.15. The zenith of the debates....................................................................................89 Chapter 5. A step back in the debates: Joan Robinson’s role in the controversies and first neoclassical reactions 5.1. Introduction..........................................................................................................91 5.2. Robinson’s critique: Aggregate production functions as her main target..............91 5.3. Equilibrium and expectations ...............................................................................93 5.4. Understanding Robinson’s way: The ‘Pseudo-production function’ and the ‘curiosum’ ............................................................................................................95 5.5. Conclusion .........................................................................................................101 5.6. Champernowne’s (1953) contribution ................................................................103 5.7. Further replies to Robinson: