Cambridge capital controversy

Is referred to as capital controversy, a debate in economic theory of the 1960s to the nature and role of capital goods as a factor of production or means of production. Mainly, it involved Joan Robinson, Piero Sraffa and Luigi L. Pasinetti of the English University of Cambridge on the one hand and on the other hand, Paul Samuelson and Robert Solow of the Massachusetts Institute of Technology in Cambridge, Massachusetts. It is therefore sometimes also the talk of the Cambridge - Cambridge controversy.

The logical circle in the value of determining the capital

In turning away from theory and method of classical economics neoclassical theory seeks to solve the question of production and distribution within their vestibular system simultaneously finite supply-demand functions by the marginal productivity theory. In a reformulation of the Malthusian theory of rent is shown that the basic pension can be understood as the marginal product of the soil. In the same way, then with the other factors of production, namely labor and capital procedures. The reward is found as the marginal product of labor, and the interest rate ( in exchange for the use of capital) as the marginal product of the production factor capital.

This distribution theory of the 1950s was based on the empirical generalization of Wicksteed and had been brought by Cobb and Douglas under the influence of JB Clark in the aggregated form of the Cobb -Douglas production function. They sought to determine the rate of profit by the wages and the price of capital were determined by the marginal products of labor and the aggregate value of the capital goods. If the factor prices given in this way, the distribution results by multiplying the factor quantities with the factor prices.

The first doubts about the correctness of this approach have been voiced by RF Kahn and Joan Robinson.

" If the sum of heterogeneous capital goods is to be calculated as an aggregate, which is comparable with profits, so they must be expressed in value to provide a homogeneous ratio of profit to capital. But if the rate of profit is determined by the marginal product of this sum, there occurs a logical circle, because the prices of capital goods must have been initially calculated for any profit. Thus, the marginal product of capital, as it is determined by an aggregate production function, only the rate of profit result, which was previously determined and expressed in the prices of capital goods received by the summing the weights. "

The marginal productivity theory can therefore at most find out what rate of profit imply the prices of existing capital stock - but that is not a statement of the rate of profit, but only the tautological evidence that the rate of profit is always as high as it has been provided.

Reswitching

See full article at Reswitching

Part of the capital controversy was the discussion about the Reswitching. Sraffa was able to show that if wages are raised in an economy and on, will not always dodged in the same direction on less and less labor-intensive production techniques, but that it may be that a production technology that have been abandoned earlier in rising wages is, with further rising wages is to best production technology for the economy again.

Such action may, within the neo-classical theory, which is an A -Good - parable about based on a Cobb -Douglas production function can not be shown.