Production Functions, the Kaldor-Verdoorn Law and Methodology

  • Marc Lavoie


Marc Lavoie in this chapter, titled ‘Production Functions, the Kaldor-Verdoorn Law and Methodology’, focuses on John McCombie contributions, and argues that he has been an unrelenting critic of the neoclassical production function for over 30 years. With his co-author Jesus Felipe, along with Anwar Shaikh, he has provided a number of proofs demonstrating that the apparent empirical successes of neoclassical production functions could be attributed to the fact that these production functions were reproducing the identities of the national accounts. Kaldor’s technical progress function and the Kaldor-Verdoorn equation, however, do share some similarities with these identities, and thus one may wonder if they are subjected to the same critique. It is shown that the Kaldor-Verdoorn equation is impervious to the critique. Some of the methodological considerations advanced by John McCombie, notably those concerning the instrumentalist approach of mainstream economics and its DSGE model, are also considered. The chapter concludes with a pledge in favour of meta-regression analysis, recalling that a recent such analysis has shown that the Kaldor-Verdoorn effect is genuine.


  1. Anyadike-Danes, M., & Godley, W. (1989). Real wages and employment: A sceptical view of some recent econometric work. Manchester School, 57(2), 172–187.CrossRefGoogle Scholar
  2. Blanchard, O., Cerutti, E., & Summers, L. (2015). Inflation and activity: Two explorations and their monetary implications (NBER working paper 21726).
  3. Bronfenbrenner, M. (1971). La théorie néo-classique de la répartition du revenu en macro-économie. In J. Marchal & B. Ducros (Eds.), Le partage du revenu national. Paris: Cujas.Google Scholar
  4. Card, D., & Krueger, A. B. (1995). Myth and measurement: The new economics of the minimum wage. Princeton: Princeton University Press.Google Scholar
  5. Carter, S. (2011). C.E. Ferguson and the neoclassical theory of capital: A matter of faith. Review of Political Economy, 23(3), 339–356.CrossRefGoogle Scholar
  6. Cotis, J. P., Renaud, M., & Sobczak, N. (1998). Le chômage d’équilibre en France. Revue économique, 49(3), 921–935.Google Scholar
  7. Davidson, P. (1984). Reviving Keynes’s revolution. Journal of Post Keynesian Economics, 6(4), 561–575.CrossRefGoogle Scholar
  8. Doucouliagos, H., & Stanley, T. D. (2009). Publication selection bias in minimum-wage research? A meta-regression analysis. British Journal of Industrial Relations, 47(2), 406–428.CrossRefGoogle Scholar
  9. Doucouliagos, H., & Stanley, T. D. (2013). Are all economic facts greatly exaggerated? Theory competition and selectivity. Journal of Economic Surveys, 27(2), 316–339.CrossRefGoogle Scholar
  10. Fair, R. (2012). Has macro progressed? Journal of Macroeconomics, 34(1), 2–10.CrossRefGoogle Scholar
  11. Felipe, J., & McCombie, J. S. L. (2001). The CES production function, the accounting identity, and Occam’s razor. Applied Economics, 33(10), 1221–1232.CrossRefGoogle Scholar
  12. Felipe, J., & McCombie, J. S. L. (2007). Is a theory of total factor productivity really needed? Metroeconomica, 58(1), 195–229.CrossRefGoogle Scholar
  13. Felipe, J., & McCombie, J. S. L. (2009). Are estimates of labour demand functions mere statistical artefacts? International Review of Applied Economics, 23(2), 147–168.CrossRefGoogle Scholar
  14. Felipe, J., & McCombie, J. S. L. (2011–12). On Herbert Simon’s criticisms of the Cobb-Douglas and the CES production functions. Journal of Post Keynesian Economics, 34(2), 275–293.Google Scholar
  15. Felipe, J., & McCombie, J. S. L. (2013). Aggregate production function and the measurement of technical change: Not even wrong. Cheltenham: Edward Elgar.CrossRefGoogle Scholar
  16. Friedman, M. (1953). The methodology of positive economics. In Essays in positive economics (pp. 153–184). Chicago: Chicago University Press.Google Scholar
  17. Friedman, G. (2016a). What would Sanders do? Estimating the economic impact of Sanders’ programs.
  18. Friedman, G. (2016b). Response to the Romers.
  19. Fuller, D., & Geide-Stevenson, D. (2014). Consensus among economists—An update. Journal of Economic Education, 45(2), 131–146.CrossRefGoogle Scholar
  20. Hein, E., & Lavoie, M. (2015). Interview with John McCombie: I think there’s absolutely no way out for them: An aggregate production function does not make any sense at all! European Journal of Economics and Economic Policies, 12(1), 1–6.Google Scholar
  21. Hein, E., & Tarassow, A. (2010). Distribution, aggregate demand and productivity growth: Theory and empirical results for six OECD countries based on a post-Kaleckian model. Cambridge Journal of Economics, 34(4), 727–754.Google Scholar
  22. Hendry, D., & Ericsson, N. R. (1991). An econometric analysis of U.K. money demand in Monetary Trends in the United States and the United Kingdom by Milton Friedman and Anna J. Schwartz. American Economic Review, 81(1), 8–38.Google Scholar
  23. Jorgenson, D. W. (1974). Investment and production: A review. In M. D. Intriligator & D. A. Kendryck (Eds.), Frontiers of quantitative economics (Vol. 2). Amsterdam: North Holland.Google Scholar
  24. Kaldor, N. (1957). A model of economic growth. Economic Journal, 67(268), 591–624.CrossRefGoogle Scholar
  25. Kaldor, N. (1966). Marginal productivity and the macro-economic theories of distribution. Review of Economic Studies, 33(4), 309–319.CrossRefGoogle Scholar
  26. Kaldor, N. (1972). The irrelevance of equilibrium economics. Economic Journal, 82(328), 1237–1252.CrossRefGoogle Scholar
  27. Krassoi-Peach, E., & Stanley, T. D. (2009). Efficiency wages, productivity and simultaneity: A meta-regression analysis. Journal of Labor Research, 30(3), 262–268.CrossRefGoogle Scholar
  28. Lavoie, M. (1987). Macroéconomie: Théorie et controverses postkeynésiennes. Paris: Dunod.Google Scholar
  29. Lavoie, M. (1992). Foundations of post-Keynesian economic analysis. Aldershot: Edward Elgar.Google Scholar
  30. Lavoie, M. (2000). Le chômage d’équilibre: réalité ou artefact statistique. Revue Économique, 51(6), 1477–1484.Google Scholar
  31. Lavoie, M. (2003). A fully coherent post-Keynesian model of the euro zone. In P. Arestis, M. Baddeley, & J. McCombie (Eds.), Globalization, regionalism and economic activity (pp. 98–126). Cheltenham: Edward Elgar.Google Scholar
  32. Lavoie, M. (2008). Neoclassical empirical evidence on employment and production laws as artefact. Rivista Economía Informa, 351, 9–36.Google Scholar
  33. Lavoie, M. (2014). Post-Keynesian economics: New foundations. Cheltenham: Edward Elgar.CrossRefGoogle Scholar
  34. Layard, R., Nickell, S., & Jackman, R. (1991). Unemployment: Economic performance and the labour market. Oxford: Oxford University Press.Google Scholar
  35. León-Ledesma, M. A., & Thirwall, A. P. (2002). The endogeneity of the natural rate of growth. Cambridge Journal of Economics, 26(4), 441–459.CrossRefGoogle Scholar
  36. List, L. (2017). Does output influence productivity? – A meta-regression analysis (Working paper). University of Paris 13.Google Scholar
  37. Lucas, R. E. (1978). Unemployment policy. American Economic Review, 68(2), 353–357.Google Scholar
  38. Lucas, R. E. (1981). Studies in business cycle theory. Cambridge, MA: MIT Press.Google Scholar
  39. McCombie, J. S. L. (1987). Does the aggregate production function imply anything about the laws of production? A note on the Simon and Shaikh critiques. Applied Economics, 19(8), 1121–1136.CrossRefGoogle Scholar
  40. McCombie, J. S. L. (2001). What does the aggregate function show? Further thoughts on Solow’s second thoughts on growth theory. Journal of Post Keynesian Economics, 23(4), 589–616.CrossRefGoogle Scholar
  41. McCombie, J. (2002). Increasing returns and the Verdoorn law from a Kaldorian perspective. In J. McCombie, M. Pugno, & B. Soro (Eds.), Productivity growth and economic performance: Essays on Verdoorn’s law (pp. 64–114). Basingstoke: Palgrave Macmillan.CrossRefGoogle Scholar
  42. McCombie, J. (2015). Book review: Lavoie, M., post-Keynesian economics: New foundations. European Journal of Economics and Economic Policies, 12(2), 243–248.Google Scholar
  43. McCombie, J. S. L., & Dixon, R. (1991). Estimating technical change in aggregate production functions: A critique. International Review of Applied Economics, 5(1), 24–46.CrossRefGoogle Scholar
  44. McCombie, J. S. L., & Negru, I. (2014). On economic paradigms, rhetoric and the micro-foundations of macroeconomics. European Journal of Economics and Economic Policies, 11(1), 53–66.Google Scholar
  45. McCombie, J. S. L., & Pike, M. (2013). No end to the consensus in macroeconomic theory? A methodological enquiry. American Journal of Economics and Sociology, 72(2), 497–528.CrossRefGoogle Scholar
  46. McCombie, J. S. L., & Spreafico, M. R. M. (2016). Kaldor’s technical progress function and Verdoorn’s law revisited. Cambridge Journal of Economics, 40(4), 1117–1136.CrossRefGoogle Scholar
  47. Michl, T. R. (1985). International comparisons of productivity growth: Verdoorn’s law revisited. Journal of Post Keynesian Economics, 7(4), 474–492.CrossRefGoogle Scholar
  48. Romer, C. D., & Romer, D. H. (2016). Senator Sanders’s proposed policies and economic growth.
  49. Sato, K. (1974). The neoclassical postulate and the technology frontier in capital theory. Quarterly Journal of Economics, 88(3), 353–384.CrossRefGoogle Scholar
  50. Shaikh, A. (1974). Laws of production and laws of algebra. The humbug production function. Review of Economics and Statistics, 56(1), 115–120.CrossRefGoogle Scholar
  51. Shaikh, A. (1980). Laws of production and laws of algebra: Humbug II. In J. Nell (Ed.), Growth, profits, & property: Essays in the revival of political economy (pp. 80–95). Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  52. Shaikh, A. (1990). Humbug production function. In J. Eatwell, M. Milgate, & P. Newman (Eds.), Capital theory: The New Palgrave (pp. 191–194). London: Macmillan.CrossRefGoogle Scholar
  53. Shaikh, A. (2005). Non-linear dynamics and pseudo production functions. Eastern Economic Journal, 31(3), 347–366.Google Scholar
  54. Simon, H. A. (1979). On parsimonious explanations of production relations. Scandinavian Journal of Economics, 81(4), 459–474.CrossRefGoogle Scholar
  55. Solow, R. M. (1957). Technical change and the aggregate production function. Review of Economics and Statistics, 39(2), 312–320.CrossRefGoogle Scholar
  56. Stanley, T. D. (2004). Does unemployment hysteresis falsify the natural rate hypothesis? A meta-regression analysis. Journal of Economic Surveys, 18(4), 589–612.CrossRefGoogle Scholar
  57. Stanley, T. D. (2005). Integrating the empirical tests of the natural rate hypothesis: A meta-regression analysis. Kyklos, 58(4), 611–634.CrossRefGoogle Scholar
  58. Storm, S., & Naastepad, C. W. M. (2012). Macroeconomics beyond the NAIRU. Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Marc Lavoie
    • 1
    • 2
  1. 1.University Sorbonne Paris CitéParisFrance
  2. 2.University of Paris 13 (CEPN)ParisFrance

Personalised recommendations