Abstract
In economics, the conventional (also called neoclassical or marginalist) theory is characterised as a framework based on demand and supply functions to explain prices, exchanged/produced quantities and remuneration rates of productive factors. This theory had to face a huge opposition during the 1950s and 1960s, during the Capital Debates or Cambridge-Cambridge Controversies (CCC). This chapter studies how the CCC arose and evolved, as well as how they apparently came to an end in the 1960s and have now been forgotten. To this end, our research makes use of Thomas S. Kuhn’s characterisation of the history of scientific thought, by presenting the debate as a real choice between paradigms. We shall see how answers to the question of why the CCC did not lead to a Scientific Revolution that would bring about the demise of the neoclassical hegemony in economic theory fall outside the logical rigour of the competing theories and reflect the inherent circularity of the communication between different economic paradigms.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
Notes
- 1.
We speak of the Cambridge-Cambridge Controversies (Harcourt, 1969) because the debate was led by economists from Cambridge in the USA (specifically from the Massachusetts Institute of Technology, MIT) and from Cambridge in the United Kingdom. The economists from MIT (mainly P. Samuelson, R. Solow, D. Levhari, C. Ferguson, and M. Blaug) defended the marginalist paradigm, while the critical side was represented by economists such as J. Robinson, P. Sraffa, L. Pasinetti and N. Kaldor. It is nevertheless true that some economists from Cambridge UK also stood in favour of the neoclassical side, namely, F. Hahn and C. Bliss, and that critical economists, such as P. Garegnani, worked at both MIT and Cambridge UK.
- 2.
Following on from Dobb (1973), it can be stated that the work of T.R. Malthus, An Inquiry into Rent, had a profound influence on the formulation of the Ricardian Theory of Distribution. With the Malthusian Theory of Rent, which focuses on the notion of diminishing returns related to the decreasing labour productivity brought on by intense agricultural production, Ricardo managed to define rent as a surplus.
- 3.
In this respect, the contribution of León Walras, of which we will speak below, was fundamental (Dvoskin & Lazzarini, 2013).
- 4.
“Capital includes the raw materials (…) and other commodities which must be saved-up. This, of course, is the commonly accepted sense of the term. [A]ll [different capital goods] have only one quality in common, namely, that they represent certain quantities of exchangeable value so that they may be regarded as a single sum of value, a certain amount of the medium of exchange, money” (Wicksell, 1934 [1901], pp. 144–145).
- 5.
The substitution mechanism that underlies the construction of decreasing demand function relationships between the rate of profit (or interest) and the capital-labour ratio does not operate only in the case of changes of technique but also where a single technique is applied to the production of heterogeneous consumer goods. In this case, which is known as an indirect substitution mechanism, goods are distinguished according to the relative proportion of productive factors in the method of production of the consumer good. Distributive changes therefore tend to be associated with changes in the relative costs and, consequently, with the quantities demanded by consumers, which changes the demand for factors of production (Petri, 2021).
- 6.
- 7.
The Symposium Commensurability, Comparability, Communicability of 1982, organised by the Philosophy of Science Association, introduced the notion of incommensurability to the debate. In Kuhn (1983), the author analyses in greater detail what he considers to be one of the main omissions of Kuhn (1195 [1962]): the few references to language change as a mutation associated with the emergence of anomalies that alter some part of the language (Kuhn, 1983, pp. 682–683). With this, he could not avoid a certain amount of overlap with the notion of scientific revolution, and he tried to temper his assertions about incommensurability between successive paradigms, as well as differentiate the tasks of interpreting and translating theories.
- 8.
Bliss argues that one of the most striking conclusions in Garegnani (the possible non-existence of equilibrium in the savings-investment market due to reverse capital deepening) is contradictory to the results produced by Debreu, who included the same conditions used by Garegnani but showed the existence of equilibrium (Lazzarini, 2013, p. 138).
- 9.
In fact, Walras (1954 [1926]) attempts to make the theory of distribution based on factor supply and demand compatible with the derivation of normal positions by introducing an auction mechanism in the market of capital goods that would enable the uniformity of profit rates on the supply prices of those goods. However, Garegnani (1976, 1990) and Petri (2021), among other contributions, show that this attempt was unsuccessful because it required potential adjustments in the set of capital goods available, while these are determinants of prices, quantities and distributive variables obtained previously. In other words, the Walrasian treatment of capital introduces impersistence among the determinants of the neoclassical theory (see Petri, 2021, Vol. I, p. 628), which is at the very root of Hicks’s (1939) short-period equilibrium and the need for intertemporal equilibrium’s unrealistic assumptions (such as Arrow & Debreu, 1951).
- 10.
As is explained in the works of Garegnani (2012) and Lazzarini (2013), the neoclassical theory evaded a well-known and accepted problem during the first phase of the controversy: a uniform rate of return in the supply prices of capital goods cannot generally be determined in a framework of general equilibrium with Walrasian capital.
- 11.
In Epilogue: 1969, Thomas S. Kuhn scrutinises the notion of paradigm in two ways. With respect to its general character, he asserts that it refers to the notion of a disciplinary matrix, whilst in its more specific character, the epistemologist addresses the central and most novel aspect of the elements previously developed: Shared Examples. In essence, these embody the puzzle-solving methods employed for a new problem faced by researchers in the course of their normal research. The Aggregate Production Function, whose theoretical basis became infused with inconsistencies, today nevertheless still constitutes one of the symbolic generalisations of the neoclassical paradigm that is most used in introductory textbooks on macro and micro-economics, in the teaching of “economic” problem-resolution.
References
Arrow, K., & Debreu, G. (1951). Existence of Equilibrium for a Competitive Economy. Econometria, 2, 265–290.
Blaug, M. (1975). The Cambridge Revolution: Success or Failure? A Critical Analysis of Cambridge Theories of Value and Distribution, Revised Edition. London: Institute of Economic Affairs.
Bliss, C. (1970). Comment on Garegnani. Review of Economic Studies, 37, 437438.
Böhm-Bawerk, E. (1891). The Positive Theory of Capital. G.E. Stechert, New York.
Champernowne, D. G. (1953–1954). The Production Function and the Theory of Capital: A Comment. The Review of Economic Studies, 21, 118–130.
Ciccone, R. (1996). Possibilit_a e probabilit_a di comportamento ‘perverso’ del capitale. Studi Economici, 58(1), 41–73.
Clark, J. B. (1899). The Distribution of Wealth: A Theory of Wages, Interest and Profits. Macmillan, 1925.
Cohen, A. J., & Harcourt, G. C. (2003). Retrospectives whatever happened to the Cambridge capital theory controversies?. Journal of Economic Perspectives, 17(1), 199-214.
D’Ippolito, G. (1987). Probabilit_a di perverso comportamento del capitale al variare del saggio di profitto: il modello embrionale a due settori. Note Economiche, 2, 5–37.
Dobb, M. (1973). Theories of Value and Distribution since Adam Smith: Ideology and Economic Theory. Cambridge University Press.
Dvoskin, A., & Lazzarini, A. (2013). On Walras’s Concept of Equilibrium. Review of Political Economy, 25(1), 117–138.
Dvoskin, A., & Petri, F. (2017). Again on the Relevance of Reverse Capital Deepening and Reswitching. Metroeconomica, 68(4), 625–659.
Ferguson, C. E. (1969). The Neoclassical Theory of Production and Distribution. Cambridge University Press.
Garegnani, P. (1970a). Heterogeneous Capita, the Production Function and the Theory of Distribution. Review of Economic Studies, 37, 407–436.
Garegnani, P. (1970b). A Reply. Review of Economic Studies, 37, 439.
Garegnani, P. (1976). On a Change in the Notion of Equilibrium in Recent Work on Value and Distribution. In M. Brown, K. Sato, & P. Zarembka (Eds.), Essays in Modern Capital Theory. North Holland. 35.
Garegnani, P. (1990). Quantity of Capital. In J. Eatwell, M. Milgate, & P. Newman (Eds.), Capital Theory. Palgrave Macmillan.
Garegnani, P. (2008). On Walras’s Theory of Capital (Provisional Draft 1962). Journal of the History of Economic Thought, 30, 367–384.
Garegnani, P. (2009). Capital in Neoclassical Theory of Capital: Some Notes. AEA Meetings, San Francisco.
Garegnani, P. (2012). On the Present State of the Capital Controversy. Cambridge Journal of Economics, 36, 1417–1432.
Harcourt, G. C. (1969). Some Cambridge Controversies in the Theory of Capital. Journal of Economic Literature, 7, 369–405.
Hahn, F. (1982). The Neo-Ricardians. Cambridge Journal of Economics, 6, 353–374.
Hicks, J. R. (1939 [1946]). Value and Capital. Clarendon Press, 2nd ed.
Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. Macmillan.
Kuhn, T. S. (1983). Commensurability, Comparability, Communicability (Vol. 2, pp. 669–688). East Lansing: Philosophy of Science Association.
Kuhn, T. S. (1995 [1962]). The Structure of Scientific Revolutions (3rd ed.). The University of Chicago Press.
Kurz, H., & Salvadori, N. (2003). ‘Classical’ vs. ‘Neoclassical’ Theories of Value and Distribution and the Long-period Method. In F. H. Hahn & F. Petri (Eds.), General Equilibrium: Problems and Prospects (pp. 216–245). Routledge.
Lazzarini, A. (2011). Revisiting the Cambridge Capital Theory Controversies: A Historical and Analytical Study (p. 183). Pavia: Pavia University Press.
Lazzarini, A. (2013). La controversia del capital en perspectiva histórica: reconsiderando su relevancia en la teoría económica. Circus, Revista argentina de economía, 5, 141–163.
Levhari, D. (1965). A Non-Substitution Theorem and Switching of Techniques. Quarterly Journal of Economics, 79, 98–105.
Marx, K. (1871). The Civil War in France (3rd edn.). London Council.
Mirowski, P. (1989). More Heat than Light: Economics as Social Physics, Physics as Nature’s Economics. Cambridge University Press.
Pasinetti, L. L. (1969). Switches of Technique and the ‘Rate of Return’ in Capital Theory. The Economic Journal, 79(315), 508–531.
Pasinetti, L. L. (2000). Critique of Neoclassical Theory of Growth and Distribution. BNL Quarterly Review, 215, 383–431.
Petri, F. (1978). The Difference between Long-period and Short-period General Equilibrium and the Capital Theory Controversy. Australian Economic Papers, 17(31), 246–260.
Petri, F. (2003). A ‘Sraffian’ Critique of General Equilibrium Theory, and the Classical-Keynesian Alternative. In F. Hahn & F. Petri (Eds.), General Equilibrium (pp. 387–421). Routledge.
Petri, F. (2011). On the Likelihood and Relevance of Reswitching and Reverse Capital Deepening. In C. Gehrke & N. Salvadori (Eds.), Keynes, Sraffa and the Criticism of Neoclassical Theory (pp. 380–418). Routledge.
Petri, F. (2021). Microeconomics for the Critical Mind: Mainstream and Heterodox Analyses. Springer Nature.
Piketty, T. (2014). Capital in the 21st Century. Fondo de Cultura Económica.
Potestio, P. (2010). ‘Perverse Cases’ and the Debate on Neo-Classical Theory of Distribution: Recent Contributions on an Open Issue. In J. Vint, J. S. Metcalfe, H. D. Kurz, N. Salvadori, & P. A. Samuelson (Eds.), Economic Theory and Economic Thought. Essays in Honour of Ian Steedman (pp. 138–160). Routledge.
Ricardo, D. (1815). An Essay on the Influence of a Low Price of Corn on the Profits of Stock. John Murray.
Ricardo, D. (1951 [1817]). On the Principles of Political Economy and Taxation, from The Work and Correspondence of David Ricardo (P. Sraffa, Ed.). Cambridge University Pres.
Robinson, J. (1953–1954). The Production Function and the Theory of Capital. Review of Economic Studies, 21, 81–106.
Robinson, J. (1974). History versus Equilibrium. London: Thames Polytechnic [in Joan Robinson (1979), Collected Economic Papers 5, pp. 48–58. Basil Blackwell].
Samuelson, P. (1962). Parable and Realism in the Theory of Capital: The Surrogate Production Function. Review of Economic Studies, 29, 193–206.
Samuelson, P. (1966). “Paradoxes in the Capital Theory: A Symposium”, with Contributions by L. Pasinetti, D. Levhari, M. Morishima, M. Bruno, E. Burmeister, S. Sheshinki, P. Garegnani, P. Samuelson. The Quarterly Journal of Economics, 53, 503–584.
Solow, R. W. (1955–1956). The Production Function and the Theory of Capital. The Review of Economic Studies, 23, 101–108.
Sraffa, P. (1951). Introduction to Ricardo’s Principles. In P. Sraffa (Ed.), Work and Correspondence of David Ricardo 1. Cambridge University Press.
Sraffa, P. (1960). Production of Commodities by Means of Commodities: Prelude to a Critique Theory. Cambridge University Press.
Walras, L. (1954 [1926]). Elements of Pure Economics, or the Theory of Social Wealth. George Allen & Unwin.
Wicksell, K. (1934 [1901]). Lectures on Political Economy (Vol. I). Routledge, London.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2023 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Álvarez, R.E., Pérez-Montiel, J.A. (2023). On the Capital Controversies as a Choice of Paradigms. In: Trincado Aznar, E., López Castellano, F. (eds) Science, Technology and Innovation in the History of Economic Thought. Palgrave Studies in the History of Economic Thought. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-40139-8_10
Download citation
DOI: https://doi.org/10.1007/978-3-031-40139-8_10
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-031-40138-1
Online ISBN: 978-3-031-40139-8
eBook Packages: Economics and FinanceEconomics and Finance (R0)