The Relevance of the Cambridge–Cambridge Controversies in Capital Theory for Econometric Practice (2007)

Abstract

There is a well-known tale of the mathematician who used to burst into tears at the sight of the binomial theorem ‘because it was so beautiful’.† I have had occasion to remark that, for the same reason, economists at least get lumps in their throats at the sight of the Cobb–Douglas production function because it has such beautiful properties: the exponents of K and L measure the respective shares of profits and wages in the national income; the marginal products of K and L measure the return to capital and the wage-rate; the marginal products themselves relate in a very simple way – proportionally, where the factors of proportionality have clear economic meaning – to their respective average products.¹ Moreover, in growth theory the Cobb–Douglas allows simple measures of the contributions to growth in income per head of the respective growth in capital and labour. That is why, apart from Australian chauvinism/patriotism, I prefer Swan (1956) to Solow (1956).

Originally published in Philip Arestis, Michelle Baddeley and John S. L. McCombie (eds), Economic Growth. New Directions in Theory and Policy, Cheltenham, UK and Northampton, MA: Edward Elgar Publishing, pp. 17–35.