The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Capital Theory (Paradoxes)

  • Luigi L. Pasinetti
  • Roberto Scazzieri
Reference work entry


Capital theory has led economists to discover relationships that look ‘paradoxical’ or counter-intuitive, as they run counter widely accepted ‘parables’. The transformation of microeconomic diminishing returns relations into a macro-social law induced the mistaken belief of an inverse, monotonic relation between the interest rate (and profit rate, taken as the ‘price of capital’) and the quantity of capital per head. Subsequent work alerted economists to the difficulty of finding aggregate measures of heterogeneous capital goods, and to the possibility that a falling rate of interest (and of profit) may be associated with a decrease not an increase) of the quantity of capital per head.


Aggregation (of capital) Aggregation (production) Aghion, P. Beccaria, C. Bliss, C. J. Böhm-Bawerk, E. von Bruno, M. Burmeister, E. Cantillon, R. Capital accumulation Capital as a collection of physical assets Capital as a fund Capital intensity Capital measurement Capital theory Capital theory: parables Capital theory: paradoxes Chain index method of measurement Champernowne, D. G. Clark, J. B. Classical capital theory Cobb–Douglas functions Cohen curiosum Cohen, R. Construction period and utilization period, in Hicks’s theory of capital Denison, E. Diminishing returns Discontinuities in input use Distribution of income Duration parameters in production models Embodied technical change Financial and technical conceptions of capital Fisher, F. Garegnani, P. Gordon, R. Harcourt, G. C. Heterogeneity of capital goods Hicks, J. R. Hidden reswitching Howitt, P. Hulton, C. Increasing returns Intertemporal equilibrium Jevons, W. S. Kaldor, N. Law of variable proportions Levhari, D. Loanable funds Locke, J. Longfield, M. Marginal productivity theory Morishima, M. Multifactor productivity Neoclassical production function Net capital stocks Non-monotonic relations in capital theory Pasinetti, L. Petty, W. Physiocracy Production matrix Production techniques Rate of interest Rate of profit Reswitching of technique Reverse capital deepening Ricardo, D. Robinson, J. V. Rosser, J. B. Roundabout methods of production Rymes, T. Samuelson, P. A. Say, J.-B. Schefold, B. Senior, N.W. Sheshinski, E. Smith, A. Solow, R. Sraffa, P. Starrett, D. Steady state Stiglitz, J. Structural change Structural economic dynamics Surrogate production function Sylos Labini, P. Temporary equilibrium Thünen, J. H. von Variable proportions, law of Vertically integrated sectors Vertically integrated labour coefficients Vertically integrated units of productive capacity Weitzman, M. Wicksell, K. 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Luigi L. Pasinetti
    • 1
  • Roberto Scazzieri
    • 1
  1. 1.