Austrian themes and the Cambridge capital theory controversies
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Austrian themes and the Cambridge capital theory controversies J. Barkley Rosser Jr 1 # Springer Science+Business Media, LLC, part of Springer Nature 2018
Abstract While Austrian economists and their models were only indirectly involved in the Cambridge capital theory controversies that came to a dramatic head in 1966, certain ideas argued for by the Cambridge, UK side were prefigured in some work by Austrian economists, especially F.A. Hayek in his 1941, The Pure Theory of Capital, which he wote largely as a result of earlier debates with both Sraffa and Keynes. This paper recounts the roots of the capital theory debates coming out of the nineteenth century, the arguments among Keynes, Sraffa, and Hayek, Hayek’s analysis that undermined traditional Austrian views of capital, the Cambridge controversies themselves, and then how various groups followed up in the aftermath, including neoclassicals, neoRicardians and Post Keynesians, and various groups of Austrians, who were themselves slow to recognize the full implications of Hayek’s work and its relation to the Cambridge capital theory controversies. A final point is that among both those following Sraffa and Joan Robinson more as well as those following Hayek more, some have seen the issues leading to broader complexity approaches to capital theory and economic dynamics. Keywords Capital theory . Reswitching . Capital reversal . Roundaboutness .
Heterogeneous capital . Complexity JEL classification B24 . B25 . E12 . E14
1 Introduction The Cambridge controversies in the theory of capital came to a major head in 1966 after a series of debates between economists based in Cambridge, MA., led by Paul Samuelson (1962, 1966) and Robert Solow (1955–56, 1962), and ones in Cambridge,
* J. Barkley Rosser, Jr [email protected]
1
James Madison University, Harrisonburg, VA, USA
J. Barkley Rosser Jr
England, led by Piero Sraffa (1960) and Joan Robinson (1953–54, 1956). At its heart was whether in comparing equilibrium states, there is a negative relation between the rate of profit and the aggregate capital-labor ratio. The Cambridge, England side argued that this was not the case in general and won the debate by demonstrating that the phenomenon of reswitching can only be ruled out for the aggregate capital case by making extreme assumptions, such as ones that would also make the Marxian labor theory of value true even in a neoclassical context. However, certain Austrian economists had earlier become aware of the possibility of there not being a well-ordered such relationship, most notably in F.A. Hayek’s 1941 The Pure Theory of Capital, which was not cited or discussed by those involved in the mid-1960s debates, even though some of the models used in those debates as examples were of a semi-Austrian form (Samuelson 1962; Cohen and Harcourt 2003). This paper discusses these relations between these strands of argument about capital theory, and how Austrian and Sraffian views agree on critiquing neoclassical aggregate capital theory, even as they disagree on many other thi
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