Skip to main content

Yes, The Cambridge Capital Controversies Do Matter

From Unlearning Economics:
I rarely (never) post based solely on a quick thought or quote, but this just struck me as too good not to highlight. It’s from a book called ‘Capital as Power’ by Jonathan Nitzan and Shimshon Bichler, which challenges both the neoclassical and Marxian conceptions of capital, and is freely available online. The passage in question pertains to the way neoclassical economics has dealt with the problems highlighted during the well documented Cambridge Capital Controversies:
The first and most common solution has been to gloss the problem over – or, better still, to ignore it altogether. And as Robinson (1971) predicted and Hodgson (1997) confirmed, so far this solution seems to be working. Most economics textbooks, including the endless editions of Samuelson, Inc., continue to ‘measure’ capital as if the Cambridge Controversy had never happened, helping keep the majority of economists – teachers and students – blissfully unaware of the whole debacle.
A second, more subtle method has been to argue that the problem of quantifying capital, although serious in principle, has limited practical importance (Ferguson 1969). However, given the excessively unrealistic if not impossible assumptions of neoclassical theory, resting its defence on real-world relevance seems somewhat audacious.
The second point is something I independently noticed: appealing to practicality when it suits the modeller, but insisting it doesn’t matter elsewhere. If there is solid evidence that reswitching isn’t important, that’s fine, but then we should also take on board that agents don’t optimise, markets don’t clear, expectations aren’t rational, etc. etc. If we do that, pretty soon the assumptions all fall away and not much is left.
However, it’s the authors’ third point that really hits home:
The third and probably most sophisticated response has been to embrace disaggregate general equilibrium models. The latter models try to describe – conceptually, that is – every aspect of the economic system, down to the smallest detail. The production function in such models separately specifies each individual input, however tiny, so the need to aggregate capital goods into capital does not arise in the first place.
General equilibrium models have serious theoretical and empirical weaknesses whose details have attracted much attention. Their most important problem, though, comes not from what they try to explain, but from what they ignore, namely capital. Their emphasis on disaggregation, regardless of its epistemological feasibility, is an ontological fallacy. The social process takes place not at the level of atoms or strings, but of social institutions and organizations. And so, although the ‘shell’ called capital may or may not consist of individual physical inputs, its existence and significance as the central social aggregate of capitalism is hardly in doubt. By ignoring this pivotal concept, general equilibrium theory turns itself into a hollow formality.
In essence, neoclassical economics dealt with its inability to model capital by…eschewing any analysis of capital. However, the theoretical importance of capital for understanding capitalism (duh) means that this has turned neoclassical ‘theory’ into a highly inadequate took for doing what theory is supposed to do, which is to further our understanding.
Apparently, if you keep evading logical, methodological and empirical problems, it catches up with you! Who knew?

Comments


  1. On Ferguson’s “practical importance” argument, Joan Robinson argues that “[n]othing could be more idle than to get up an argument about whether reswitching is ‘likely’ to be found in practice.” Not only does a pseudo production function not exist “in reality” but also it would not be possible to move along it to pass over switch points. “[For] there is no such phenomenon in real life as accumulation taking place in a given state of knowledge.”

    Quoted from G. C. Harcourt and Prue Kerr, “Joan Robinson” p.104

    ReplyDelete

Post a Comment

Popular posts from this blog

A few brief comments on Brexit and the postmortem of the European Union

Another end of the world is possible
There will be a lot of postmortems for the European Union (EU) after Brexit. Many will suggest that this was a victory against the neoliberal policies of the European Union. See, for example, the first three paragraphs of Paul Mason's column here. And it is true, large contingents of working class people, that have suffered with 'free-market' economics, voted for leaving the union. The union, rightly or wrongly, has been seen as undemocratic and responsible for the economics woes of Europe.

The problem is that while it is true that the EU leaders have been part of the problem and have pursued the neoliberal policies within the framework of the union, sometimes with treaties like the Fiscal Compact, it is far from clear that Brexit and the possible demise of the union, if the fever spreads to France, Germany and other countries with their populations demanding their own referenda, will lead to the abandonment of neoliberal policies. Aust…

A brief note on Venezuela and the turn to the right in Latin America

So besides the coup in Brazil (which was all but confirmed by the last revelations, if you had any doubts), and the electoral victory of Macri in Argentina, the crisis in Venezuela is reaching a critical level, and it would not be surprising if the Maduro administration is recalled, even though right now the referendum is not scheduled yet.

The economy in Venezuela has collapsed (GDP has fallen by about 14% or so in the last two years), inflation has accelerated (to three digit levels; 450% or so according to the IMF), there are shortages of essential goods, recurrent energy blackouts, and all of these aggravated by persistent violence. Contrary to what the press suggests, these events are not new or specific to left of center governments. Similar events occurred in the late 1980s, in the infamous Caracazo, when the fall in oil prices caused an external crisis, inflation, and food shortages, which eventually, after the announcement of a neoliberal economic package that included the i…

What is the 'Classical Dichotomy'?