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> Is this about the Cambridge controversy? Could someone summarize
>this for me? Basically as I understand it, there was a debate between some
>Cambridge Keynesians/Marxians and some Harvard/MIT economists, right? Didn't
>their debate have to do with whether capital is productive? Who was right
>and who won the debate? And what significance does it have?
>
> Seth
Hah, the blind leading the blind. Well, take Samuelson's final surrender:
Years Total Inputs
of Labor Technique t-2 t-1 t _________
A 0 7 0 7 B 2 0 6 8
Now what this comparison of techniques is supposed to show is the possibility of reswitching; the whole debate has the air of scholaticism to it because no real empirical evidence is offered for reswitching and it has that stink of comparative static exercises that neo classical economists love.
Now... at zero or neglible interest rates, only labor costs would matter and technique A has a lower total input costs (seven as opposed to eight for tech B). Indeed tech A remains profitable as long as interest rates stay under fifty percent because the interest of carrying labor costs is relatively low for A compared to B. Yet if the interest rate exceed 50 percent, tech B now has lower overall costs because most of the labor is done in the third and final year and thus the interest carrying charges for the project are relatively less for technique B. Now here's the surprise: once the rate of interest climbs over 100%, tech A again becomes more profitable because now the difference in interest carrying costs having become relatively even, the principal difference is one of labor costs, giving the A the advantage.
Samuelson then concluded: The phenomenon of switching...shows that the simple tale told by Jevons, Boehm Bawerk, Wicksell and other neoclassical writers--alleging that as the interest rate falls in consequence of abstention from present consumption in favor of future, technology must become in some sense more 'roundabout', more 'mechanized', and more 'productive'--cannot be universally true."
What was thrown into question here is whether it could now reasonably expected that 'changes in the relative costs of labor and capital--real wages and interest or profit rates--will work to induce *rational* substitutions of capital for labor and labor for capital--that lack the consistency and ordered coherence postulated by neoclassical capital and production theory", as Richard X Chase puts it in A Guide to Post Keynesian Economics.
I hope this helps to get the discussion started, and experts such as Andrew K and Jason will get to the fundamentals.
Yours, Rakesh