Samuelson: "I Side With Sraffians"

"...One cannot match a proof like that of [the wage-interest rate frontier] by finding a valid proof for the stationary state conjecture [that consumption per head is not lower for a lower interest rate] (6). Why not? Because, as the next section will illustrate with numerical examples, such a conjecture is simply not true! ...

..Austrian novices and Nassau Senior's readers trumpet (in my paraphrase): 'Time itself is productive. Roundaboutness can be substituted for labor. The price of time is the interest rate. Aristotle, the Bible, the Koran, and St. Thomas Aquinas are wrong: competitive interest rate is not exploitation. The capitalist gets and needs to get the reward of positive interest rate. And to assuage him for his pains of (a) waiting to consume and (b) abstaining from eroding his capital by consuming more now rather than replacing the capital already in existence, he is properly being given part of the extra social product that his activity makes possible. It is a good bargain for the laborer: his wage product is fructified by what the capitalist provides as the real wage rate always rises when thrift and accumulation succeed in lowering the interest rate.'

But suppose time itself is not productive. Suppose the technical choices were between seven of labor two periods back and ten of labor three periods back. Incautious writings of Böhm's contemporaries declare, Humpty Dumpty-like: that is impossible; it contradicts a valid (a priori?) law of returns that more time means more product for the same total labor; read Jevons, read Böhm.

This is not cogent argumentation, as Hayek understands (1941, p. 60)...

...this defense does not validate an inverse [interest rate, consumption per worker] tradeoff in Equation (6) above. Adam Smith's Invisible Hand does ensure Equation (5) above but cares nought for Equation (6). This is why books entitled Economics in One Lesson must evoke from us the advice: 'Go back for the second lesson.'

Böhm was understandably tempted to say things like: 'Among the viable competitive time-phasing techniques, the technological law holds: Using more time, more roundaboutness, more complexity - when a lower interest rate motivates that competitively - must surely bring society a higher output from the same steady-state primary inputs of labor and land. Adam Smith's Invisible Hand must [sic] surely ensure that.'..

...in my dialogue with Sraffians, out of noblesse oblige I let them choose their weapons. By three well-chosen numerical examples, which Fisher (1907) might easily have fabricated, I side with Sraffians to show how and why there can be no universal measure of 'depth or duration of time-phased produced inputs' that can serve as simple apologetics for mainstream theories of interest. Unequivocal 'capital deepening' just cannot be defined...

...An economy's inventory of produced inputs is both complex and simple. Maintaining and improving upon congeries of productive inputs is an indispensible part of economic progress. All such time-phased processes will not evolve automatically: cave-people rose and fell in material well-being; eons passed without much cumulative change; great diversity of performance characterized geographically separated societies. Attempts to generalize simple family's or related-families' habit formation to large-group politics - a la utopian experimental cults or in the Lenin-Stalin and Mao pattern have not hitherto succeeded in organizing production with approximate Pareto-Optimality efficiency features. Gradual evolution toward near laissez-faire market mechanism responding to individual's self-interest, history suggests and advanced economic theory second guesses, will incur areas of market failure and will generate and perpetuate considerable degrees of economic and political inequalities. Just as there is no asymptotic communist utopia, neither is [there] an asymptotic laissez-faire utopia.

Böhm and Wicksell and Cassel and Wieser and Clark and Walras and Hayek and other economists before and after Sraffa, all must face what the role of intertemporal pricing must be in organizing technologies that are irreducibly time-phasing. When Joan Robinson and I discussed these matters face to face, I used to get nowhere with her by babbling about supply and demand. She already had seen through that tommy-rot. Things went better if I could keep the focus on Mao's China..." -- Paul Samuelson (2001). "A Modern Post-Mortem on Böhm's Capital Theory: Its Vital Normative Flaw Shared By Pre-Sraffian Mainstream Capital Theory". Journal of the History of Economic Thought V. 23, N. 3