Friday, October 24, 2014

Marginal Productivity Theory of Distribution: Acknowledged Blatherskite

I was surprised at how many reviews of Thomas Piketty's Capital in the 21st Century draw on the Cambridge Capital Controversy to argue that Piketty's theoretical framework is grossly inadequate.

I like this Aspromourgos quote:

However classical the questions Piketty addresses, when he turns to explain the determination of r he has recourse to the conventional, post-classical marginal productivity theory of distribution: diminishing marginal capital productivity is 'natural' and 'obvious' (212–16). (He is much less willing to have recourse to time preference: 358–61; cf. 399–400.) The logical critique of capital aggregates – applied either at the macro or micro level – as supposed independent explanatory variables in the theory of profit rates, first coherently stated by Piero Sraffa (1960, pp. 81–7; see also Kurz and Salvadori 1995, pp. 427–67), is nowhere acknowledged or addressed. That such a relatively well-read economist as Piketty can so unhesitatingly apply this bankrupt approach, is testament to how completely a valid body of critical theoretical analysis can be submerged and forgotten in social science (a phenomenon for the sociologists of knowledge to contemplate). This is so, notwithstanding that Piketty offers a brief interpretation of the 'Cambridge' capital debates, making them turn upon the issues of whether there is substitutability in production (and associated flexibility of capital-output ratios), and whether or not 'growth is always perfectly balanced [i.e., full-employment growth]' (230–32). In fact, the participants on both sides of those debates were concerned with production systems in which substitution and capital-output variability occurred; and continuous full-employment growth was not entailed by recourse to orthodox, marginalist production functions, a point perfectly understood by the participants on both sides. -- Tony Aspromourgos

Update (27 October 2014): Added the Bernardo, Martinez, and Stockhammer reference.

Update (1 December 2014): Added the Foster and Yates reference.


Unlearningecon said...

I agree in general on the CCCs, I just don't think it applies to Piketty's work. His most important points concern financial returns to capital, rather than the use of capital in production. Sure: he briefly references the PF in the context of empirical estimates of the elasticity of substitution, but he more frequently references the historically observed rate of return on capital. He actually leaves its cause somewhat underexplored (and yes maybe that is a weakness of the book), and I think the main thrust of his analysis - the 'three laws' - stands or falls apart from this.

Robert Vienneau said...

If he brings up both production functions and a-theoretical empirical estimates, then the CCC applies to at least part of his work. I still haven't made it through his book, though.