Saturday, May 01, 2021

Brad DeLong, Noah Smith, And Others On The Cambridge Capital Controversy

Brad DeLong and Noah Smith chat about the Cambridge Capital Controversy on their podcast, Hexapodia is the key insight. Noah says it was only mentioned in one of his classes on macroeconomics, but seems to say he was never formally taught it. Given his summary near the start of this discussion, he has obviously read something about it. Brad thinks the language used by the MIT economists in the 1960s was badly and inaccurately phrased and poorly suited to shed light. He says he had trouble figuring out why anybody would disagree that a single aggregate index could not be rigorous and theoretically justified. So this discussion, if I understand correctly, could be expected to fit well with the name of their podcast. But maybe not.

Brad distinguishes between the ownership of physical capital goods and the physical productivity of those goods. Do they anywhere distinguish between capital as the financial value of assets and capital as a heterogenous odd lot of means of production? Brad notes that 19th century economists brought up the (unconvincing) idea that those providing capital are incurring sacrifices by "waiting".

Noah knows that marginal productivity theory was developed as a theory of "just deserts", not that he accepts this idea. Aggregate models with a single index for the amount of capital are not helpful in figuring out how much business owners should be paid to be consistent with a flourishing society.

At one point, Noah says that somebody had a better index for capital, but he cannot recall who. Brad brings up Christopher Bliss and the slope of the production possibilities frontier for an intertemporal choice over, say, wheat today and wheat a week from now. I aggree Christopher Bliss' response to the CCC is an important marginalist response. But Noah should not have deferred so much at this time. He was trying to remember Edwin Burmeister's work.

I do not think Noah quite gets why the interest rate is generally not equal in equilibrium to the marginal product of capital. He brings up the question here of why did the participants in the CCC not also question an aggregate index for labor. Reswitching, capital reversing, the reverse substitution of labor, and so on can arise in models with heterogenous labor. Do either Brad or Noah distinguish between the price of the services of a capital good for, say, a year and the interest rate? Each kind of labor is measured in a homogeous unit, person-years. What is the analogy with capital supposed to be here?

At one point, Brad explains reswitching. Neither notes that in a comparison of long run positions, a higher wage can be associated with the adoption of a technique in which firms want to employ more labor to produce a given net output.

For me, what the English side showed is that prices of production do not follow the logic of supply and demand. Prices are not indices of relative scarcity. Marshall's principle of substitution does not characterize comparisons of (long-run) equilibrium. Classical political economy had a different approach to value and distribution, and that approach is logically consistent.

In trying to put what should have been the MIT side as strongly as possible, Brad describes the rate of profits "as a control variable" that provides a signal for how to allocate scarce resources. He thinks that by not acknowledging this role, the English side misses something important. Is Brad's position consistent with the above understanding of price theory?

I gather that this podcast is for a popular audience. It is not intended to be a comprehensive academic survey. So one should expect some gaps. They do not bring up Joan Robinson's distinction between historical and logical time or Post Keynesian's ideas on the difference between risk and uncertainty. To be fair, I do not discuss how long run positions can be reached very much myself.

Bill Mitchell now has a two part series on the CCC. Matias Vernengo points out he had an on-topic post in 2012. I find I had a bulleted summary in 2017. This example with three produced commodities is fairly comprehensive. Alexander Douglas has a 2018 Medium post offering an appreciation of Joan Robinson as a philosopher.

1 comment:

Anonymous said...

There is this paper/thesis from a NSSR student that takes an heterodox point of view.