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| Figure 7: A Path In Secular Time |
I return to a numerical example of the corn-tractor model. Two techniques, associated with two types of tractors, are available in this model. I consider variations in two coefficients of production, the number of tractors needed to produce a Type II tractor and the corresponding number of Type II tractors needed to produce corn. The parameter space is partitioned by fluke switch points.
Reswitching and the reverse substitution of labor can only be transient in secular time. Technical progress is a path from the northeast to the southwest in Figure 1 in the previous post. Figure 7 above depicts a path in secular time in which the inputs of Type II tractors in both industries continuously decrease, at specified rates. The maximum wage and the wage at switch points are graphed as functions of time.
Initially, the technique associated with Type I tractors is cost-minimizing, whatever the distribution of income. Eventually, the technique that produces and uses Type II tractors in the example dominates, whatever the rate of profits. The reswitching of techniques appears in Region 1. The reverse substitution of labor appears in Region 3. Reswitching and the reverse substitution of labor only appear, in sequence, at intermediate times. Reswitching is manifested in diagrams of this type with the sideways U structure shown here
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