Economics Dictionary of ArgumentsHome
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| Reswitching: Reswitching is a concept in capital theory where a particular production technique, abandoned at one interest rate, becomes optimal again at a different, lower rate. It challenges the idea of a simple relationship between capital intensity and interest rates, undermining neoclassical theories of capital and distribution. See also Capital, Capital theory, Cambridge Capital Controversy. _____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Neoclassical Economics on Reswitching - Dictionary of Arguments
Harcourt I 145 Reswitching/capital reversing/Neoclassical economics/Harcourt: Unfortunately, for the neoclassical revivalists, all these results (see Reswitching/Economic theories) disappear when we drop our very special assumption (which is, however, related to Marx, vols. I and n, in which the organic composition of capital is uniform in all uses) that each w-r relationship is a straight line.* >Reswitching/Economic theories, >Cambridge Capital Controversy, >Labour/Marx, >K. Marx, >Value theory/Marx. Harcourt: For now the possibility that the same method will be the most profitable at two (or more) values of r, while others are more profitable in between, becomes inevitable. (Note, though, that it is the possibility which is inevitable: curved w-r relationships do not automatically imply that double-switching will occur.) >Reswitching/Economic theories. Reswitching: A case where it does occur is (…) [this]: technique b (which has a straight-line w-r relationship) comes back after giving way to technique a (which has a curved one) between the rates of profits of rba and rab. It will be noticed that qb - output per man of technique b - exceeds qa. If, therefore, we were to compare the sustainable steady states of consumption per head at different rates of profits, instead of obtaining the neoclassical parable …. For the „parables“ see >Neoclassicals/Harcourt. …- investment in more roundabout methods of production as r falls allows higher sustainable standards of living in the long run - we would have instead a 'dip' over the range rba-rab (…). Reverse capital: While reswitching will do the trick, capital-reversing is all that is needed to obtain 'perverse' steady-state movements: see Bruno, Burmeister and Sheshinski [1966](1), Pasinetti [1966a](2). It should also be obvious, all too painfully so, perhaps, that either reswitching or capital-reversing, or the two combined, destroy parables (1) and (2) as well. Here, the parables again: Harcourt I 122 (1) an association between lower rates of profits and higher values of capital per man employed; (2) an association between lower rates of profits and higher capital-output ratios; (3) an association between lower rates of profits and (through investment in more 'mechanized' or 'round-about' methods of production) higher sustainable steady states of consumption per head (up to a maximum); (4) that, in competitive conditions, the distribution of income between profit-receivers and wage-earners can be explained by a knowledge of marginal products and factor supplies. Harcourt I 146 As the destruction by capital-reversing of parable (1) - from Pasinetti [1966a](2), pp. 516-17: Harcourt I 147 „The conclusion simply is that, on this problem, the whole theory of capital seems to have been caught in the trap of an old mode of thinking. Without any justification, except that this is the way economists have always been accustomed to think, it has been taken for granted that, at any given state of technical knowledge, the capital goods that become profitable at a lower rate of profits always entail a higher 'quantity of capital' per man. The foregoing analysis shows that this is not necessarily so; there is no connection that can be expected in general between the direction of change of the rate of profits and the direction of change of the 'quantity of capital' per man.“ (pp. 516-17). * It would be ironic if, nearly 100 years later, the rival theory of value to that of Ricardo and Marx should founder on the assumption which Bohm-Bawerk found so objectionable in Marx's theory. On this, see Dobb [1940](3), p. 74 nl, and generally for a brilliant - and highly relevant - account of the historical and analytical background to the present debate. 1. Bruno, M., Burmeister, E. and Sheshinski, E. [1966] 'Nature and Implications of the Reswitching of Techniques', Quarterly Journal of Economics, LXXX, pp. 526-53. 2. L.L. Pasinetti [1966a] 'Changes in the Rate of Profit and Switches of Techniques', Quarterly Journal of Economics, LXXX, pp. 503-17. 3. Dobb, M. H. [1940] Political Economy and Capitalism (London: Routledge)._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Neoclassical Economics Harcourt I Geoffrey C. Harcourt Some Cambridge controversies in the theory of capital Cambridge 1972 |
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