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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Piero Sraffa on Reswitching - Dictionary of Arguments
Harcourt I 152 Reswitching/Sraffa/Harcourt: Sraffa and Joan Robinson used [the] uneven distribution of labour through 'horizontal' or 'instant' time to describe the possibilities of double-switching and capital-reversing. Sraffa [1960](1), p. 81 passim, used his reduction to 'dated' labour examples (whereby the contribution of each input of labour to the value of a commodity is given by its wage cost accumulated forward at the appropriate rate of profits over the 'periods' between its input and the emergence of the product) as the analogy to make the point. Joan Robinson's explanation in Robinson [1956](2), pp. 109-10, may be put as follows: Robinson: Suppose that the gestation period of technique a is longer than that of technique b9 but that the input of labour is concentrated at the beginning of the period while that of b is concentrated at the end. Consider their w-r relationships which, together with their respective capital values (…). We know that at the wage rate, wba (and the rate of profits, rba) the two methods are equiprofitable. Now consider the wage rate, wa. Then both techniques will be associated with lower values of r, ra and rb respectively. Harcourt I 154 But because the fall in the rate of profits from rba to ra has a much greater relative impact on the value of ka than the corresponding fall to rb has on kb (which is none), technique a is able to pay the same wage rate - wa - and a higher rate of profits (ra>rb) than can technique b. But when the wage rate gets very high so that it comes near to absorbing all of qa (but only a lot of qb) there are no longer the profits left over to allow the payment of a higher rate of profits (on the lower k) for a than that paid for b - hence, first, the reswitching at rab and then, secondly, b becoming the more profitable technique at values of r below rab. Capital goods: It is the heterogeneity of capital goods (whether fixed or circulating) as well as the time pattern of production which gives rise to the possibility of double-switching. Sraffa: This is clear in Sraffa's description of the timelessness of the concept of 'dated' labour and has been made explicit by Champernowne [1953-4, 1966](3), Morishima [1966](4), Robinson and Naqvi [1967](5) and Robinson [1970a](6). As Sraffa and Morishima point out, a process involving a lapse of time from input to output can be regarded as an instantaneous process requiring heterogeneous capital goods by introducing as many fictitious intermediate goods and sectors as we require. Each input then acquires its appropriate profits component, suitably compounded, on the way, with the 'earlier' inputs, not in time but in stage of production, being compounded more times. Laobur/Sraffa/Harcourt: This, as I understand it, is the essence of Sraffa's concept of 'dated' labour. Sraffa is always dealing at an instant of time with those properties of an economic system which are independent of change. It is also natural for anyone thinking, as Sraffa is, in the Ricardian-Marxian mould, of 'divergences of prices from values' changing as the rate of profits changes, to sense the possibility of such double substitutions of machines for labour.** >Aggregate production function. * In Samuelson's example, w does not change as r does. Sraffa [1960](1), pp. 34-8, however, llustrates the same phenomena, though, admittedly, in a different context, in an example in which w does change (in a manner determined by its functional relationship with r) and the same result is obtained. ** I am indebted to M. H. Dobb for this comment. 1. Sraffa, P. (1960) Production of Commodities by Means of Commodities. Prelude to a Critique of Economic Theory (Cambridge: Cambridge University Press). 2. Robinson, Joan [1956] The Accumulation of Capital (London: Macmillan). 3. Champernowne, D. G. [1953-4] 'The Production Function and the Theory of Capital: A Comment', Review of Economic Studies, xxi, pp. 112-35 4. Morishima, M. [1966] 'Refutation of the Nonswitching Theorem', Quarterly Journal of Economics, LXXX, pp. 520-5. 5. Robinson, Joan and Naqvi, K. A. [1967] 'The Badly Behaved Production Function', Quarterly Journal of Economics, LXXXI, pp. 579-91. 6. Robinson, Joan [1970a] 'Capital Theory Up to Date', Canadian Journal of Economics, in, pp. 309-17._____________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. |
Sraffa I Piero Sraffa Production of Commodities by Means of Commodities. Prelude to a Critique of Economic Theory (Cambridge: Cambridge University Press). Cambridge 1960 Harcourt I Geoffrey C. Harcourt Some Cambridge controversies in the theory of capital Cambridge 1972 |
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