Joan Robinson was “probably the best economist alive” in Paul Samuelson’s own words.
@zachdcarter rightfully celebrated her work on monopolistic competition (without which there wouldn’t be new trade theory nor endogenous growth theory) & #monpsony.
Dismissing her work...
@zachdcarter rightfully celebrated her work on monopolistic competition (without which there wouldn’t be new trade theory nor endogenous growth theory) & #monpsony.
Dismissing her work...
...on #capital theory is wrong-headed, because it has fundamental implications for the theory of #distribution.
She realized that there is no “quantity of capital” independent of prices in a world with heterogeneous capital goods.
The existence of...
She realized that there is no “quantity of capital” independent of prices in a world with heterogeneous capital goods.
The existence of...
...such quantity of capital is *crucial* for the #neoclassical theory of distribution, which rests fundamentally on the possibility that price movements will ensure that f’(k) = r.
This “closes” the Solow growth model: the real wage will be determined residually: w = y-f’(k)k..
This “closes” the Solow growth model: the real wage will be determined residually: w = y-f’(k)k..
...which -with flexible wages- ensures growth at full employment at all times.
If a “well-defined marginal product of capital does not exist (as is the case per Robinson’s argument) the neoclassical theory of distribution falls apart...
If a “well-defined marginal product of capital does not exist (as is the case per Robinson’s argument) the neoclassical theory of distribution falls apart...
The classical political economists had a different view: a) that wages would be determined institutionally, and b) that profits would be determined as a residual.
This can be expressed through the basic wage-profit relation r = R(1-ULC) where R is output/capital ratio & ULC...
This can be expressed through the basic wage-profit relation r = R(1-ULC) where R is output/capital ratio & ULC...
...is the unit labor cost.
Despite some snarky dismissals of the problem by some “very serious people”, this is a very important difference.
For example, wages could be determined through #bargaining or #labor discipline. No guarantee of full employment.
What about #growth?
Despite some snarky dismissals of the problem by some “very serious people”, this is a very important difference.
For example, wages could be determined through #bargaining or #labor discipline. No guarantee of full employment.
What about #growth?
The simplest way would be to use the “Cambridge equation”: g = s r where s is the propensity to save (invest) out of profits. With a real wage determined as above, and a constant Y/K, you have “endogenous growth” out of capital accumulation alone, & no full employment.
This would be ~ 2 the Lewis model before the “turning point.”
There are many different ways to think about growth & distribution without an aggregate production function. This was just to showcase one possibility, clear things up a bit, & hopefully elicit some interest. /end
There are many different ways to think about growth & distribution without an aggregate production function. This was just to showcase one possibility, clear things up a bit, & hopefully elicit some interest. /end
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