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Luigi L. Pasinetti: An Intellectual Biography pp 225–246Cite as

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Pasinetti on Capital Theory

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Abstract

In 1965 Pasinetti triggered a third controversy, on capital theory. Paul Samuelson was convinced of a strictly monotonic relation between the profit rate and capital intensity. His pupil Levhari claimed that reswitching and capital-reversing may occur in an industry, but not at macro-level. The refutation of Levhari’s thesis came promptly from Pasinetti at the First World Congress of the Econometric Society in 1965. His paper stirred a huge controversy between the two Cambridges. In the special 1966 issue of the Quarterly Journal of Economics, Levhari and Samuelson admitted that ‘The Nonswitching Theorem is False’. However, Leijonhufvud has recently written: ‘It is truly remarkable how the mainstream has managed to resign to oblivion the clear-cut victory of Old Cambridge in the Capital Controversy, in which Pasinetti played a prominent part’.

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Notes

  1. 1.

    John Cunningham Wood in his Piero Sraffa: Critical Assessments writes that

    there is a letter in October 1936 in which he [Piero Sraffa] explicitly refers to the incoherence of the concept of a quantity of capital (measured in a unit which is independent of distribution and prices) relative to the concepts of land and labour. He suggests that if Joan Robinson should ask her gardener what a quantity of capital is, he would think her dotty, though he would have no trouble in understanding what quantities of land and labour are. It seems reasonable to suppose that the force of these arguments impressed itself upon her when she began to think about the problems of growth and accumulation in the post-war period. (Cunningham Wood 1995, p. 90)

  2. 2.

    Ruth Louisa Cohen (1906–91) was a Cambridge economist. She served as Principal of Newnham College, Cambridge, from 1954 until 1972 (she was in fact the first Jewish head of an Oxbridge college). She studied in the same College as an undergraduate in the 1920s. In 1930, she won a Commonwealth Fund fellowship to go to the United States, where she spent two years at Stanford and Cornell. On her return, she worked at the Agricultural Economic Research Institute in Oxford where she remained until 1939. She then returned to Newnham College as a lecturer and Director of Studies in economics. At the onset of WWII, she was called to serve in London at the Ministry of Food and then at the Board of Trade. At the end of the war she returned again to Cambridge to teach, a role she held until 1972. She was elected Principal of Newnham College in 1954, Chair of the Ministry of Agriculture Committee for the Provincial Agricultural Advisory Service in 1962, and was awarded a CBE in 1969. She never married and died in Cambridge in 1991. Geoff Harcourt, who knew her well, has told us that she was a much-distinguished authority in the field of agricultural economics.

  3. 3.

    Reswitching of techniques has been summarized by Scazzieri (1987, p. 162) as follows:

    Reswitching of technique refers to the virtual adoption of production techniques, either by the individual producer or by the economic system as a whole. Standard economic theory treats technical adoption on the assumption that there is a multiplicity of techniques for producing any given good, and that the producer, as a rational decision maker, will switch from one technique to another according to a certain hypothetical sequence as the prices of productive factors are changed. This sequence would depend on the ranking of techniques in terms of capital per man or ‘capital intensity’, so that a lower rate of interest (which is equal to the rate of profit in equilibrium) would be associated with the ‘adoption’ of a technique characterized by higher capital per man. This process is known as capital deepening. The development of discrete production models in the 1950s led to the discovery that this view of ‘rational’ technical adoption is not necessarily well founded. David Champernowne (1953–54) and Joan Robinson (1956) pointed out that a movement of the rate of interest in a given direction might make it optimal once again to use techniques that had been previously excluded. This phenomenon is known as reswitching of technique. The original discovery was associated with the belief that reswitching was nothing more than a ‘curiosum’, which could not be left out on grounds of pure logic but was nevertheless unlikely to happen. The discussion of this phenomenon by Piero Sraffa (1960) showed that reswitching is the normal outcome of a situation in which the various production processes are characterized by different proportions between ‘direct’ labour and the quantity of ‘past’ labour.

  4. 4.

    For more details, see, for instance, Avi Cohen and Geoff Harcourt (2003a, p. 202) and the above quoted Scazzieri (1987, p. 162).

  5. 5.

    It was never clear with which phenomenon he was dealing, for he seemed to confuse the Ruth Cohen curiosum, capital-reversing, with reswitching.

  6. 6.

    G. C. Harcourt maintains that: ‘I was the first person in Cambridge to read Levhari’s article in the [1965] Quarterly Journal of Economics. I told Sraffa about it, i.e., that some chap in the QJE said his result [i.e. Sraffa’s] was wrong for the economy’. Piero Sraffa: ‘He’s wrong – and you show it.’ Me: ‘I can’t do matrix algebra.’ P[iero] S[raffa]: ‘Neither can I’, so he asked Pasinetti’ (Baranzini and Harcourt 1993, p. 38n).

  7. 7.

    See also Franklin M. Fisher (2003) comment, as well as the response from Avi J. Cohen and G. C. Harcourt (2003a).

  8. 8.

    See, for instance, Harcourt (2014, 2015), Harcourt and Tribe (2017), Galbraith (2014), Taylor (2014, 2015), Garbellini (2017), Garbellini and Wirkierman (2014), Lopez-Bernardo, Lopez-Martinez and Stockhammer (2016), Michl (2016), Osborne and Davidson (2016), Rowthorn (2014), and Stirati (2017). The Review of Political Economy has dedicated two Symposia on Piketty’s Capital: volume 28.2 (2016) and volume 29.1 (2017); in these two volumes, the Cambridge distribution theory is widely discussed, as well as Pasinetti’s Cambridge Equation. See also the recent paper by Mattauch, Klenert, Stiglitz and Edenhofer (2017) with the title ‘Piketty Meets Pasinetti: on Public Investment and Intelligent Machinery’. Finally, we ought to mention Seccareccia and Lavoie’s (2016) article on ‘Income Distribution, Rentiers and their Role in a Capitalist Economy: A Keynes-Pasinetti Perspective’, which we have already considered at the end of Chap. 6.

  9. 9.

    We are grateful to Nadia Garbellini for her help in preparing this text concerning what we may now call the ‘Piketty-Pasinetti’ dispute.

  10. 10.

    For a lucid assessment, see Pasinetti’s (2000) ‘Critique of the Neoclassical Theory of Growth and Distribution’ in the Banca Nazionale del Lavoro Quarterly Review.

  11. 11.

    An early and very complete contribution is that by Galbraith (2014). See also Rowthorn (2014), Harcourt and Tribe (2017) and Harcourt (2015).

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Authors and Affiliations

  1. University of Lugano, Lugano, Switzerland

    Mauro L. Baranzini

  2. University of Applied Sciences of Southern Switzerland and University of Lugano, Lugano, Switzerland

    Amalia Mirante

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Baranzini, M.L., Mirante, A. (2018). Pasinetti on Capital Theory. In: Luigi L. Pasinetti: An Intellectual Biography. Palgrave Studies in the History of Economic Thought. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-71072-3_8

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