Capital Theory and Political Economy: Prices, Income Distribution and Stability (Routledge Frontiers of Political Economy)

"In recent years, there have been a number of new developments in what came to be known as the "Capital Theory Debates". The debates took place mainly during the 1960s as a result of Piero Sraffa's critique of the neoclassical theory according to which the prices of factors of production directly depend on their relative scarcities. Sraffa showed that when income distribution changes, there are many complexities developed within the economic system impacting on prices in ways which are not possible to predict. These debates were revisited in the 1980s and again more recently, along with a parallel literature that has developed among neoclassical economists and has also looked at the impact of shocks on an economy. This book summarizes the debates and issues around the theory of capital and brings to the fore the more recent developments. It also pinpoints the similarities and differences between the various approaches and critically evaluates them in light of available empirical evidence. The focus of the book is on the price trajectories induced by changes in income distribution and the resulting shape of the wage rates of profit curves and frontier. These issues are central to areas such as microeconomics, international trade, growth, technological change and macro stability analysis. Each chapter starts with the theoretical issues involved, followed by their formalization and subsequently with their operationalization. More specifically, the variables of the classical theory of value and distribution are rigorously defined and quantified using actual input-output data from a number of major economies, but mainly from the USA, over long stretches of time. The empirical results are not only consistent with the anticipations of the theory but also further inform and therefore strengthen its predictive content raising new significant questions." This book summarizes the debates and issues around the theory of capital and brings to the fore the more recent developments. Cover 1 Half Title 2 Series Page 3 Title Page 4 Copyright Page 5 Table of Contents 6 List of figures 10 List of tables 14 List of Abbreviations 16 Preface and acknowledgments 18 1 Preliminaries 20 1.1 Introduction 20 1.2 Structure of the book 23 2 Theory of capital in historical perspective 25 2.1 Introduction 25 2.2 Capital in theories of value and distribution 25 2.3 Capital in the broad classical approach 28 2.4 Capital in the neoclassical theory 36 2.5 Production with capital and the early neoclassical economists 40 2.6 Summary and conclusions 48 3 Capital theory controversies 50 3.1 Introduction 50 3.2 Cambridge capital theory controversies 50 3.3 Production with produced means of production 56 3.4 Samuelson’s one-commodity world 58 3.5 From the one-commodity to the world of many commodities 65 3.6 Reswitching of techniques and the demand for capital 69 3.7 Summary and conclusions 72 Appendix 3.A: Samuelson’s and Pasinetti’s reswitching examples 72 4 Price trajectories and the rate of profit 80 4.1 Introduction 80 4.2 Prices of production and their determinants 82 4.2.1 The mathematics of the linear model of production 84 4.3 Price paths using input–output data, BEA 2018 89 4.3.1 The fixed capital model, BEA 2018 89 4.3.2 The circulating capital model, BEA 2018 93 4.4 Price paths using input–output data, USA 2014 97 4.4.1 The fixed capital model, USA 2014, WIOD (2016) 98 4.4.2 The circulating capital model, USA 2014 103 4.5 Summary and conclusions 107 Appendix 4.A: Sources of data and estimating methods 109 5 Wage rate of profit curves and technological change 112 5.1 Introduction 112 5.2 Survey of the first empirical studies 113 5.3 Technological change and wage rate of profit curves 115 5.4 The choice of numéraires and the standard commodity 123 5.5 WRP curves in 49 industries, USA 2007 and 2014 127 5.5.1 WRP curves, circulating capital model 128 5.5.2 WRP curves, fixed capital model 133 5.6 Discussion of empirical findings 138 5.6.1 Some recent developments 142 5.7 Summary and conclusions 146 Appendix 5.A: Further testing of the randomness hypothesis 148 6 Distribution of eigenvalues and the shape of price and wage rates of profit curves 151 6.1 Introduction 151 6.2 Bródy’s conjecture 152 6.2.1 Evolution of spectral ratio and the size of matrices 154 6.3 Eigendecomposition, price trajectories and dimensionality reduction 159 6.4 Eigendecomposition and the circulating capital model 163 6.4.1 Second-order approximation of PRP trajectories 166 6.4.2 The distribution of eigenvalues and the near linearities in PRP trajectories 169 6.5 Factorization and the construction of a hyper-basic sector 178 6.5.1 The Application of the SVD factorization method 181 6.5.2 The fixed capital model and the hyper-basic industry 182 6.6 Summary and conclusions 185 Appendix 6.A: Digression in the effective rank 187 7 A simple but realistic linear model of production 190 7.1 Introduction 190 7.2 Input–output data and the estimation of relative equilibrium prices 191 7.3 A Realistic numerical example and the estimation of direct prices 192 7.3.1 Direct prices, prices of production and market prices 194 7.3.2 The Sraffian standard commodity 195 7.4 Prices of production in circulating and fixed capital models I and II 196 7.4.1 Prices of production in a circulating capital model 196 7.4.2 Prices of production in a fixed capital model I 198 7.4.3 Prices of production in a fixed capital model II 199 7.5 Prices of production/direct prices trajectories 201 7.5.1 PP/DP trajectories, circulating capital model 202 7.5.2 PP/DP trajectories, fixed capital model I 203 7.5.3 PP/DP trajectories, fixed capital model II 204 7.6 Wage rate of profit curves 206 7.7 The eigendecomposition and the approximations of price trajectories 209 7.8 Hyper-basic industry 214 7.9 Summary and conclusions 217 8 Summing-up 219 8.1 Introduction 219 8.2 Capital theory debates in retrospect 220 8.3 Capital theory debates in prospect 224 8.4 Concluding remarks 229 References 232 Index 240 Preliminaries;,Capital,Theory;,Technological,Change;,Profit,Curves;,Summing-up Preliminaries,Capital Theory,Technological Change,Profit Curves,Summing-up "In recent years there have been a number of new developments in what came to be known as the "Capital Theory Debates". The debates took place mainly during the 1960s as a result of Piero Sraffa's critique of the neoclassical theory according to which the prices of factors of production directly depend on their relative scarcities. Sraffa showed that when income distribution changes there are many complexities developed within the economic system impacting on prices in ways which are not possible to predict. These debates were revisited in the 1980s and again more recently, along with a parallel literature which has developed among neoclassical economists which has also looked at the impact of shocks on an economy. This book summarizes the debates and issues around the theory of capital and brings to the fore the more recent developments. It also pinpoints the similarities and differences between the various approaches and critically evaluates them in light of available empirical evidence. The focus of the book is on the price trajectories induced by changes in income distribution and the resulting shape of the wage rates of profit curves and frontier. These issues are central to areas such as microeconomics, international trade, growth, technological change and macro stability analysis. Each chapter starts with the theoretical issues involved, followed by their formalization and subsequently with their operationalization. More specifically, the variables of the classical theory of value and distribution are rigorously defined and quantified using actual input-output data from a number of major economies, but mainly from the USA, over long stretches of time. The empirical results are not only consistent with the anticipations of the theory but also further inform and therefore strengthen its predictive content raising new significant questions" -- Provided by publisher