Economics Dictionary of ArgumentsHome
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| Capital theory: Capital theory in economics studies the role of capital goods in production, investment, and economic growth. It examines how capital accumulates, depreciates, and influences productivity. Key theories include Böhm-Bawerk’s time preference theory, Hayek’s structure of production, and Keynesian views on capital’s role in aggregate demand. See also Capital, Capital structure, Production, Production structure, 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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Robert Solow on Capital Theory - Dictionary of Arguments
Harcourt I 93 Capital theories/Solow/Harcourt: Solow(1) classifies capital theories as either technocratic or descriptive. Technocratic: They are technocratic when planning and allocation questions (and so socialism) are discussed, … Descriptive: ….descriptive when used in an explanation of the workings of capitalism. Joan Robinson and Solow are on common ground when he discusses a further reason for difficulty in descriptive capital theory, namely, that 'capital problems are inevitably bound up with questions of uncertainty, limited foresight and reactions to the unexpected' (p. 13)(1), all areas in which no notable progress has, as yet, been made in economic analysis. Joan Robinson's reaction has been to argue that certain concepts, the value of 'capital', 'the rate of profits', for example, can only be given meaning when uncertainty is absent and expectations are realized - hence the concentration on Golden Age situations; >Capital/Joan Robinson, >Capital/Solow. Solow's reaction is candidly to ignore it in the analysis that follows. Finally Solow also warns us that by dodging the ideological overtones, we may destroy the bridge that leads to descriptive theory, especially that relating to the workings of capitalist economies, and be left with only technocratic answers about the consequences but not the causes, of saving and investment decisions. (…) in Solow's view, the central concept of capital theory should be the rate of return on investment, i.e. capital theory should be about interest rates, not capital.* Harcourt I 94 This makes for clarity, while concentrating on 'time' or 'capital' or the 'marginal productivity of capital' (or labour) makes for confusion. >Return on investment/Solow. * Irving Fisher's theory is concerned principally with the determination of a rate of return on investment as the outcome of the interplay of the forces of productivity - the technical possibilities of transforming present goods into future goods as given by well-behaved investment-opportunity schedules - with those of thrift - the sub- jective rates, as given by their respective indifference curves, at which individuals swap present goods for future goods: see Hirshleifer [1958](2). Capital is not mentioned explicitly though investment is. Borrowing and lending possibilities are also intro- duced so that individuals and, latterly, societies, are not confined to points of tangency of their indifference curves with investment-opportunity schedules alone: see N. C. Miller [1968](3). 1. Solow, Robert M. [1963a] (Professor Dr. F. De Vries Lectures, 1963) Capital Theory and the Rate of Return (Amsterdam: North-Holland). 2. Hirshleifer, J. [1958] 'On the Theory of Optimal Investment Decision', Journal of Political Economy, LXVI, pp. 329-52. 3. Miller, N. C. [1968] 'A General Equilibrium Theory of International Capital Flows', Economic Journal, LXXVHI, pp. 312-20._____________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. |
Solow I Robert M. Solow A Contribution to the Theory of Economic Growth Cambridge 1956 Harcourt I Geoffrey C. Harcourt Some Cambridge controversies in the theory of capital Cambridge 1972 |
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