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| Disputed term/author/ism | Author |
Entry |
Reference |
|---|---|---|---|
| Idealization | Economic Theories | Harcourt I 66 Idealization/Method/Kaldor/Economic theories/Harcourt: Terminology/Harcourt: (…) [we distinguish between] the malleable capital world in which technical progress is disembodied and the vintage world where it is embodied (…). Harcourt I 80 VsIdealizations: [a] strand of criticism is especially associated with the works of Kaldor [1955-6(1), 1957(2), 1959a(3), 1959b(4), 1962(5), 1966(6)]. It relates to a denial of the usefulness and the relevance of the assumptions of perfect (as opposed to some) competition, constant returns to scale, static expectations and perfect foresight, and marginalist and maximizing explanations of the choice of technique and factor rewards. Kaldor/Harcourt: For Kaldor, even the notion of a cost-minimizing choice of technique in a vintage model* will not hold (see Kaldor and Mirrlees [1962](5)) and he substitutes, instead, a pay-off period criterion. Kaldor is, of course, an enthusiastic proponent of the embodied view of technical progress. Harcourt I 81 He has himself produced technical progress functions of at least three vintages; he switched from a total one in Kaldor [1957](2) through a compromise in Kaldor [1959a](3) to a marginal one in Kaldor and Mirrlees [1962](5), following Black's impertinent reminder, Black [1962](7), that the first, when linear, implied a production function of a special form, Cobb-Douglas, no less! >Cobb-Douglas production function. Kaldor did keep one strand of the original vintage approach, namely, the scrapping rule associated with the equality of the expected price and wage costs, though this is inconsistent, as Nuti [1969](8) points out, with an assumption of an imperfectly competitive market structure,* which no matter what its nature, will always ensure that prices are greater than the wage costs of any vintage operating (but see also, Robinson [1969c](9)).** Kaldor also feels that a major contribution by Arrow [1962](10) - his work on learning by doing-puts a shaft through the pure form of neoclassical analysis, a view that reflects, presumably, Arrow's own summary of the implications of his article. Thus: Arrow: „The theorems about the economic world presented here differ from those in most standard economic theories: profits are the result of technical change; in a free-enterprise system, the rate of investment will be less than the optimum; net investment and the stock of capital become subordinate concepts, with gross investment taking a leading role.“ (p. 156.) Measurements/Harcourt: The point may perhaps be most simply put as follows. To measure the ex ante elasticity of substitution, ideally we need observations on the ex ante production function itself, or, if we may assume that the choice of technique from the function is undertaken by cost-minimizing businessmen with static expectations, data on the labour productivity of the latest vintages and the current wage levels ruling in the same industries in different countries. Harcourt I 82 In a vintage world, though, we have not observations on the labour productivity of the wage-earners on the latest machines, we only have observations on the average productivity of the total work force spread over all the vintages that are currently in use. Moreover, the ratios of the productivity on the latest vintages to overall productivity in each industry and country are statistics which reflect the economic histories, and especially movements of wages and rates of accumulation, of each industry in each country for periods for which there are vintages operating in their respective capital stocks. Moreover, subsequent investigations of the nature of the biases suggest, first, that they are substantial and, secondly, that the discrepancies between the observed and desired slopes could go either way, depending upon which a priori and equally plausible story is told, see Harcourt [1966](16). * Kaldor is in excellent company on this one, see Sargent [1968](11), Harcourt [1968a(12), 1968b(13)]. Solow et al. [1966](14) state the correct rule of zero quasi-rents, see pp. 111-12, where they tell of the price being the wage cost of the no rent vintage marked up by a profit margin. ** Kaldor [1970](15) admits the logic of Nuti's point but poses an hypothesis, as yet untested, that minimizes its importance empirically. 1. Kaldor, N. [1955-6] 'Alternative Theories of Distribution', Review of Economic Studies, xxm, pp. 83-100. 2. Kaldor, N. [1957] 'A Model of Economic Growth', Economic Journal, LXVII, pp. 591-624. 3. Kaldor, N. [1959a] 'Economic Growth and the Problem of Inflation - Part i', Economica, xxvi, pp. 212-26. 4. Kaldor, N. [1959b] 'Economic Growth and the Problem of Inflation - Part u Economica, xxvi, pp. 287-98. 5. Kaldor, N. and Mirrlees, J. A. [1962] 'A New Model of Economic Growth', Review of Economic Studies, xxix, pp. 174-92. 6. Kaldor, N. [1966] 'Marginal Productivity and the Macro-Economic Theories of Distribution', Review of Economic Studies, xxxm, pp. 309-19. 7. Black, J. [1962] 'The Technical Progress Function and the Production Function', Economica, xxix, pp. 166-70. 8. Nuti, D. M. [1969] 'The Degree of Monopoly in the Kaldor-Mirrlees Growth Model', Review of Economic Studies, xxxvi, pp. 257-60 9. Robinson, Joan [1969c] 'A Further Note', Review of Economic Studies, xxxvi, pp. 260-2. 10. Arrow, K. J. [1962] The Economic Implications of Learning by Doing', Review of Economic Studies, xxix, pp. 155-73. 11. Sargent, J. R. [1968] 'Recent Growth Experience in the Economy of the United Kingdom', Economic Journal, Lxxvin, pp. 19-42. 12. Harcourt, G. C. [1968a] 'Investment-Decision Criteria, Capital-Intensity and the Choice of Techniques', Czechoslovak Economic Papers, ix, pp. 65-91. 13. Harcourt, G. C. [1968b] 'Investment-Decision Criteria, Investment Incentives and the Choice of Technique', Economic Journal, LXXVIII, pp. 77-95. 14. Solow, R. M., Tobin, J., von Weizsacker, C. C. and Yaari, M. [1966] 'Neoclassical Growth with Fixed Factor Proportions', Review of Economic Studies, xxxm, pp. 79-115. 15. Kaldor, N. [1970] 'Some Fallacies in the Interpretation of Kaldor', Review of Economic Studies, xxxvu (1), pp. 1-7. 16. Harcourt, G. C. [1966] 'Biases in Empirical Estimates of the Elasticities of Substitution of C.E.S. Production Functions', Review of Economic Studies, xxxni, pp. 227-33. |
Harcourt I Geoffrey C. Harcourt Some Cambridge controversies in the theory of capital Cambridge 1972 |
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