What Remains of the Cambridge Critique? Potential Conclusions and Directions for Further Research Following from Recent Investigations in Capital Theory

The debate on capital theory is not any more on the discussions about the historical formation of neoclassical ideas in their original, most abstract form, but about the tools – certainly influenced by those ideas – which are used in teaching all over the world in applied economics. One focus still is on the macroeconomic aggregate production function, almost seventy years after Joan Robinson attacked this concept. It has turned out that reswitching is rare – once the most effective argument against the production function – and that an approximate surrogate production function can be constructed, using the approach of random matrices. This seems to weaken the critique, but a new one has emerged, which shows that the number of effective techniques on the envelope is small and that the possibilities of substitution between capital and labour are quite restricted in the relevant range of the rate of profit. This new turn in the debates on the critique of capital theory has recently come under attack by Fabio Petri of the University of Siena. The present paper constitutes the reply. It deals with the methodological difference between a fundamental critique, which was primarily directed against the logic of the pure late 19th century neoclassical theory and one attacking the applied uses of that theory in the form of the macroeconomic production function. It asks why the valid criticisms of the neoclassical conception of capital as a homogeneous factor seem to have had a lesser impact than the reswitching argument. It discusses reswitching and reverse capital deepening as relevant but, as far as basic commodities are concerned, rare phenomena. It assesses the usefulness of empirical input-output research in this area, mentions some results and concludes with a reflection on the recent ‘zero-substitution’ proposition.