We found a match
Your institution may have rights to this item. Sign in to continue.
- Title
Heterogeneous Capital, the Production Function and the Theory of Distribution.
- Authors
Garegnani, P.
- Abstract
We shall begin by discussing a defence of traditional theory put forward by Samuelson [16] and claiming that in some cases heterogeneous capital goods can be reduced to quantities of a homogeneous "capital", the marginal product of which equals the rate of interest: this, Samuelson thought, would display the corresponding version of traditional theory as a useful "parable" giving "insights into the fundamentals of interest theory". Sections I and II of this paper will therefore examine the relations between the wage, the rate of interest and the product per worker in the two-commodity economy—with only a consumption good and a capital good—which Samuelson used for his argument. Section III will then show that a production function giving the interest rate as the marginal product of capital is compatible with these relations if, and only if, the conditions of production of the capital good are always identical with those of the consumption good: an hypothesis which turns the original "heterogeneous capital model" into one where capital, besides being homogeneous and hence measurable in physical terms, is also homogeneous with the consumption good. In Section IV, the results reached that far will be generalized from Samuelson's two commodity economy to one where any number of commodities are produced. In that more general setting, Sections V and VI will consider how the discussion in the earlier Sections bears on various formulations of traditional theory. Attention will be focussed on the idea that in a competitive economy wages and interest are governed by the demand and supply for "capital" and labour, the core of traditional theory in all its versions. The fact that "capital intensity" in the economy need not increase as the rate of interest falls (the wage rises), undermines, it will be argued, the explanation of distribution in those terms. In the Appendix, these negative conclusions will be illustrated by numerical examples showing how far the relations between the rate of interest, the wage, the value of capital and the physical product per worker may differ from what received theory claims. The final pages of Section VI will then consider some of the problems which arise when that explanation of value and distribution is abandoned. In this connection, we shall refer to the different approach used by the Classical economists up to Ricardo.
- Subjects
CAPITAL; PRODUCTION functions (Economic theory); DISTRIBUTION (Economic theory); PRODUCTION (Economic theory); INTEREST rates; MICROECONOMICS; WAGES; SUPPLY &; demand; INDUSTRIAL costs
- Publication
Review of Economic Studies, 1970, Vol 37, Issue 3, p407
- ISSN
0034-6527
- Publication type
Article
- DOI
10.2307/2296729