Cambridge Capital Controversy - Conclusion

Conclusion

Part of the problem in this debate revolved around the high level of abstraction and idealization that occurs in economic model-building on topics such as capital and economic growth. The original neoclassical models of aggregate growth presented by Robert Solow and Trevor Swan were straightforward, with simple results and uncomplicated conclusions which implied predictions about the real, empirical, world. The followers of Robinson and Sraffa argued that more sophisticated and complicated mathematical models implied that for the Solow-Swan model to say anything about the world, crucial unrealistic assumptions (that Solow and Swan had ignored) must be true.

To choose an example that did not get much attention in the debate (because it was shared by both sides), the Solow-Swan model assumes a continuously-attained equilibrium with 'full employment' of all resources. Contrary to Keynesian economics, saving determines investment in these models (rather than vice-versa). The fact that the critique was also stated entirely using exactly the same kind of unrealistic assumptions meant that it was very difficult to do anything but 'criticize' Solow and Swan. That is, Sraffian models were explicitly divorced from empirical reality. And, as is very common in debates, it was much easier to destroy neoclassical theory than to develop a full-scale alternative that can help us understand the world.

In short, the progress produced by the Cambridge Controversy was from the unrealistic reliance on unstated or unknown assumptions to a clear consciousness about the need to make such assumptions. But this left the Sraffians in a situation where the unreal assumptions prevented most empirical applications, along with further developments of the theory. Thus it is not surprising that Bliss asks: "what new idea has come out of Anglo-Italian thinking in the past 20 years?"

Even though Sraffa, Robinson, and others had argued that its foundations were unfounded, the Solow-Swan growth model based on a single-valued aggregate stock of capital goods has remained a centerpiece of neoclassical macroeconomics and growth theory It is also the basis for the "new growth theory." In some cases, the use of an aggregate production function is justified with an appeal to a instrumentalist methodology and a need for simplicity in empirical work.

Neoclassical theorists, such as Bliss, (quoted above) have generally accepted the "Anglo-Italian" critique of the simple neoclassical model and have moved on, applying the 'more general' political-economic vision of neoclassical economics to new questions. Some theorists, such as Bliss, Edwin Burmeister, and Frank Hahn, argued that rigorous neoclassical theory is most appropriately set forth in terms of microeconomics and intertemporal general equilibrium models.

The critics, such as Pierangelo Garegnani (2008), Fabio Petri (2009), and Bertram Schefold (2005), have repeatedly argued that such models are not empirically applicable and that, in any case, the capital-theoretical problems reappear in such models in a different form. The abstract nature of such models has made it more difficult to clearly reveal such problems in as clear a form as they appear in long-period models.

Since Samuelson had been one of the main neoclassical defenders of the idea that heterogeneous capital could be treated as a single capital good, his article (discussed above) conclusively showed that results from simplified models with one capital good do not necessarily hold in more general models. He thus mostly uses multi-sectoral models of the Leontief-Sraffian tradition instead of the neoclassical aggregate model.

Most often, neoclassicals simply ignore the controversy, while many do not even know about it. Indeed, the vast majority of economics graduate schools in the United States do not teach their students about it:

"It is important, for the record, to recognize that key participants in the debate openly admitted their mistakes. Samuelson's seventh edition of Economics was purged of errors. Levhari and Samuelson published a paper which began, 'We wish to make it clear for the record that the nonreswitching theorem associated with us is definitely false. We are grateful to Dr. Pasinetti...' (Levhari and Samuelson 1966). Leland Yeager and I jointly published a note acknowledging his earlier error and attempting to resolve the conflict between our theoretical perspectives. (Burmeister and Yeager, 1978). However, the damage had been done, and Cambridge, UK, 'declared victory': Levhari was wrong, Samuelson was wrong, Solow was wrong, MIT was wrong and therefore neoclassical economics was wrong. As a result there are some groups of economists who have abandoned neoclassical economics for their own refinements of classical economics. In the United States, on the other hand, mainstream economics goes on as if the controversy had never occurred. Macroeconomics textbooks discuss 'capital' as if it were a well-defined concept — which it is not, except in a very special one-capital-good world (or under other unrealistically restrictive conditions). The problems of heterogeneous capital goods have also been ignored in the 'rational expectations revolution' and in virtually all econometric work." (Burmeister 2000)