New Results in an Old Framework: Comment on Samuelson and Modigliani

The Author in this article replies to a paper written by Professor Samuelson and Professor Modigliani on the implications of the results which emerged from his 1962 article ("Rate of Profit and Income Distribution in relation to the Rate of Economic Growth", in The Review of Economic Studies, 1961-62, vol.29, pp.267-279.). Their paper has one unfortunate drawback: it was written with the aim of defending a specific theory. As such, the authors were compelled to fit the new results within the rigid constraints of a preconceived framework. The restrictive consequences of such an approach underlie all their attempts to generalize. One of Professors Samuelson and Modigliani's main preoccupations is with defending the theory of the marginal productivity of capital. As is well known, this theory relies on a series of assumptions, which have been the subject of wide disagreement among economists. Now, however, a new result has been reached. Whether one makes or does not make such assumptions, whether one believes in the existence of something called the "marginal productivity of capital", or not, the long run equilibrium rate of profit -with only one proviso- turns out to be determined according to the simple relation which is entirely independent of those assumptions. This result has come as such a surprise to Professors Samuelson and Modigliani that they have called it a "paradox” and stated that nonetheless, the marginal productivity theory is not " incompatible" in explaining the long run rate of profit by making the necessary assumptions that it requires. Thus, the rate of profit in the long run determines what the marginal productivity of capital is going to be. The Author finds these arguments unconvincing since marginal productivity is a concept, which was invented in order to explain the rate of profit.