The Unpalatability of the Reswitching of Techniques - A comment on Burmeister, Krelle, Nuti and von Weizsäcker" and "The 'Unobtrusive Postulate' of Neoclassical Economic Theory - A Rejoinder to Professor Burmeister"

In 1977 the Revue d’Économie Politique published a special issue on Capital Theory where many articles were dedicated to supporting or criticizing the concept of the return to the reswitching of techniques. The Author published an article in the Special Issue ("Le choix des techniques et les théories du capital, des prix et de la répartition du revenu", in Revue d'èconomie politique, vol.87, pp.244-281.) and felt that the criticisms made by Burmeister, Krelle, Nuti and von Weiszäcker in the Special Issue needed to be addressed. The 1979 article addresses the criticisms made by each of the authors mentioned and is followed by a rebuttal by those authors. Reminder: the Capital Theory Controversy took place In the 1960s-70s. In broad terms, the controversy unfolded between the two Cambridges – one in the United Kingdom and the other in the United States (Massachusetts) – though it also involved economists of other nationalities. The American economists (the most renown of whom was Samuelson) claimed that there exists a way – also within linear models – to build a neoclassical, aggregate (Samuelson called it ‘surrogate’) production function, in other words, a function that gives rise to an inverse monotonic relation (in income distribution) between the rate of profit and capital intensity (as was always claimed by the traditional neoclassical theory). Sraffa had in the meantime published his famous book Production of Commodities by Means of Commodities, which discussed, to everyone’s surprise, the ‘return of previously discarded techniques’, on the scale of variation of the distribution of income between wages and profits. It was not clear at the beginning how all this was relevant to capital theory, until in 1965 a PhD student of Samuelson’s, David Levhari (from Israel), published an article in the Quarterly Journal of Economics where he claimed to have proved that a ‘return to previously discarded techniques’ in linear formulations is impossible. There followed a long discussion on this topic that involved many economists on both sides of the Atlantic (a discussion too long to refer here). At any rate, among all the economists, LLP was the first to demonstrate that the supposed proof by Levhari-Samuelson on the ‘non-switching of techniques’ – as it came to be called – contained an analytical error. By overall consensus, Sraffa’s results were thereby confirmed.