[OPE-L:2868] Re: Value of LP // Real Wage

Patrick Maso (Patrick.L.Mason.20@nd.edu)
Mon, 26 Aug 1996 17:11:19 -0700 (PDT)

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John E. wrote:

>>> 1. If rising real wages cause capitalists to introduce
>>> labor-saving and capital-using technologies, will
>>> falling real wages give them cause to switch back
>>> to the old techniques? Are there examples of this?

Then Duncan responded:
>>I think this is an extremely important question. It is at the heart of the
>>debate over the neoclassical production function vs a Cambridge
>>fixed-coefficients approach with technical change, since the neoclassicals
>>presumably believe that falling real wages would take one back along the
>>isoquant, whereas the Cambridge view would disagree.

Then Jerry wroite:
>Duncan is right the question is important. It has been awhile since the
>"Cambridge controversy" surfaced. Are there any empirical studies of the
>question? Does not the traditional Marxist approach to the notion of
>technical change correspond to that of neoclassicals?

I've never seen any participant in the Cambridge debate suggest that they
were arguing an empirical issue or even that they were arguing empirically
provable issues. Rather, (I've always thought) the debate was over the
logical consistency of the marginalist presentation of neoclassical
economics (as opposed to the general equilibrium model).

Wage rates have been stagnate or declining in the U.S. since 1973. If
technical change is predominately a reflection of relative factor prices, we
should have seen declining capital labor ratios during 1973-1996. That
hasn't happenned.

A useful outcome of the cambridge debate was that because of the
possibilities of reswitching and reverse capital deepening, it is logically
impossible to establish a positive monotonic function such that K/L =
f(w/r). Doesn't this alert us to look elsewhere regarding the incentives for
technical change?

peace, pat mason