PODCAST: Hexapodia XII: Þe Cambridge Capital Controversy
By Noah Smith & Brad DeLong: Joan Robinson to Bob Solow: "I would not be unkind if you would not be pig-headed..."
Key Insights:
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Getting the rate of profit—the sums that are charged businesses for renting machines and renting space, and for access to the generalized social power to deploy resources that is finance—right is a very, very important thing to do. Why? Because the market economy is a complicated institutional calculating machine for determining how to promote societal wellbeing. It cannot do its job if it cannot see the the constraints imposed on us by nature and current technology. And having the market get the profit rate right is a very important part of that. To say “it’s all ideology” or “it’s all power” or “it’s all distribution” and go the full Sraffa production-of-commodities-by-means-of-commodities is to miss a truly powerful, relevant, and important insight. That’s the strongest statement of what the Cambridge, Massachusetts-MIT side was really getting at—or ought to have been getting at, although they phrased it badly and inaccurately.
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If we attempt to use toy mathematical models applied to macro aggregates to say anything quantitative about whether business owners are getting paid “too much” or “too little”, we will fail embarrassingly. Therefore we should never use toy models to do that.
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To say that the market-equilibrium profit rate is the optimal one from the perspective of societal well-being is to commit the pseudo-pharisaical mistake of reversing the order of importance. Rather, recognize: the market was made for man, not man for the market.
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The particular language in which the economists of the 1960s carried out this debate was extremely poorly suited to shed light. They cared deeply, they wrote angrily, and most of what they wrote was drivel. So: whenever you are having a discussion, if you want to learn or teach anything, first do this: try hard to figure out what issues really are, and then try hard to figure out what is the right language to talk about these issues.
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As always, the key insight is: “Hexapodia”.
<https://braddelong.substack.com/p/podcast-hexapodia-xii-the-cambridge>
