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Wage rate of profit curves and technological change


In Chapter 3, we have argued that in the Cambridge capital controversies (CCC), the U.K. side of the debate prevailed by showing the presence of the reswitching of techniques and Samuelson (1966) from the U.S. side, in an act of intellectual honesty, admitted. The possibility of reswitching of techniques occurs when a capital-intensive technique is used at lower interest (profit) rates, in the intermediate interest rates is withdrawn in favor of a labor-intensive technique and, at much higher interest rates, the capital-intensive technique returns once again, rendering the idea of scarcity prices, the quintessence of neoclassical economics, under question. Samuelson, along with other neoclassical economists, argued that although the occurrence of reswitching cannot be excluded, however, in reality, must be rare and, therefore, it might take its place along with other paradoxical results of the neoclassical theory. For example, the Giffen paradox in microeconomics did not rule out the neoclassical “law of demand”, which maintains its status as the least disputed law in neoclassical economics. Very similar was the treatment of the so-called “Leontief paradox” (Leontief 1953; Paraskevopoulou et al. 2016), whose empirical Findings in international trade challenged the central premise of neoclassical economics and its theory of international trade epitomized in the Heckscher-Ohlin-Samuelson model. These findings and phenomena are considered exceptional, and for this reason, are characterized as paradoxes, and, by demoting their significance, the neoclassical theory continues to dominate.

In this chapter, we are dealing with the shape of the wage rate of profit (WRP) curves and their significance in economic theory. Our interest in the shape of the WRP curves stems from the need to derive positive, rather than negative, results that contribute to the advancement of the classical economic theory through the study of the structure of the economy and its change over time. In particular, we seek to enhance our understanding of the character of technological change and its overall effects on the economy. The remainder of the chapter is organized as follows. Section 5.2 begins with a survey of the first empirical studies concerning the WRP curves and their particular shapes. Section 5.3 explains the derivation and the different expressions of the WRP curves and applies them to a number of economies. Section

5.4 discusses issues related to the choice of the numeraire and examines the possible relationship of the various numeraires to the Sraffian standard commodity. Section 5.5 gives estimates of the WRP curves for 54 (actually 49) industries of the U.S. economy for the years 2007 and 2014 using both circulating and fixed capital models and expands the analysis by bringing to the fore the nature of technological change. Section 5.6 presents and critically evaluates similar analyses and results from more recent literature. Finally, Section 5.7 summarizes and makes some concluding remarks.

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