Cambridge Capital Controversies

Discipline: Economics

Cambridge capital controversies refer to the debate between British and American economists concerning the neoclassical approach to economics. They were based at Cambridge University (England) and the Massachusetts Institute of Technology (Cambridge, USA), respectively.

The Modern School, particularly influenced by Alfred Marshall (1842-1924) and headed by the English economists Arthur Cecil Pigou (1877-1959) and John Maynard Keynes (1882-1946), refuted the microeconomic ideas of neo-classical economics; especially as seen in the work of the Americans Paul Samuelson (1915-2009) and Robert Solow (1924- ).

Emphasizing the macroeconomic approach, the English denied (among other things) the existence of a functional relationship between the rate of profit and the capital intensity of an economy, and demonstrated the possibility of capital re-switching. (That is, if it is possible when the rate of return falls for firms to switch to more capital intensive methods of production (thus increasing the rate of investment), it is also possible that under certain circumstances the rate of return will reach such a level that firm switch from more to less capial intensive methods of production.)

The Modern School also questioned the existence of an aggregate production function and the determination of savings and interest levels.

Also see: capital theory

G H C Harcourt, Some Cambridge Controversies Controversies in the Theory of Capital (Cambridge, 1972)


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