The Cambridge controversies in the theory of capital: contributions from the complex plane

Osborne, Michael and Davidson, Ian (2013) The Cambridge controversies in the theory of capital: contributions from the complex plane. In: 15th Conference of the Association for Heterodox Economics, 4-6 July, 2013, London Metropolitan University.

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Abstract

A controversy in capital theory concerns reswitching. When two production techniques are compared, reswitching occurs when one technique is cheapest at low interest rates, switches to being more expensive at higher rates, and then reswitches to being cheapest at yet higher rates. Some believe this inconsistency undermines neoclassical economics. The time-value-of-money (TVM) equation is at the core of the puzzle. The equation is a polynomial having n roots, implying n interest rates. In most analyses, including reswitching, one interest rate is used and the remaining rates are ignored. This analysis demonstrates that every TVM equation has a ‘dual’ form employing all interest rates. The dual of the reswitching equation explains the puzzle.

Item Type: Conference or Workshop Item (Paper)
Schools and Departments: School of Business, Management and Economics > Business and Management
Subjects: H Social Sciences > HB Economic theory. Demography > HB0131 Methodology > HB0135 Mathematical economics. Quantitative methods Including econometrics, input-output analysis, game theory
H Social Sciences > HB Economic theory. Demography > HB0501 Capital. Capitalism
H Social Sciences > HB Economic theory. Demography > HB0522 Income. Factor shares > HB0535 Interest
H Social Sciences > HB Economic theory. Demography > HB0522 Income. Factor shares > HB0601 Profit
Depositing User: Michael Osborne
Date Deposited: 06 Jan 2014 08:50
Last Modified: 21 Oct 2014 13:24
URI: http://sro.sussex.ac.uk/id/eprint/47297

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