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

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posted on 2023-06-08, 16:34 authored by Mike Osborne, Ian Davidson
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.

History

Publication status

  • Published

Presentation Type

  • paper

Event name

15th Conference of the Association for Heterodox Economics

Event location

London Metropolitan University

Event type

conference

Event date

4-6 July, 2013

Department affiliated with

  • Business and Management Publications

Full text available

  • Yes

Peer reviewed?

  • No

Legacy Posted Date

2014-01-06

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