Research

A Century of Capital Controversy: Scarcity, Production, Equilibrium and Time from Böhm-Bawerk to Bliss

Capital theory is a subject infamous for the continuous recurrence of controversy. The Cambridge controversies were the last of three great capital theory controversies of the twentieth century. Earlier controversies transpired at the turn of the century between Eugene von Böhm-Bawerk, J.B. Clark, Irving Fisher, and Thorstein Veblen, and then in the 1930s between Frank Knight, Friedrich von Hayek and Nicholas Kaldor. In the midst of the Cambridge controversies, Robert Solow, noting similarities with the earlier controversies, wrote that “when a theoretical question remains debatable after 80 years there is a presumption that the question is badly posed – or very deep indeed.” Solow defended the “badly posed” answer and today’s dominant assessment of the controversies is similarly dismissive.

In providing the first detailed histories of the earlier controversies, my research agenda challenges the dominant assessment and instead argues that the questions posed in the Cambridge, as well as the two previous capital theory controversies, remain unresolved and are “very deep indeed.” Christopher Bliss is exactly right when, in concluding his 1975 book views “the theory of capital not as some quite separate section of economic theory, only tenuously related to the rest, but rather as an extension of equilibrium theory and production theory to take into account the role of time.”

The main theoretical contribution of my historical research is to uncover and unify the major issues that were at stake in the century of capital controversy — questions of integrating production into the scarcity theory of value, the limitations of equilibrium tools, the lack of robustness of the heuristically powerful insights of one-commodity models, and differing visions of economics with conflicting explanations (and ethical justifications) of the return to capital. These questions and issues are relevant to modern economists not merely because they are unresolved, but because they concern the limitations of current theoretical models as well as connections between ideology and “positive” economics that are much closer than most care to admit.

These deep issues will never be definitively resolved – economists will not reach agreement on the theory of capital. Economics as a discipline will be better off, though, by understanding and explicitly facing the issues rather than dismissing them as long dead and buried. While many key Cambridge, England combatants in the last controversy stopped asking questions because they died, the questions and issues have not been resolved, only buried deeper. When economists decide to delve again, I predict controversies over these questions will resurface, just as they did time and again in the 80 years prior to the Cambridge controversies.