[OPE-L:2880] Re: Value of LP // Real Wage

Gil Skillman (gskillman@wesleyan.edu)
Tue, 27 Aug 1996 12:03:13 -0700 (PDT)

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With respect to this exchange between John and Duncan:

>On Mon, 26 Aug 1996, John Ernst wrote:
>(in part)
>> 1. If rising real wages cause capitalists to introduce
>> labor-saving and capital-using technologies, will
>> falling real wages give them cause to switch back
>> to the old techniques? Are there examples of this?
>I think this is an extremely important question. It is at the heart of the
>debate over the neoclassical production function vs a Cambridge
>fixed-coefficients approach with technical change, since the neoclassicals
>presumably believe that falling real wages would take one back along the
>isoquant, whereas the Cambridge view would disagree.

There is more here than meets the eye. Specifically, even if one can
concoct a plausible microanalytic story with respect to the invariance of
the value of labor power to capital-using, labor saving technical change (no
small task in itself, although there is at least one plausible argument),
the falling rate of profit follows unambiguously only as part as a "very
long run" (i.e., technical innovation) rather than "long run" (i.e.,
substitution along an isoquant) story. [[Details can be found in my
upcoming Metroeconomica piece.]]

Second, a question. Duncan, do you think that English Cambridge must
necessarily deny the principle of factor substitution in production (in the
absence of technical change)? If so, how could they?