A Model for Exploring Manifestations of Capital-Theoretic 'Paradoxes' in Temporary Equilibria

Abstract

In the Cambridge Capital Controversy, critics associated with Cambridge, UK, attack the logical coherence of neoclassical theory and claim to outline an alternative approach to economics. The most prominent neoclassical economists responding to the controversy acknowledge that many models in the mainstream literature are problematic in theory. Neoclassical economists argue, however, the canonical neoclassical theory is best expressed in disaggregated short period General Equilibrium models of intertemporal and temporary equilibria. They claim belief in the logical consistency and coherence of these models is and should be unaffected by Cambridge criticism. Recently, a dispute has arisen whether capital-theoretic paradoxes reappear in these short period models, in a different form. This paper presents a short period, overlapping-generations General Equilibrium model for exploring these issues. Further work is needed to analyze this model in light of the capital controversy.

Keywords: Sraffian Economics, Dynamic Analysis, Input-Output Models, Factor Income Distribution, Input-Output Analysis, Intertemporal Choice, Capital Theory

JEL Classification: B51, C61, C67, D33, D57, D90, E22