Friday, May 16, 2014

Vernengo versus Murphy on the Cambridge Capital Controversies

An interesting post here from Matias Vernengo criticising Robert Murphy’s Austrian view of the Cambridge Capital Controversies in the content of discussion of Piketty:
Matias Vernengo, “Robert Murphy, the Austrian theory of the rate of interest and Piketty’s ‘Capital,’” Naked Keynesianism, May 15, 2014.


  1. I really think this is the wrong direction to take when discussing the natural rate of interest. The General Theory, properly read, was basically concerned with overthrowing the natural rate. We don't have to go into all that overly abstract capital controversies stuff. We can be far more grounded and realistic, See:

  2. One attacks mainstream economic versions of capital in part to obliterate marginal productivity based theories of income distribution, and replace this ideological obfuscation with the real underlying power dynamics. It cuts the legitimization function of mainstream theory at a carotid artery. So I would disagree about ditching capital controversies. Cambridge Mass. lost. It is important. They way you can tell it is important is because the mainstream subsequently tried to forget and erase the whole debate. Cover up efforts of this sort are usually are saved for things that really do matter. Not sure who the arbiter of a a proper reading of the General Theory might be, but overthrowing mainstream economic theories of interest rate determination is only one part of the larger project of Keynes in that book, which as he states up front, was to present a theory of aggregate income, output, and employment which he believed was missing (Chapter 2, pp. 4-5). Interest rates were a distributive variable, determining the mix of spending and output between investment and consumption. Aggregate output and income/expenditure flows in any period were determined by the profit maximization requirement, real wages = marginal productivity of labor. Keynes demolishes by making investment a determinant of income/output, separating interest rates and mec, making interest rates and mec schedules a determinant of investment, and making, a la Chapter 12, the mec schedule inherently unstable given the decision making dynamics of business managers and investors/creditors under conditions of fundamental uncertainty. Attacking the natural rate theory is but a very small piece of his work in the GT, hence its rather brief mention in the book.

  3. LK,

    I think this post will interest you: