Do Linear Wage-Profit Equations Support Neoclassical Theory?

Abstract

Abstract Empirical investigations have found relatively few cases of reswitching or capital reversal, but many more instances than expected of what look like Neo-Classical relationships, leading some eagerly to Affirm the Consequent, and call for restoration of the good old stories. This is unwarranted. A necessarily brief and incomplete account of recent work in the theory of money and credit shows that these seemingly neoclassical relationships may have a completely different origin and meaning. They are part of the structure and institutions, including markets, that support the circulation of money and credit, and the neoclassical appearance in particulars arises from the relation between r and g, properly adjusted. It has little or nothing to do with the flawed ‘Choice of Technique’ or with the stories of ‘substitution’ between labour and capital.