by The definition and treatment of capital is an important issue that arises quickly when discussing neoclassical approaches to the business cycle. In particular, one can rapidly fall down the rabbit hole of the Cambridge Capital Controversies. However, if the objective is to focus on what is important for understanding the business cycle, we see that capital is hard to easily model, and this is related to the opacity of business cycle analysis.Heterodox economists put great weight on the Cambridge Capital Controversies. They argue that neoclassicals do understand the implications, which call into question the internal consistency of neoclassical theory. For example, see "What Even Famous Mainstream Economists Miss About the Cambridge Capital Controversies," by Marc Lavoie and Mario
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The definition and treatment of capital is an important issue that arises quickly when discussing neoclassical approaches to the business cycle. In particular, one can rapidly fall down the rabbit hole of the Cambridge Capital Controversies. However, if the objective is to focus on what is important for understanding the business cycle, we see that capital is hard to easily model, and this is related to the opacity of business cycle analysis.Bond EconomicsHeterodox economists put great weight on the Cambridge Capital Controversies. They argue that neoclassicals do understand the implications, which call into question the internal consistency of neoclassical theory. For example, see "What Even Famous Mainstream Economists Miss About the Cambridge Capital Controversies," by Marc Lavoie and Mario Seccareccia. My argument is that the debate is complex because it is in reference to the internal consistency of neoclassical macroeconomics. However, if one takes the viewpoint that neoclassical economics is only useful if it has applications in the real world, there is no need to be derailed by worrying about its internal consistency. The problem with the neoclassical approach is that it is starting from a bad place to make the theory understandable....
Brian Romanchuk