Neglected implications of neoclassical capital-labour substitution for investment theory:another criticism of Say's Law

Fabio Petri (fabio.petri@unisi.it)

Department of Economics University of Siena from Department of Economics, University of Siena

Abstract: Neoclassical capital-labour substitution correctly understood is unable to prove a tendency toward the full employment of resources because it leaves investment indeterminate if the full employment of labour is not assumed to start with; then Say's Law loses plausibility because of the inevitable presence of accelerator-type influences on investment, even neglecting the inconsistencies of neoclassical capital theory; and wage decreases cause a decrease of investment, undermining the 'neoclassical synthesis' criticism of Keynes. The way a negatively interest-elastic investment function is obtained by Romer without assuming the full employment of labour, that is through adjustment costs, relies on several grave mistakes. The recent DSGE models which directly assume that investment equals savings are not supported by general equilibrium theory because the latter theory is admitted by the specialists not to be a positive theory, nor can those models rely on the neoclassical synthesis or monetarism because of the critique of this paper (besides the capital critique), so they must be discarded too.

JEL-codes: B5 E2 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-dge, nep-hme, nep-hpe and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://repec.deps.unisi.it/quaderni/687.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:687

Access Statistics for this paper

More papers in Department of Economics University of Siena from Department of Economics, University of Siena Contact information at EDIRC.
Bibliographic data for series maintained by Fabrizio Becatti (fabrizio.becatti@unisi.it).