This document summarizes a technical paper on the effect of technical progress on the distribution of income between capital and labor. It discusses the contributions of several economists including Hicks, Harrod, Robinson, Kaldor, Samuelson and Kennedy on this topic. It focuses on debates around the definitions of neutral technical change and concerns about maintaining stylized facts like constant capital/output ratios and profit rates. The document constructs a theoretical model to synthesize ideas from Kaldor and Kennedy about induced biased innovation and the possibility frontier between labor-saving and capital-saving technical progress.
The economic literature ever since the dawn of modern economics has been much preoccupied with the issue of economic growth Economic growth has also been understood to establish the conditions for economic development The better-known models of economic growth such as the Lewis, Rostow Harrod Domar Solow, and Romer growth models are discussed
Prof. Joan Robinson, criticised Neo Classical theory of capital and its concept of capital. Following in the Keynesian tradition, she extended Harrod's and Domar's growth models to include other variables that determine steady growth in a capitalist economy. However she states that the Golden Age is a myth, not achievable in reality.
The theory of Technical dualism is one of the theories of dualism. Professor Higgins has developed the theory of Technological Dualism. By this, he means: "The use of different production functions in the advance sector and in the traditional sectors of UDCs".
Neo classical general equilibrium theory which is based on Walrasian theory of general equilibrium 2*2*2 model and Marshallian graphical representation
Ramsey–Cass–Koopmans model and its application in EthiopiaMolla Derbe
Many economists have argued on macroeconomics words for several years in their school of
thoughts. Ramsey, the neoclassical economist, has not believed in the Solow model with some
terms. What makes his model differs from the Solow model is that it explicitly models the choice
of consumption at a point in time and so has made the savings rate endogenous. The Twentieth
first research in Ethiopia (Seid Nuru, 2012, p.6-7) found that the outcome of the optimization of
the dynamic model is that growth in the long-run depends on the rate of technological change
and rate of change of rainfall variability in terms of both amplitude and frequency.
The economic literature ever since the dawn of modern economics has been much preoccupied with the issue of economic growth Economic growth has also been understood to establish the conditions for economic development The better-known models of economic growth such as the Lewis, Rostow Harrod Domar Solow, and Romer growth models are discussed
Prof. Joan Robinson, criticised Neo Classical theory of capital and its concept of capital. Following in the Keynesian tradition, she extended Harrod's and Domar's growth models to include other variables that determine steady growth in a capitalist economy. However she states that the Golden Age is a myth, not achievable in reality.
The theory of Technical dualism is one of the theories of dualism. Professor Higgins has developed the theory of Technological Dualism. By this, he means: "The use of different production functions in the advance sector and in the traditional sectors of UDCs".
Neo classical general equilibrium theory which is based on Walrasian theory of general equilibrium 2*2*2 model and Marshallian graphical representation
Ramsey–Cass–Koopmans model and its application in EthiopiaMolla Derbe
Many economists have argued on macroeconomics words for several years in their school of
thoughts. Ramsey, the neoclassical economist, has not believed in the Solow model with some
terms. What makes his model differs from the Solow model is that it explicitly models the choice
of consumption at a point in time and so has made the savings rate endogenous. The Twentieth
first research in Ethiopia (Seid Nuru, 2012, p.6-7) found that the outcome of the optimization of
the dynamic model is that growth in the long-run depends on the rate of technological change
and rate of change of rainfall variability in terms of both amplitude and frequency.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
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Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
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The effect of technical progress upon distribution along Kaldor-Kennedy line
1. The effect of technical progress upon
distribution along Kaldor-Kennedy line
2. The effect of technical progress upon
distribution along Kaldor-Kennedy line
Up Sira Nukulkit
Email: sira.nukulkit@economics.utah.edu
Ph.D. student, University of Utah
M.A. in economics, University of Denver
B.S. in civil engineering,
Chulalongkorn University, Bangkok
I am Thai, a Bangkokian.
"Up" is my "given" name.
3. The effect of technical progress upon
distribution along Kaldor-Kennedy line
The classic question of "the effect of progress upon distribution"
Hicks, Harrod, Robinson, Kaldor, Samuelson and Kennedy.
A post-Keynesian history of thought behind the analysis
Focuses on Kennedy's writings and his suggestion along Kaldor-
Kennedy line.
inquiries on
elasticity of substitution between capital and labor
the equivalency of Hicks and Harrod neutral technical change
concerns over value and stylized facts.
A synthesis model constructed from intuitions behind the
debate.
JEL Classification: B22, O31, E12
4. Introduction: effect of progress upon
distribution
Charles Kennedy's paper "Induced Biased in
Innovation and the Theory of Distribution" (1964)
Paul Samuelson (1965) adopted the theory to comply
with economic stylized facts
Neoclassical method
Kennedy disapproved Samuelson's approach.
He had "hoped that the innovation-possibility frontier might be
able, so to speak, to swallow up the traditional production
function and replace it altogether" (1966, p.442)
There were histories behind this concept more
profound than Samuelson's adaptation.
5. Introduction: effect of progress upon
distribution
J. R. Hicks introduced "the effect of progress upon
distribution" to modern economics.
The Theory of Wage (1932, p.112)
New terminologies on invention and distribution
labor-saving, capital-saving, neutral inventions
Elasticity of substitution!!! Most importantly
Price substitution between capital and labor
The price of capital is its value or interest rate?
Hicks seemed to suggest it is interest rate.
Tendency of elasticity of substitution less than unity!!
Falling profit (interest) rate
6. Introduction: effect of progress upon
distribution
Joan Robinson followed through
Essays on the Theory of Employment (1937)
Harrod did not like her analysis on long run equilibrium
Robinson used Hicks' neoclassical terminologies
Harrod proposed an alternative definition
To categorize invention
Bypass difficulties on theory of value
Development of the concept of "neutral technical
progress"
7. Introduction: effect of progress upon
distribution
After twenty years
Kaldor introduced stylized facts (1957)
constancy on capital/output ratio, rate of profit, and
distributive share.
Neoclassical production function failed to produce these
results.
Kennedy's "innovation possibility frontier" (1964) follow
by Samuelson's adaptation (1965)
We have two concerns!!
Value…...Harrod neutral == Hicks neutral
Stylized facts……constant interest rate?
8. Technical progress and the value of
factors of production
Hicks coined the term "elasticity of substitution"
An increase one factor of production (i.e capital
accumulation, surplus labor )
increase the overall output
increase the absolute share of the factor and all other factors.
However, there was no criterion to look at relative share
"Elasticity of substitution" addressed the change in relative
share.
Neutral distribution
Elasticity of substitution is unity (equal to 1)
"the increase in one factor will raise the marginal product of all
other factors taken together in the same proportion as the total
product is raised" (p. 117).
But, marginal product is capital value or interest rate.
9. Technical progress and the value of
factors of production
Invention changes relative distribution share too.
More confusing because a labor, capital, or neutral
saving invention
saves the amount of input factor used in production.
increases in unequal amount of factors marginal product
Saving factor input≠ increase in marginal product
In contrast to each other
Furthermore, Hicks mentioned labor-saving invention
as dominance in the system.
Robinson and Harrod would argue on the same issue.
10. Technical progress and the value of
factors of production
Joan Robinson debate dwith Harrod on the definition of
neutral invention.
Hicks' neutral technical change
"thus if a neutral invention occurs in conjunction with an
elasticity of substitution equal to unity, the relative share of
labour is unchanged" (1937, p.133)
Harrod criticized her on the measurement of capital.
He suggested instead an alternative definition to characterize
invention that was more general.
"divide inventions into those at a given interest rate, and an
infinitely elastic supply of capital at that rate, increase, leave
unchanged or diminish the length of productive process"
(p.329).
Bypassed difficulties on value, and used length of productive
process as measurement for capital.
11. Technical progress and the value of
factors of production
Joan Robinson defended her position in a famous paper
"Classification of Invention"(1938).
She insisted on using Hicks' conceptual framework
indicated the compatibility of Hicks and Harrod's
frameworks
Kennedy came into the same conclusion as Robinson's 13
years later
Harrod neutral technical change was equivalent to Hicks
neutral technical change.
12. Technical progress and the value of
factors of production
Kennedy (1961) asked a question whether an investment was
needed for technical progress.
His first paper on technical progress
If investment was not needed, the volume of capital can be
exactly determined a priori before the effect of invention.
Adopted Robinson's classification and her concept of "real
capital"
A neutral invention implied a constant capital/output ratio.
Wage will increase, if relative share of distribution was
unchanged.
Furthermore, higher wage will increase the value of real capital
when multiply to wage unit.
We have a rise in the value of capital with a rise in wage that
leave interest rate constant, which was a definition of neutral
technical change
13. Technical progress and the value of
factors of production
Kennedy's multi sectors model(1962).
clarified the dichotomy on Hicks' characteristic of specific kind of
invention
the contrast between saving efficiency and an increase in marginal
product
specified invention to the investment sector.
An invention in capital producing sector will lower the cost of machine
leading to an increase on the number of machine per man.
more volume of capital will be used in the production, but aggregate real
capital was unchanged.
This will affect production in the economy as a whole triggering technical
progress that raised wage from labor productivity.
It went back to an increase in value of aggregate real capital when
multiply to wage.
Neutral technical progress
An increase in value applied to the whole economic system, while it was
specific in investment sector that had capital saving invention bias
14. Technical progress and the value of
factors of production
Kennedy proposed in his rejoinder (1962) to Harrod's
extended paper on neutral technical progress (1962)
Hicks neutral technical change and Harrod neutral
technical change were actually equivalent.
The issue is really complex on value and the characters
of invention.
Harrod denied to use labor as measure for capital
"to have labour measure. It implies that the average of
money rewards paid to workers never rises…Is it not a
little sadistic to seek to deprive men of this increment of
pleasure, for the sake of –what?—a mere academic
preference. (Harrod 1948, p.29)"
15. Technical progress and stylized facts
Harrod did not consider
that neutral technical progress explained a rise of labor
productivity and wage.
the empirical outcomes of this mechanism were implicit
in the analysis of Hicks, Harrod, and Robinson.
Kaldor (1957, 1961 Corfu) was explicit
attracted a bigger audience
constancies in distributive share, capital/output ratio, and
the rate of profit.
"technical progress function"
16. Technical progress and stylized facts
Kaldor (1957, 1961 Corfu)'s "technical progress function"
neoclassical production function "assumed to be a unique
relationship between capital and output, which conforms to the
general hypothesis of diminishing productivity, but this
relationship is constantly shifting with the passage of time"
(1961, p. 204).
the tangent of the production function to be maintained on the
same slope for every upward shift on production function by
technical progress
a circular determination of profit rate from the shift and the
move along production function.
"any sharp or clear-cut distinction between the movement
along a "production function" with a given state of knowledge,
and a shift in the "production function" caused by a change in
the state of knowledge is arbitrary and artificial" (1957, p. 959).
17. Technical progress and stylized facts
Kaldor (1957, 1961 Corfu)'s "technical progress function"
'technical progress function' which postulates a relationship
between the rate of increase of capital and the rate of increase
in output and which embodies the effect of constantly
improving knowledge and know-how, as well as the effect of
increasing capital per man, without any attempt to isolate the
one from the other." (1961, p. 207)
cut through the 45 degree line pinpointed the stable long run
equilibrium of the system, where the rate of accumulation
equal to rate of increase in output.
Integrated both a shift in the production function and a
movement along the production function into one postulate.
Kennedy criticized Kaldor's formulation
18. Technical progress and stylized facts
Kennedy criticized Kaldor's formulation
the capital/output ratio was assumed constant a prior.
Kaldor relied on adjustment assumptions of entrepreneur
investment behavior
Capital/output ratio adjusts through prospective on profit
rate
Kennedy pointed out to many weaknesses
should not use profit rate which supposed to be a long run
solution of the model.
an expectation behavior scheme was insufficient
behavior did not guarantee that invention will be labor-saving.
"Mr. Kaldor had already assumed what he was trying to
prove" (1962, p.910) constant capital/output ratio
19. Technical progress and stylized facts
Kennedy was hoping to retain some of Hicks' neoclassical
assumptions.
Kennedy chose not to use neoclassical factor price.
"changes in relative factor price are not essential for a theory of
induced biased in innovation" (1964, p. 542).
consider both factor price and volume of input factor as one
component of share on cost of production.
Economic system will choose bias in innovation that affected the
share specific to capital cost and labor cost separately.
However, "innovation possibility" frontier between labor-saving
innovation and capital-saving innovation was concave. Tradeoff
Adjustment to equilibrium depended on the choice between labor
and capital saving inventions that sustained the optimization on unit
cost.
"in the long run the equilibrium values of the distributive shares will
be determined by the characteristics of the purely technological
innovation possibility function" (1964, p.545).
With Hicks neutral technical change
20. Technical progress and stylized facts
Kennedy expanded his model to a multi-sectors model of
invention.
implicitly addressed complications on accumulation of capital
and factor price of capital.
If invention occurred in capital sector, there was an exogenous
shock that disturbed innovation possibility frontier of the
consumption sector on the increased volume of capital.
The system will adjust to optimize the reduction in unit cost on
labor and capital by focusing on endogenous labor-saving
invention
adjusted to Harrod neutral technical change with labor-saving
invention bias.
Kennedy made use of the equivalency of Hicks and Harrod
neutral technical change.
21. Technical progress and stylized facts
Samuelson (1965, 1966) adopted Kennedy's innovation
possibility frontier.
Samuelson insisted on using factor price derived from
production function.
neglected the complex structure of value from capital to
labor and did not consider the equivalency of Hicks and
Harrod neutral
Samuelson's factor share was determined in competitive
market outside of the model.
sharp contrast to Kennedy's endogenous determination of
factor share on innovation possibility frontier.
Factor price VS factor share
22. Technical progress and stylized facts
Samuelson still reached similar results to Kennedy.
If innovation possibility frontier was symmetric and factor
input ratio did not change (no accumulation)
Hicks neutral technical change and a strange equal
dividend of factor share (Kindleberger).
Samuelson would dropped this assumption on fixed
factor ratio and "replacing it by the more realistic
recognition that capital is 'deepening relative to labor'"
(1965, p. 348).
23. Technical progress and stylized facts
Capital deepening
If elasticity of substitution was less than unity, there was a
tendency for labor relative share to rise more than capital.
There had to be a bias on invention that offset diminishing
marginal productivity from accumulated capital.
only under Harrod neutral technical change with labor-saving
invention.
impossible to retain Hicks neutral technical change.
Interest rate had to rise to counter balance a fall in price of
capital to attain constant relative factor share.
interest rate became an endogenous variable.
"fail to account for one of the stylized facts of modern
development, namely that the interest or profit rates show no
clear trend upward or downward" (Samuelson 1965, p. 348)
24. Technical progress and stylized facts
Kennedy (1966) objected to Samuelson's used of production
function.
inter-correlations that would alter innovation possibility
frontier
Samuelson's capital accumulation was not superior to his
contingent to constant interest rate.
reconcile Samuelson's capital accumulation Kenndy previous
results
same mechanism of his two sectors one product model
the equality of capital deepening and labor augmentation
Capital deepening was already an endogenous result of
Kennedy multi sectors one product model.
Harrod neutral technical change was an endogenous result of
his model.
"in Kennedy's case, the Harrod-neutral result is not "supposed
to come about," it does come about" (1966, p.442).
25. A synthesis model along Kaldor-Kennedy
Concerns over value and stylized facts
This paper describes a theoretical puzzle of value and
stylized facts engaged by our Keynesian predecessor.
There were clues in those writings.
There are gaps in growth and distribution theory on
technical progress and stylized facts??
I would like to build a model based on this puzzle and
theoretical debates
How to get a 45 degree constant capital/output ratio?
What a synthesis model should be like?
Kennedy's optimization of concave invention possibility
frontier
Kaldor's prospective profit behavior on technical progress
function
26. A synthesis model along Kaldor-Kennedy
How to get a 45 degree constant capital/output ratio?
Kennedy's optimization of concave invention possibility frontier
Kaldor's prospective profit behavior on technical progress function
What a synthesis model should be like?
My very loose idea is on
Adjustment through value
Maintain full employment in parody of Jean Baptist Kaldor
Elasticity of substitution between capital and labor
Price of capital is interest(profit) rate
Invention this time did not save factor input. Invention can be
assumed implicit as increasing returns function?
Increasing returns
Sum up the movement and the shift of production function in one
postulate
27. A synthesis model along Kaldor-Kennedy
How to get a 45 degree constant capital/output ratio?
Elasticity of substitution between capital and labor
Invention can be assumed implicit as increasing returns
function?
28. A synthesis model along Kaldor-Kennedy
How to get a 45 degree constant capital/output ratio?
I still have to come up with a story…