In 2003 Avi Cohen and G. C. Harcourt wrote a retrospective about the Cambridge capital controversy. American economists like to forget about these capital theory controversies that took place from the 1950s through the 1970s. They're probably a big deal because they call into question the entire theoretical framework we teach ourselves.
"Did the Cambridge controversies identify "sloppy habits of thought" that have been handed down to yet another generation, or were they a teapot tempest of concern now only to historians of economics? In this article, our aim is to put into perspective what was at stake and to argue that the controversies were but the latest in a series of still-unresolved controversies over three deep issues. The first is the meaning and, as a corollary, the measurement of the concept of capital in the analysis of industrial capitalist societies. The second is Joan Robinson's complaint that equilibrium was not the outcome of an economic process and therefore an inadequate tool for analyzing processes of capital accumulation and growth. The third issue is the role of ideology and vision in fuelling controversy when the results of simple models are not robust."
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"While neoclassical economics envisions the lifetime utility-maximizing consumption decisions of individuals as the driving force of economic activity, with the allocation of given, scarce resources as the fundamental economic problem, the "English" Cantabrigians argue for a return to a classical political economy vision. There, profit-making decisions of capitalist firms are the driving force, with the fundamental economic problem being the allocation of surplus output to ensure reproduction and growth (Walsh and Gram, 1980). Because individuals depend on the market for their livelihoods, social class (their position within the division of labor) becomes the fundamental unit of analysis. The potential rate of profits on capital arises from differing power and social relationships in production, and the realization of profits is brought about by effective demand associated with saving and spending behaviors of the different classes and the "animal spirits" of capitalists. The rate of profits is thus an outcome of the accumulation process. Robinson argued--citing Veblen (1908) and raising the specter of Marx--that the meaning of capital lay in the property owned by the capitalist class, which confers on capitalists the legal right and economic authority to take a share of the surplus created by the production process [sounds like Pistor's The Code of Capital]."
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"The Cambridge controversies were the last of three great twentieth-century capital theory controversies. Earlier controversies occurred at the turn of that century among Böhm-Bawerk, J. B. Clark, Irving Fisher and Veblen and then in the 1930s among Knight, Hayek and Kaldor...
"At the turn of the century, J. B. Clark and Böhm-Bawerk were consciously countering Marx's theory that the return to capital involved exploitation of labor. Clark's response, that wages and interest were simply prices stemming from the respective marginal products of labor and capital, is best expressed in his famous claim that "what a social class gets is, under natural law, what it contributes to the general output of industry" (Clark, 1891, p. 312). Veblen disputed Clark's marginal productivity theory, arguing instead that profit was institutionally grounded in the social power of the capitalists that enabled them to appropriate the technological achievements of the society as a whole. Irving Fisher (1907) believed that the interest rate could be viewed as the equilibrium outcome of simultaneous equations. Böhm-Bawerk ... sought a one-way explanation tracing interest determination back to the original physical factors of labor and land."
Clearly the Brits and Veblen talking the most sense here.
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