Wicksell Effects and Reswitchings of Technique in Capital Theory

The difficulties in traditional capital theory, which have recently given rise to the reswitching of technique debate, are traced back to Knut Wicksell’s analysis of capital accumulation and to his discussions with Gustaf Åkerman. Some of the later discussions on the “Wicksell effect” are reviewed. It is shown that the separation of price changes from physical changes—which was proposed by David Champernowne and Trevor Swan in a polemical argument with Joan Robinson—is not possible, in general. It is concluded that Wicksell’s original arguments were correct, although incomplete. When “by the last portion of capital is meant an increase in social capital”, then not only is the marginal productivity of capital unrelated to the rate of profit in any predictable way—as Wicksell pointed out; it no longer has any useful role to play.