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{{Infobox economist
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|name = Luigi L. Pasinetti
|birth_date      = {{Birth date and age|1930|9|12|df=yes}}
|birth_place      = [[Zanica]], [[Kingdom of Italy (1861–1946)|Italy]]
|death_date      =
|death_place      =
|color = darkorange
|image = Luigi L. Pasinetti.png
|image_size = 225px
|nationality = [[Italian people|Italian]]
|field = [[Economics]]
|school_tradition = [[Post-Keynesian economics]]
|alma_mater = Università Cattolica Milano, [[University of Cambridge]].
|contributions =  [[Economic growth]], [[Theory of value (economics)|Theory of value]], [[Mathematical formulation of the Ricardian system]], [[Pasinetti's Theorem]], [[Vertically integrated sectors]], [[Structural change]].
|influences = [[Adam Smith]], [[David Ricardo]], [[Karl Marx]], [[Knut Wicksell]], [[John Maynard Keynes]], [[Michal Kalecki]], [[Richard M. Goodwin|Richard Goodwin]], [[Piero Sraffa]], [[Nicholas Kaldor]], [[Joan Robinson]], [[Richard Kahn, Baron Kahn|Richard Kahn]].
|influenced = [[Nicholas Kaldor]], [[Joan Robinson]], [[Richard Kahn, Baron Kahn|Richard Kahn]], [[Paul Samuelson]], [[Amit Bhaduri]], [[Lance Taylor]], [[Ian Steedman]], [[Heinz Kurz]], [[Neri Salvadori]], [[Duncan Foley]], [[Marc Lavoie]].
|editorial_duties = [[Cambridge Journal of Economics]], [[Journal of Post Keynesian Economics]], [[Kyklos]], [[Structural Change and Economic Dynamics]].
|opposed = [[Neoclassical economics|Neoclassical Economists]]
|institution = Emeritus Professor at the [[Università Cattolica del Sacro Cuore|Università Cattolica Milano]].
|school_tradition = [[Post-Keynesian economics]]
}}


'''Luigi L. Pasinetti''' (born September 12, 1930) is an [[Italy|Italian]] [[economist]] of the [[Post-Keynesian economics|Post-Keynesians]] school. Pasinetti is considered the heir of the "[[University of Cambridge|Cambridge Keynesians]]" and a student of [[Piero Sraffa]] and [[Richard Kahn, Baron Kahn|Richard Kahn]]. Along with them, as well as [[Joan Robinson]], he was one of the prominent members on the "Cambridge, UK" side of the [[Cambridge capital controversy]]. His contributions to [[economics]] include developing the analytical foundations of [[Neo-Ricardianism|Neo-Ricardian economics]], including the [[Theory of value (economics)|theory of value]] and [[Distribution (economics)|distribution]], as well as work in the line of [[Kaldor's growth laws|Kaldorian theory of growth]] and income distribution. He has also developed the theory of [[structural change]] and economic growth, structural economic dynamics and uneven sectoral development.
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==Biography==
Luigi Lodovico Pasinetti was born on September 12, 1930, in [[Zanica]], near [[Bergamo]], in the north of [[Italy]]. He began his economics studies at [[Milan]]'s [[Università Cattolica del Sacro Cuore|Università Cattolica]], where he obtained his “[[laurea]]” degree in 1954. The thesis that he presented dealt with [[Econometrics|econometric models]] applied to the analysis of the [[business cycle|trade cycle]]. As a brilliant student, he won several scholarships for graduate studies which gained him access to [[University of Cambridge]], [[England]] (1956 and 1958), [[Harvard University]], [[USA]] (1957) and [[University of Oxford|Oxford University]], England (1959) for his graduate studies. In 1960 Oxford's [[Nuffield College, Oxford|Nuffield College]] granted him a Research Fellowship that he enjoyed until 1962, the year in which he left the University for Cambridge, called there by the prestigious economist [[Richard Kahn, Baron Kahn|Lord Richard Kahn]].
In those years,
 
{{cquote|“When Luigi Pasinetti arrived in Cambridge as a research student, it was the proud citadel from which Keynesian economics had conquered the world. Cambridge economics was alive and well in the hands of Keynes’s successors. [[Joan Robinson]] and [[Nicholas Kaldor]] were producing a steady stream of original and provocative ideas. Less visible to the outside world, [[Richard Kahn, Baron Kahn|Richard Kahn]] and [[Piero Sraffa]] were equally important among the Cambridge Keynesians. The University of Cambridge was the one European center able to maintain genuine intellectual independence and to exert considerable worldwide influence against the growing dominance of American economics. The young Italian student became in time one of the foremost Cambridge economists of his generation.”<ref>Leijonhufvud, 2007,  p.1.</ref> |4=[[Axel Leijonhufvud|A.Leijonhufvud]]}}
 
Years later, Pasinetti, remembering [[Richard Kahn, Baron Kahn|Kahn]] in a Memorial Service held at [[King's College, Cambridge|King's College]] Chapel, University of Cambridge on 21 October 1989, recalled that:
 
{{cquote|“This is the third time, over a short span of years, that the Congregation assembles in this Chapel to commemorate, and reflect upon, the life of a major contributor to that intellectual breakthrough that has become known in the world of economics and politics as “[[Keynesian revolution|the Keynesian Revolution]]”. ... If one adds that another memorial service, shortly after that of [[Joan Robinson]], was held in Cambridge, though in another Chapel, for yet another close associate of [[John Maynard Keynes|Keynes]], [[Piero Sraffa]], one cannot resist the impression that today’s ceremony concludes a whole historical phase, almost an era, in the recent history of economic thought. This group of Cambridge economists had been the protagonist of one of those extraordinary and unique events in the history of ideas that decisively pushed knowledge ahead and created a break with the past.”<ref>Arestis, P.; Sawyer, M., 2000,  pp.477-478.</ref> |4= L. Pasinetti}}
 
[[Richard M. Goodwin|Richard Goodwin]] was also part of this brilliant group of [[University of Cambridge|Cambridge]] economists, and exerted the first important influence on Pasinetti. In conveying the intellectual debt he owed him, Pasinetti writes:
 
{{cquote|“For me, the death of [[Richard M. Goodwin|Dick Goodwin]] was a painful experience of mixed sorrow, sadness and regret. He was my first teacher in [[University of Cambridge|Cambridge]]. When, in October 1956, I arrived as a foreign research student almost ignorant of [[economics]] (and of English), innocent of all that had been going on, I noticed Joan Robinson’s newly published book, The Accumulation of Capital, prominently on display in the bookshop windows. [...] He set me the task of reading, and reporting on, Knut Wicksell’s Lectures, where he (rightly) thought the antecedents would be found. [...] Part of those interchanges between [[Richard M. Goodwin|Dick Goodwin]] and me found expression much later in the papers that we (separately) presented at the Frostavallen Wicksell symposium (1977).”<ref>Pasinetti, 2007,  p.206.</ref> |4= L. Pasinetti}}
 
In 1960-1961 Pasinetti became a [[Fellow]] of [[King's College, Cambridge|King's College]]. Twelve years later in 1973, he was appointed Reader at the [[University of Cambridge|Cambridge]], a post that he kept until his return to the Università Cattolica Milano in 1976. In March 1963 he was awarded his doctorate degree from [[University of Cambridge|Cambridge University]] with a Ph. Dissertation on "A Multi-sector Model of Economic Growth." This thesis was the core of what came to be in 1981 one of his most complete books, ''Structural Change and Economic Growth''. In 1964 he was appointed Professor of [[Econometrics]] at the Università Cattolica and in 1981 full Professor of Economic Analysis. Trips between Cambridge and Milan were very frequent during this period. In 1971 and 1975 he was appointed Visiting Research Professor at [[Columbia University]] as well as in 1979 at the [[Indian Statistical Institute]] in [[Calcutta]] and the [[Delhi School of Economics]].
 
[[Image:Chiostro Unicatt.jpg|left|315px|thumb|The [[Università Cattolica del Sacro Cuore|Università Cattolica Milano]] was the university where Pasinetti spent most of his academic life.]]
 
Back at his ''Alma Mater'', Università Cattolica Milano, he was appointed Chairman of the Faculty of Economics from 1980 to 1983, Director of the Department of Economics (1983–1986) and later Director of the Joint Economics Doctoral Program (comprising three Milanese Universities: [[Università Cattolica]], [[Bocconi University]] and [[University of Milan]]) from 1984–86 and again from 1995-98.
 
The list of academic distinctions and honours he has received till now is long. The most prominent ones are: St. Vincent prize for economics (1979), President of the ''Società Italiana degli Economisti'' (1986–89), President of the ''European Society for the History of Economic Thought'' (1995–1997), Member of the ''Executive Committee of the International Economic Association'', Member of the ''Accademia Nazionale dei Lincei'', ''Doctor Honoris Causa'' at the University of Friburg (1986), ''Invernizzi'' Prize for Economics (1997). At present Pasinetti is also Honorary President of: the ''International Economic Association'', the ''European Society for the History of Economic Thought'', the ''International Economic Association, the European Association for Evolutionary Political Economy'', the ''Italian Association for the History of Political Economy'' and the ''Italian Association for the History of Economic Thought''.
 
He has also provided valuable contributions to several major economic journals such as editorial advisor to: the ''Cambridge Journal of Economics'' (since 1977), the ''Journal of Post Keynesian Economics'' (since its founding in 1978), ''Kyklos'' (1981), ''Structural Change and Economic Dynamics'' (since 1989), and ''PSL Quarterly Review'' (2009) to name a few.
 
Pasinetti is currently [[Emeritus]] Professor at the Università Cattolica Milano.
 
==Theoretical contributions==
 
===A mathematical formulation of the Ricardian system===
Pasinetti’s first major contribution to [[economics]] was probably "the mathematical formulation of the Ricardian system", published in 1960 in a paper now considered classical.<ref>As Pasinetti says in Blaug (1999), p.869, “I began by giving a mathematical formulation of Ricardo’s theoretical system”. The article was published in ''The Review of Economic Studies'', vol. XXVVII, February, 1960.</ref> In such work Pasinetti presented a very concise and elegant (and pedagogically effective) analysis of the basic aspects of [[classical economics]].
 
[[File:Portrait of David Ricardo by Thomas Phillips.jpg|right|230px|thumb|[[David Ricardo]] has been one of the most influential economists in the thinking of Pasinetti.]]
 
At that time, [[Piero Sraffa]] had just published ''The Works and Correspondence of David Ricardo'', one of the most masterful editorial works ever to be published in economics; and scholars were wondering how Sraffa’s remarkable work could clarify and enrich the interpretation of ''Classical economics''. Pasinetti’s mathematical formulation provided a rigorous and clear answer to that question, in particular with ''reference'' to two major Classical problems: the ''theory of value'' and the ''theory of income distribution''.
 
On this subject, a major stimulus came from a famous paper written by [[Nicholas Kaldor]], in 1956, where [[Nicholas Kaldor|Kaldor]] presented a review of the history of several [[Distribution of wealth|theories of distribution]], covering the period from [[David Ricardo|Ricardo]] to [[John Maynard Keynes|Keynes]].<ref>Kaldor, 1973, cap.10.</ref> Although Ricardo's theory (in Kaldor's paper) was without equations, it was the starting point after which economists began to explicitly see the [[Ricardian model]] as a coherent whole, susceptible to mathematical formalization.
 
Another influence came directly from [[Piero Sraffa|Sraffa]] and concerned the [[relative prices]] of goods produced in the economic system made to depend only on the amount of labour embodied in them – the well known [[Labor theory of value|''labour theory of value'']]. In fact, an early draft of Pasinetti’s paper was read by [[Piero Sraffa|Sraffa]], who gave his approval to almost the entire paper:
 
{{cquote|“I myself remember that, when I returned to my college after submitting to his attention an early draft of my mathematical formulation of the [[Ricardian model|Ricardian system]], a friend immediately asked me: ‘Have you now thrown it into the paper basket?’ At my answer, ‘I have, but only the first section; the major part of the work seems to stand’, the surprised reply was, ‘Well, if it has gone through [[Piero Sraffa|Sraffa]]’s scrutiny, it will hold for good”.<ref>Pasinetti, 2007,  p.166.</ref> |4= L. Pasinetti}}
 
Pasinetti explains that''“the more constructive approach is taken of stating explicitly the assumptions needed in order to eliminate the ambiguities”''<ref>Pasinetti, 1974, p.1.</ref> in the [[Ricardian model]], hence, the reason for the mathematical formulation.
 
In this view, the most straightforward mathematical [[Ricardian model]] that can be formulated, with ''minimal economic'' complications, is the one in which only one commodity is produced (‘corn’ for instance), and where there are three social classes:  [[capitalists]] who earn [[Profit (economics)|profits]], workers who earn [[wages]] and [[landowners]] whose [[income]] comes from the [[Economic rent|rent of land]]. This is the way to express [[Nicholas Kaldor|Kaldor]]’s model mentioned above.<ref>Pasinetti, 1974, p.23, footnote.</ref> Although the Pasinetti model is more general and comprises two sectors (agriculture and manufacturing), it is illuminating to start with the simplest version –a one-commodity model expressed by the following equations:<ref>Pasinetti [1977], unlike Pasinetti [1974], chooses this method of gradual exposure.</ref>
 
{{Equation|1=Y = f(N) \,|2=1.1|3=center}}<br />
{{Equation|f(0) \geq 0 |1.1a|center}}<br />
{{Equation|f'(0) > \mu \,|1.1a|center}}<br />
{{Equation|f''(N) < 0 \,|1.1a|center}}
 
Equation ''(1.1)'' shows that output, ''Y'', depends only on the number of [[workers]], ''N'', engaged to work on the land. Three conditions ''(1.1a)'' are necessary and help to restrict the meaning of ''(1.1)''. Specifically, the first displays that land, when [[workers]] are not employed, can produce something or nothing at all. The second condition shows that the marginal product to kick start the cultivation of land must be greater than ''μ'', the subsistence [[wage]]; otherwise the system will never start working. The third condition shows the [[diminishing returns]] of [[Labour (economics)|labour]].  The following equations show the determination of the quantities of different categories of [[income]]:
 
{{Equation|1=W = N \cdot x\,|2=1.2|3=center}}<br />
{{Equation|1=K = W \,|2=1.3|3=center}}<br />
{{Equation|1=R = f(N) - N \cdot f'(N)\,|2=1.4|3=center}}<br />
{{Equation|1=B = X - R - N \cdot x \,|2=1.5|3=center}}
 
where ''W'' are the total [[wages]],'' x'' is the [[wage]] per [[worker]], ''K'' is the [[Capital (economics)|capital]] of the economy, ''R'' is the total [[Economic rent|rents]] perceived by [[landowners]] and ''B'' are the total [[Profit (economics)|profits]] that go into the hands of [[capitalists]]. The latter are represented as a residual [[income]] once the [[Economic rent|rents]] and [[wages]] have been paid. In these models all the [[Capital (economics)|capital]] is [[working capital]]; it is assumed to be composed entirely of advances to [[workers]] as [[wages]]. Notice, moreover, that expression ''(1.4)'', supplemented by technical conditions ''(1.1a)'', expresses what still today is called the [[Ricardian theory of rent]].
 
Hitherto we need two more equations to close the model. They are:
 
{{Equation|1=x = \mu \,|2=1.6|3=center}}<br />
{{Equation|1=K = \overline{K} \,|2=1.7|3=center}}
 
[[Image:Distribution of income in the Ricardian system.gif|left|275px|thumb|Distribution of income in the [[Ricardian model|Ricardian system]] in terms of marginal product.]]
 
Equation ''(1.6)'' shows that long-term [[wages]] tend to subsistence level. Equation ''(1.7)'' shows the stock of [[Capital (economics)|capital]]  at the beginning of the year. Throughout the construction of his model, Pasinetti insists that he is interested in "natural solutions" of the [[Ricardian model]], i.e., those to which the system tends to in the [[long run|long term]].<ref>Pasinetti, 1974, p.11-17.</ref>
 
Thus, equation ''(1.6)'' does not preclude [[short run|short-term]][[wage]] deviations with respect to its natural level. Eventually, note that ''μ'' is the only magnitude which is determined from outside the system: it is an amount set by customs and habits of society. This means that the number of [[workers]] employed (proportional to population), is determined by the system itself,<ref>Pasinetti, 1977, p.10.</ref> unlike what happens in modern theories of [[economic growth]], where the rate of [[population growth]] is taken as exogenously given.
 
The previous model allows us to see the basic features of Ricardo’s distribution theory. However, no reference can be made to anything about the [[Theory of value (economics)|theory of value]], since all the magnitudes are measured in terms of ‘corn’. As Pasinetti says: ''“where any question of evaluation has not yet arisen, corn being the single commodity produced”''.<ref>Pasinetti [1974], p 10, foot note; and also Pasinetti [1977], p.12.</ref> However, by enlarging the model to a two-sector model, more remarkable features of Ricardian economics emerge. The two sectors include: the basic goods sector (wage goods called ‘corn’) and a luxury goods sector (called ‘gold’). The whole new model appears as:
 
{{Equation|1=X_1 = f(N_1)\,|2=2.1|3=center}}<br />
{{Equation|1=f(0) \geq 0 |2=2.1a|3=center}}<br />
{{Equation|1=f'(0) > \mu \,|2=2.1a|3=center}}<br />
{{Equation|1=f''(N) < 0 \,|2=2.1a|3=center}}<br />
{{Equation|1=R = f(N_1)-N_1 \cdot f'(N_1)\,|2=2.2|3=center}}<br />
{{Equation|1=W = N \cdot x \, |2=2.3|3=center}}<br />
{{Equation|1=K = W \,|2=2.4|3=center}}<br />
{{Equation|1=P_1 = X_1-R-N_1 \cdot x \,|2=2.5|3=center}}<br />
{{Equation|1=x = \mu \,|2=2.6|3=center}}<br />
{{Equation|1=K = \overline{K} \, |2=2.7|3=center}}<br />
{{Equation|1=X_2 = \alpha\ \cdot N_2 \,|2=2.8|3=center}}<br />
{{Equation|1=N_1+N_2 = N \,|2=2.9|3=center}}
 
Equations ''(2.1)'' to ''(2.7)'' are identical to those of the single sector model, but now they bear added subscripts to differentiate the production of ‘corn’ from that of ‘gold’. Equation ''(2.8)'' presents the gold production function which, unlike the ‘corn’ production function, exhibits constant returns to scale. The parameter is the physical amount of ‘gold’ produced by a worker in a year. The next two equations show in monetary (nominal terms) the wage rate (‘corn’) per worker and the rate of profit:
 
{{Equation|1=w = x \cdot p_1 \,|2=2.10|3=center}}<br />
{{Equation|1=\pi\ = \frac{P_1 \cdot p_1+P_2 \cdot p_2}{K \cdot p_1} \,|2=2.11|3=center}}
 
where ''p<sub>1</sub>'' and ''p<sub>2</sub>'' represent the [[price]] of ‘corn’ and the [[price]] of ‘gold’ respectively.  Pasinetti supposes that the [[wage rate]] and the [[rate of profit]] are identical in both sectors thanks to free market competition. Note also from ''(2.10)'' that only ''p<sub>1</sub>'' (the price of corn) enters [[wage]] determination, since it is assumed that [[workers]] in both sectors only receive only 'corn' as [[wages]]; in a terminology later developed by [[Piero Sraffa|Sraffa]], ‘corn’ is the only basic commodity produced in the system. The same consideration can be made, from the opposite view, looking at ''(2.11)'', since the only [[Capital (economics)|capital]] involved is represented by advances in the form of ‘corn’. Hence ''K'' appears as multiplied by ''p<sub>1</sub>''. The following two equations are [[David Ricardo|Ricardo's]] implicit assumptions -that the "natural price" of any good is given by its [[cost of production]]:
 
{{Equation|1=P_2 \cdot p_2 = X_2 \cdot p_2-N_2 \cdot w \,|2=2.12|3=center}}<br />
{{Equation|1=\frac{p_2 \cdot X_2}{N_2} = \frac{p_1 \cdot (X_1-R)}{N_1} \,|2=2.13|3=center}}
 
Equation ''(2.12)'' allows the determination of the total monetary [[Profit (economics)|profits]] of the gold industry. Equation ''(2.13)'' is much more important. It shows that on balance, the value of output per [[worker]] is the same in both sectors. It should be noted that the product of sector 1 (agriculture) is considered free of [[Economic rent|rents]].  To achieve this result, both the [[wage rate]] and the [[rate of profit]] have been considered homogeneous in both sectors, and the capital/labour ratio must also be considered as identical.
 
Pasinetti closes the model with two further equations:
 
{{Equation|1=\alpha\ \cdot p_2 = 1 \,|2=2.14|3=center}}<br />
{{Equation|1=p_2 \cdot X_2 = p_1 \cdot R \,|2=2.15|3=center}}
 
Relationship ''(2.14)'' simply adopts the amount of ‘gold’ as numeràire; hence, it is equal to unity. Relation ''(2.15)'' displays the [[income distribution]] between the different social classes. [[David Ricardo|Ricardo]] supposes that [[workers]] spend their entire [[wages]] to buy 'corn', [[capitalists]] reinvest their [[Profit (economics)|profits]] in [[capital accumulation]], and [[landowners]] spend all their [[Economic rent|rents]] on luxury goods. The simplicity of this argument about consumption functions for each social class enables Pasinetti to close the whole circuit of [[income distribution]] with a single equation. Specifically, ''(2.15)'' shows that [[landowners]] spend all their income received as [[Economic rent|rents]], ''p<sub>1</sub>R'', in the buying of luxury goods, ''p<sub>2</sub>X<sub>2</sub>''. There is no need for more equations, since ''“the determination of the demand for one of the two commodities (gold in our example) also determines, implicitly, the demand for the other commodity (corn), since total output is already functionally determined”''.<ref>Pasinetti, 1977, p.14.</ref>
 
[[Image:Marx6.jpg|right|200px|thumb|In his [[Theory of value of labour|theory of labor value]] [[Karl Marx|Marx]] also supposes an identical labor-capital ratio in all sectors.]]
 
The system presented above (15 equations with 15 unknowns) displays the natural solutions of the Ricardian economic system, i.e. those solutions attained in the [[long run|long term]] and corrected for [[market distortion]]s and imbalances in the [[short run|short term]]. [[David Ricardo|Ricardo]] did not deny the existence of such deviations, but for his analysis, they were not the relevant issues. These solutions, furthermore, as demonstrated mathematically by Pasinetti exist, they are unique, and, moreover, their steady state solutions are stable.<ref>Pasinetti, 1974, see appendix.</ref> On the other hand, it can be demonstrated that if we take the partial derivatives of all variables with respect to ''K'', (because the process of [[Capital (economics)|capital]] accumulation is what matters for the dynamics of the model) the evolution of the variables is consistent with the conclusions which [[David Ricardo|Ricardo]] reached; especially with the tendency of the whole economic system in the [[long run]] towards a stationary state.
 
The above model has several outstanding aspects. The foremost of which is a theory of [[income distribution]] entirely independent of the [[theory of value (economics)|theory of value]]. The inclusion of a new sector -and consequently the whole structure of relative [[prices]]- have not even slightly changed the way income is distributed among [[landowners]], [[workers]] and [[capitalists]]. At the same time, [[prices]] though of course not equal to, are exactly proportional to the quantity of labour embodied in each commodity. This is a perfectly clear ''[[labour theory of value]]''.
 
The attentive reader may notice that the two major results (on [[income distribution]] and on value respectively) depend on two assumptions that are implicit in the formulation of the model, i.e. of the above set of equations, namely: 1) that [[capitalists]] appropriate the whole [[Economic surplus|surplus]] of the economic system, after paying [[Economic rent|rents]] to [[landowners]], and conventional [[wages]] to [[workers]]; and 2) that the proportion of labour to [[Capital (economics)|capital]] is exactly the same in all sectors. These two assumptions have given rise to endless discussions on value and distribution ever since.
 
Further work undertaken by Pasinetti’s has been concerned with reversing the causal chain of the first assumption and in rendering the second assumption superfluous.
 
===The Cambridge equation and the Pasinetti’s Theorem===
[[Nicholas Kaldor|Kaldor]]´s 1956 article already mentioned above (“Alternative Theories of Distribution”) was at the origin of another ‘seminal’ paper written by Pasinetti. Kaldor had reviewed the major theories of distribution throughout the [[History of economic thought|history of economics]] from [[David Ricardo|Ricardo]] to the [[Marginalist revolution|Marginalists]] and even to [[Michal Kalecki|Kalecki]]. But then, he added a theory which he named the Keynesian theory of [[income distribution]]. This was a surprise because these issues were never treated by [[John Maynard Keynes|Keynes]] in an explicit way. Kaldor baptized his theory as ‘Keynesian’ because it succeeded in catching a few important concepts both from Keynes’s Treatise’s widow's cruise allegory and from Kalecki’s profits equation.
 
In any case, in this paper [[Nicholas Kaldor|Kaldor]] reached remarkable results. Starting from a closed economic system, without [[government]], and in which there are [[capitalists]] and [[workers]], starting from the saving-investment identity, Kaldor came to the following identity between [[investments]] and [[savings]]:
 
{{Equation|1=I=\displaystyle s_wY+(s_c-s_w)P|2=|3=center}}
 
where ''Y'' is the [[national income]], ''P'' is the volume of total [[Profit (economics)|profits]], ''s<sub>w</sub>'' is the [[workers]] propensity to save, ''s<sub>c</sub>'' is the [[capitalists]] [[propensity to save]] and ''I'' is [[investment]]. If we suppose that [[workers]] do not save (''s<sub>w</sub>=0''), divide both members by ''K'' and remember that in dynamic equilibrium ''I/K = g<sub>n</sub>'', we get:
 
{{Equation|1=\frac{P}{Y}= \frac{g_n}{s_c}k|2=3.1|3=center}}<br />
{{Equation|1=\frac{P}{K}= \frac{g_n}{s_c}|2=3.2|3=center}}
 
where ''g<sub>n</sub>'' is the natural rate of growth and ''κ'' is the capital/output ratio. Finally, note that these two expressions only have economic significance in the range:
 
{{Equation|1=s_w<\frac{I}{Y}<s_c|3=center}}
 
This interval excludes equilibrium with negative shares, either by the [[workers]] (first inequality) or by the [[capitalists]] (second inequality).
The expressions ''(3.1)'' and ''(3.2)'' are those that have subsequently formed the core of the [[Post-Keynesian economics|post-Keynesian]] distribution theory; but only after an extremely hard-fought debate. Equation ''(3.1)'' shows that the share of [[Profit (economics)|profits]] in [[National income|total output]] depends positively on the natural rate of growth and the capital/output ratio and negatively on the [[propensity to save]] of the [[capitalist]] class. The second of these relations, ''(3.2)'', better known as the “Cambridge equation”, shows that the [[Rate of return|profit rate]] is solely determined by the ratio of the natural rate of growth and the [[propensity to save]] of [[capitalists]].
 
The importance of these expressions became clear only after an intense debate. These expressions were achieved with an additional assumption that was heavily criticized. [[Nicholas Kaldor|Kaldor]]’s assumption was that the [[workers]] [[Propensity To Save|propensity to save]] was zero. [[Image:KingsCollegeChapelWest.jpg|left|350px|thumb|[[King's College, Cambridge|King's College]], [[University of Cambridge]].]] Specifically, if you eliminate this assumption, the above formulas lose their conciseness, depending on the [[propensity to save]] of [[workers]]. This assumption was explicitly criticized because, whatever justification it might have had in the early days of industrialization, it appeared to have no sense in contemporary times. If you eliminate this assumption, the above formulas lose not only their conciseness, but also their applicability to the industrial systems of our own days.
 
Pasinetti went into this debate with his 1962 paper.<ref>The Review of Economic Studies, vol. XXIX, nº4, October 1962,''Rate of profit and Income Distribution in Relation to the Rate of Economic Growth''.</ref> With his now famous Pasinetti Theorem, he achieved the result of re-stating [[Nicholas Kaldor|Kaldor]]’s original equations without the need to rely on Kaldor’s much criticized assumptions. It is worth quoting the first time that Pasinetti presented his views about these issues to an audience:
 
{{cquote|“I dared, while being the youngest member, to present the results of my work on [[income distribution]] (Pasinetti, 1962) to a session of the so-called ‘Secret Seminar’ in [[King's College, Cambridge|King’s College]] (a post-war version of Keynes’s more famous Circus)-a unique experience for me. I presented my results as a criticism of [[Nicholas Kaldor|Kaldor]]’s theory. The members of the audience were stunned, or suspicious, or disbelieving, with one exception: [[Nicholas Kaldor|Nicky Kaldor]]. He was extraordinarily quick in grasping the gist of the idea and in seeing that the concession of his having fallen into a ‘logical slip’ led to a generalization of the [[post-Keynesian]] (in fact of Kaldor’s) theory of [[income distribution]] and moreover to a new, long-run, Keynesian theory of the [[rate of return|rate of profits]].”<ref>Pasinetti [2007], pp.118-119.</ref> |4= L. Pasinetti}}
 
In his 1962 paper, Pasinetti showed that [[Nicholas Kaldor|Kaldor]] had fallen into a "logical slip". He implicitly assumed that the total [[Profit (economics)|profits]] only came from the [[capitalists]] and he neglected the [[workers]]. In other words, ''"By attributing all profits to the [[capitalists]] it has inadvertently but necessarily implied that [[worker]]'s [[savings]] are always totally transferred as a gift to the [[capitalists]]"''.<ref>Pasinetti [1962], p.270.</ref> That is to say the saving function of Kaldor's model ought to be modified so as to include both [[workers]] profits and [[capitalist]] profits, i.e.:
 
{{Equation|1= \displaystyle P=P_w+P_c |3=center }}
 
Under this assumption the Investment = Savings identity becomes:
 
{{Equation|1=I = \displaystyle s_wY +(s_c-s_w)P_c|3=center}}
 
If this expression is cleared as before, we see that formal results are similar to ''(3.1)'' and ''(3.2)'', but now they only refer to that part of [[Profit (economics)|profits]] that accrue to the [[capitalists]]. Specifically, the modified Cambridge equation would take this peculiar form:
 
{{Equation|1=\frac{P_c}{K}= \frac{1}{s_c - s_w} \cdot \frac{I}{K}- \frac{s_w}{s_c - s_w} \cdot \frac{Y}{K} |3=center}}
 
Note that the preceding equation now shows not the [[Rate of return|profit rate]] of the economy, ''P/K'', but a ratio, ''P<sub>c</sub> /K'', which has no economic significance if taken as such. To fix this anomaly, Pasinetti added ''P<sub>w</sub> /K'', to both sides of the equality:
 
{{Equation|1=\frac{P}{K}= \frac{1}{s_c - s_w} \cdot \frac{I}{K}- \frac{s_w}{s_c - s_w} \cdot \frac{Y}{K}+ \frac{P_w}{K} \Rightarrow \frac{P}{K}= \frac{1}{s_c - s_w} \cdot \frac{I}{K}- \frac{s_w}{s_c - s_w} \cdot \frac{Y}{K}+ \frac{i \cdot K_w}{K}|3=center}}
 
To complete the formulation, Pasinetti simply assumes that, in the [[long-term]], the variable ''i'', representing the [[interest rate]] earned by [[workers]] when they lend their [[savings]] to [[capitalists]], is equal to the [[Rate of return|profit rate]], ''P/K''. Taking that into account and simplifying, we obtain:
 
{{Equation|1=\frac{P}{K}= \frac{g_n}{s_c}|2=3.2|3=center}}
 
i.e., exactly the preceding ''(3.2)'' equation. In other words, we obtain the “Cambridge equation” again, but this time without the assumption ''s<sub>w</sub> = 0''.  By a similar procedure Pasinetti shows that the share of total [[Profit (economics)|profits]] in total [[income]] again emerges the same as ''(3.1)''; i.e., the Pasinetti Theorem proves that in the [[long run]], the [[propensity to save]] of the [[workers]] has no effect on the determination of the overall [[Rate of return|profit rate]] of the economy, and also has no effect on the determination of the share of the total [[Profit (economics)|profits]] in the [[national income]]. At the same time, however, the [[propensity to save]] of the [[workers]] determines the distribution of [[Profit (economics)|profits]] between [[workers]] and [[capitalists]].
 
With these outcomes, the truly important point is that [[Nicholas Kaldor|Kaldor]]’s original formulae are much more general than was previously believed.  As Pasinetti says, “the irrelevance of [[worker]]’s [[propensity to save]] gives the model a much wider generality than was hitherto believed. Since the [[Rate of return|rate of profit]] and the [[income distribution]] between [[Profit (economics)|profits]] and [[wages]] are determined independently of s<sub>w</sub>, there is no need for any hypothesis whatever on the aggregate savings behaviour of the [[workers]]." <ref>Pasinetti [1974], p. 112.</ref>
 
The conclusions obtained from Pasinetti’s Theorem led to a huge number of scientific works and papers, with the purpose of clarifying the nature of the Theorem and its more important implications. Specifically, in 1966, [[Paul A. Samuelson]] and [[Franco Modigliani]], the [[Massachusetts Institute of Technology|MIT]] economists, wrote a detailed and widely quoted paper where they tried to minimize the consequences of the Pasinetti Theorem and to lessen the generality of its conclusions.<ref>Samuelson y Modigliani [1966], “The Pasinetti Paradox in Neoclassical and More General Models”, The Review of Economic Studies, pp. 269-301.</ref>
 
The argument centred on the inequality shown above, crucial to the solution of the Cambridge equation, namely on:
 
{{Equation|1=s_w<\frac{I}{Y}<s_c|3=center}}
 
Samuelson and Modigliani proposed that the following inequality (which they called anti-Pasinetti’s inequality) was also reasonable, and claimed that it would endow the model with greater generality:
 
{{Equation|1=s_w \geq \frac{I}{Y} \to s_w \geq g_nk|3=center}}
 
Such inequality, however, requires that the [[workers]]' [[propensity to save]] becomes so high as to allow them to accumulate [[Capital (economics)|capital]] at a greater speed than [[capitalists]]. If this were to happen, in the end the total [[Capital (economics)|capital]] of the economy would entirely be owned by the [[workers]], while the [[capitalists]] would disappear.
 
The formulation of the anti-Pasinetti range and all theoretical justification (and some empirical exercises) proposed by [[Paul Samuelson|Samuelson]] and [[Franco Modigliani|Modigliani]] was challenged by Pasinetti <ref>Pasinetti [1974], essay 6.</ref> and in a much more critical way by [[Nicholas Kaldor|Kaldor]]<ref>Kaldor, N. [1966], “Marginal Productivity and the Macroeconomic Theories of Distribution: Comment on Samuelson and Modigliani”, Review of Economic Studies, XXXIII, October, pp.309-19.</ref> and [[Joan Robinson]].
 
[[Image:Franco Modigliani.jpg|right|300px|thumb|Franco Modigliani.]]
 
[[Nicholas Kaldor|Kaldor]] founded his criticism on the lack of realism of the assumptions made by [[Paul Samuelson|Samuelson]] and [[Franco Modigliani|Modigliani]], while performing a remarkable study on the empirical values of the saving propensities of [[workers]] and [[capitalists]] (based on data from National Accounts for United States and United Kingdom). Kaldor concluded that, ''“unless they make a more imaginative effort to reconcile their theoretical framework with the known facts of experience, their economic theory is bound to remain a barren exercise.”'' <ref>Harcourt y Laing [1977], p.302.</ref>
 
Pasinetti preferred, with his reply to Samuelson and Modigliani, to remain at a higher level of analysis – by pointing out the weaknesses of the logical analysis of the two MIT economists. Nonetheless Pasinetti joined Kaldor’s critique concerning the highly restrictive assumptions made by the neoclassical economists:
 
{{cquote|“[[Robert Solow|Solow]], for instance blithely goes on to add a whole series of other assumptions which [[Harrod–Domar model|Harrod and Domar]] do not make: a differentiable linear and homogeneous [[production function]], perfect and infinite substitutability of [[Labour (economics)|labour]] and [[Capital (economics)|capital]], perfect competition in the labour and in the capital markets, etc... [...] The extraordinary feature of these assumptions is that they are not only numerous, but peculiarly hybrid, opposite and extreme.” <ref>Pasinetti [1974],  p.124.</ref> |4= L. Pasinetti}}
 
For Pasinetti, the principal issue of the debate is the way in which technology is defined. If ''s<sub>w</sub><g<sub>n</sub>K/Y'' the Cambridge equation would still stand, regardless of which assumption is made about the technology (i.e., whatever the form of the [[production function]]), while if  ''s<sub>w</sub>>g<sub>n</sub>K/Y'', the shape of technology does play a crucial role, so that ''“The [[James Meade|Meade]]-[[Paul Samuelson|Samuelson]]-[[Franco Modigliani|Modigliani]]’s marginal productivity results only follow on particular and unacceptable assumptions on technology.”''<ref>Pasinetti [1974], p.131 footnote.</ref>
 
Pasinetti went on to argue that, even with the particular and unacceptable assumptions on technology, the [[Paul Samuelson|Samuelson]]-[[Franco Modigliani|Modigliani]] range of applicability would hardly have any practical significance. In fact, even though the Cambridge equation might not exactly determine the [[Rate of return|rate of profits]], it would nevertheless determine its upper limit. First, the [[Rate of return|rate of profit]] (whatever way it is determined) cannot be higher than ''g<sub>n</sub>/s<sub>c</sub>''. Secondly, the [[Rate of return|rate of profit]] cannot be lower than g<sub>n</sub> (for, if it were, that would mean that individuals would contribute more to economic growth than they receive in exchange for [[Profit (economics)|profits]], which is patently an absurdity).
 
So, even if in the range of [[Paul Samuelson|Samuelson]] and [[Franco Modigliani|Modigliani]] the [[Rate of return|rate of profit]] were to be determined by the marginal productivities (and not by the Cambridge equation as in the general case), its scope would be extremely limited, being confined to a quasi knife-edge range:
 
{{Equation|1=g_n<r<\frac{g_n}{s_c}|3=center}}
 
===The Cambridge equation with the public sector===
Already in the 70's the debate of the original Pasinetti Theorem, and hence the [[Paul Samuelson|Samuelson]]-[[Franco Modigliani|Modigliani]]'s interval, took a turning point, by reaching a second phase in which ''“many authors proceeded to relax assumptions, trying out new hypotheses and introducing complications of all sorts”''.<ref>Pasinetti [1989], p.25.</ref> Indeed, already in the 60s some economists, inspired by [[Nicholas Kaldor|Kaldor]]'s paper of 1966, began to introduce in the Cambridge model some issues related to financial assets, [[interest rates]] and the functioning of [[financial markets]] and big corporations.<ref>Panico y Salvadori [1993], part V.</ref> All these contributions, as well as those which were made later in the 1970s and 1980s, were made in order to give the Cambridge model a wider applicability and more ''explicit realism''.
 
It was in 1972, thanks to a remarkable paper by [[Ian Steedman|Steedman]], that the public sector was explicitly included in the Cambridge equation.<ref>Steedman [1972].</ref> Though 16 years had elapsed since the original paper by [[Nicholas Kaldor|Kaldor]], no formal attempt had been made in that period to introduce the government sector and its ensuing complications. The case is more striking if one considers that Kaldor was an expert adviser on tax issues, [[Tax|tax theory]] and [[public finance]]. This is due to the aforementioned fact that throughout that period the economists were mainly concerned about the analytical properties of the outcome of the Pasinetti Theorem.
 
In fact, Steedman's 1972 paper was an original and very constructive way to resolve the theoretical dispute between Pasinetti and [[Paul Samuelson|Samuelson]]-[[Franco Modigliani|Modigliani]]. [[Ian Steedman|Steedman]] showed that if the public sector was considered, under the assumption of budget equilibrium, the long run solutions were consistent with Pasinetti’s solutions, and never with the "dual" solutions of [[Paul Samuelson|Samuelson]]-[[Franco Modigliani|Modigliani]]. This means that the introduction of the public sector meant that the [[Rate of return|profit rate]] remained independent of the [[workers]] propensity to save and of the capital-output ratio (technology).
 
The "enlarged Cambridge equation", which [[Ian Steedman|Steedman]] arrived at was:
 
{{Equation|1=\frac{P}{K}= \frac{g_n}{(1-t_p)s_c}|2=3.3|3=center}}
 
where ''t<sub>p</sub>'' is the tax rate (average and marginal) on [[Profit (economics)|profits]]. In the case that ''t<sub>p</sub>=0'' (there are no [[Profits tax|taxes on profits]]), we obtain the original Cambridge equation. As it can be easily seen, neither the workers' propensity to save, nor technology, nor even the tax rate on wages affect to the [[Rate of return|rate of profit]] of the economy, and hence they do not affect to the distribution between [[wages]] and [[Profit (economics)|profits]].
 
Pasinetti entered the debate again in 1989 showing that -whether the government’s budget was in deficit or surplus- the main results of the Cambridge equation hold. If the [[government budget]] was not balanced, the Cambridge equation would take the following form:
 
{{Equation|1=\frac{P}{K}= \frac{g_n}{(1-t_p)s'_c}|2=3.4|3=center}}
 
where ''s’<sub>c</sub>'' is a “propensity to save of capitalists corrected”, meaning that it takes into account both the direct taxation on profits and the indirect taxation, ''t<sub>i</sub>'' (on capitalists' consumption) as well as the government propensity to save, ''s<sub>T</sub>'', i.e.:
 
{{Equation|1=s'_c= s_c \cdot (1 - t_p) + s_T \cdot \alpha \cdot [t_p + t_i \cdot (1 - s_c) \cdot (1 - t_p)]|3=center}}
 
Although the expression of the [[capitalists]]’ propensity to save is not as simple as the original, the truly remarkable thing is that no matter what hypothesis are adopted about the [[government budget]], the Cambridge equation continues to hold, by depending on the natural rate of growth divided by the [[capitalists]]' propensity to save, independently of [[workers]]' propensity to save and the technology.<ref>Pasinetti [1989], p.30.</ref>
 
Equation ''(4.1)'' - and ''(4.2)'' - can be viewed from another point of view: they can be expressed in terms of [[Profit (accounting)|profit after taxes]]:
 
{{Equation|1=\frac{P}{K}(1-t_p)= \frac{g_n}{s'_c}|3=center}}
 
The [[long-run]] [[Rate of return|rate of profits]] is given by the natural growth rate divided by the [[capitalists]]’ propensity to save, independently of anything else. That is to say, ''the original Cambridge equation can be said to refer to the rate of profit net of taxes'', not to ''the rate of profit before taxes''.
 
The most important conclusion to be drawn from this analysis is that if we consider two identical economies (with the same natural rate of growth and saving propensities), if the first has a higher [[Profits tax|tax rate on profits]], the second economy will enjoy a higher [[Profit (accounting)|rate of profits before taxes]] (and also a higher share of profits in total [[income]]). That is to say, the presence of government has a redistributive effect per se in favour of [[Profit (economics)|profits]] and against [[wages]]. This important and surprising conclusion should not sound new, for, as stated by Pasinetti:
 
{{cquote|“This is the theory that [[Nicholas Kaldor|Kaldor]] consistently proposed in all his abundant works on [[taxation]]. As he openly acknowledged (Kaldor, 1956), the theory is in line with [[Classical economics|Classical economic]] analysis, but with a dramatic reversal of the chain of causation. As is well known, [[David Ricardo|Ricardo]] took [[wages]] as exogenously given and concluded that all taxes on [[wages]] are eventually shifted on to [[Profit (economics)|profits]]. For Kaldor, the opposite is the case. Profits, by being the source of the [[savings]] that are necessary to sustain the exogenously given full-employment investments, have a sort of prior claim on [[income]]. Thus, for Kaldor, all [[profits tax|taxes on profits]] are eventually shifted on to [[wages]].” <ref>Pasinetti [1989], p.29.</ref> |4= L. Pasinetti}}
 
===The Controversy on the theory of Capital===
Alongside the contributions made to the Cambridge model of growth and income distribution, in the 1960s, Pasinetti joined what has become known in economic literature as the [[Cambridge capital controversy|controversy on capital theory between the two Cambridges]]: i.e., [[University of Cambridge|Cambridge]] (United Kingdom), whose most prominent scholars were [[Joan Robinson]], Luigi Pasinetti, [[Piero Sraffa]] and [[Nicholas Kaldor]] and [[Cambridge, Massachusetts]] (U.S.A) whose members were [[Paul Samuelson]], [[Robert Solow]], [[David Levhari]] and [[Edwin Burmeister]].
 
Controversies over the nature and importance of [[Capital (economics)|capital]] were not new. In the early 20th century, the economist [[John Bates Clark]], in an effort to refute [[Karl Marx|Marx]]’s surplus theory, suggested that [[wages]] and [[Profit (economics)|profits]] (or rather [[Rate of interest|interest]], as they were called by [[Neoclassical economists]], owing to their assumption that [[rate of profit]] and [[rate of interest]] coincide) were simply considered as [[prices]], obtained from the [[marginal productivity]] of the factors of production; a theory synthesized by J.B. Clark’s famous statement, that "what a social class gets is, under natural law, what it contributes to the general output of industry".<ref>Cohen A. y Harcourt G. [2003], p. 211.</ref> In this debate, [[Thorstein Veblen|Veblen]] and [[Böhm-Bawerk]] were also involved, proposing slightly different, but basically similar, theories to that of [[John Bates Clark|J. B. Clark]].
 
In 1930 [[Hayek]] re-opened the debate by linking lower [[interest rates]] with more indirect methods of production, i.e., with higher capital/labor ratios. Since the [[interest rate]] was for [[Hayek]] the [[price]] of [[Capital (economics)|capital]], it was clear that [[Hayek]] (as all [[Neoclassical economists]]) thought that lower [[interest rates]] would lead to more capital-intensive production methods. With the outbreak of the [[Great Depression]], the debates around [[Capital (economics)|capital theory]] were abandoned, and it was not until 1953, due to a paper by [[Joan Robinson]], that the topic was again given prominence.
 
[[Joan Robinson|Robinson]] opened the controversy with a now famous statement, with which she exposes the main problems of the traditional concept of [[Capital (economics)|capital]] as follows:
 
[[Image:Solow1.PNG|left|450px|thumb|A neoclassical production function.]]
 
{{cquote|“Moreover, the [[production function]] has been a powerful instrument of miseducation. The student of economic theory is taught to write O <math>=</math> f(L,C), where L is a quantity of labour, C a quantity of capital and O a rate of output of commodities. He is instructed to assume all workers alike, and to measure L in man-hours of labour; he is told something about the index-number problem involved in choosing a unit of output; and then he is hurried on to the next question, in the hope that he will forget to ask in what units C is measured. Before ever he does ask, he has become a professor, and so sloppy habits of thought are handed on from one generation to the next.” <ref>Harcourt, G. and Laing N. (eds.) [1971], p.47.</ref> |4= J. Robinson}}
 
Although initially the debate was focused on the measurement of [[Capital (economics)|capital]], more basic questions quickly began to emerge concerning the validity of the [[Production function|neoclassical production functions]]. If [[Capital (economics)|capital]] could be measured in some way, and if one assumed constant returns to scale, diminishing [[Marginal productivity|marginal productivities]], given technology, competitive equilibrium and the production of a single good, the [[production function]] allowed getting three noteworthy conclusions:<ref>Harcourt [1975].Also Cohen A. y Harcourt G. [2003], p. 201.</ref>
 
# A rate of interest determined by the marginal productivity of capital.
# A monotonic inverse relationship between the [[Rate of return|rate of profit]] and the capital-labor ratio, namely the possibility of relating the [[Rate of return|rate of profit]] to the listing of a set of ''monotonically ordered'' production techniques.
# A distribution of income between [[wages]] and [[Profit (economics)|profits]] explained by the [[Marginal productivity|marginal productivities]] of the [[factors of production]], as related to their scarcity.
 
The assumption of the production of a single good was crucial, as it allowed the measurement of capital in physical units while no valuation problem arose. However, in a model with many goods (heterogeneous capital), the possibility of aggregation could not be avoided and always remained very problematic.
 
In 1962 [[Paul Samuelson]] wrote an important paper, which preceded and in fact provoked the subsequent debate. He proposed to solve the problem of the aggregation of capital through a new concept, the ''surrogate production function''. ''“What I propose to do here is to show that a new concept, the ‘surrogate production function’, can provide some rationalization for the validity of the simple J. B. Clark parables which pretend there is a single thing called ‘capital’ that can be put into a single production function and along with labor will produce total output.”'' <ref>Harcourt, G. and Laing N. (eds.) [1971], p.214.</ref>
 
[[Image:Paul Samuelson.gif|right|250px|thumb|[[Paul Samuelson]].]]
 
The problem is that in this way, in order to add capital and put it into an aggregate [[production function]], one must assess the capital as a stream of discounted monetary flows to be produced in the future; which implies an [[interest rate]]. The possibly adverse effects of changes in [[interest rate]]s on capital value are basically two: the re-adoption of earlier discarded techniques (''reswitching'') and ''capital reversing''.
 
''Reswitching'' is basically the possibility that the same method of production may became most profitable one at more than one rate of profit, i.e., a production method may become the most profitable one both at low and at high [[rate of return|rates of return]], even when in the medium range it is dominated by other methods.
 
''Capital-reversing'' occurs when moving from one technique to another, the technique chosen at a lower level of the [[rate of return|rate of profit]] requires less capital value while earlier it required more capital value.
 
Pasinetti published a famous article in the ''Symposium'' of the ''[[Quarterly Journal of Economics]]'' in 1966, which was actually an adaptation and expansion of an article that was presented to the ''First World Congress of the Econometric Society'' in Rome one year earlier. Pasinetti set out to show that the theorem stated a year earlier by [[David Levhari]] and [[Paul Samuelson]], which was supposed to demonstrate the impossibility of ''reswitching'' at the aggregate level, was false. Although in 1960 [[Piero Sraffa|Sraffa]] had shown that ''reswitching'' was a possibility, no one had considered in depth such contribution. As Pasinetti said at the beginning of his 1966 article:
 
{{cquote|“Among the results that [[Piero Sraffa]] published a few years ago, there is a remarkable one on the problem of choice of techniques, in an economic system in which commodities are produced by commodities and labor. Mr. [[Piero Sraffa|Sraffa]] showed that, if we consider all those technical methods for producing the same commodity which can become most profitable at least at one particular [[income distribution]] (and leave aside all those which are inferior to others at all possible income distributions), it is not possible in general to order them in such a way that their choice is a [[monotonic function]] of the [[rate of return|rate of profit]], as the latter is varied from zero to its maximum.” <ref name="Pasinetti 1966, p. 503">Pasinetti [1966], p. 503.</ref> |4= L.Pasinetti}}
 
Later he adds: ''“This result, owing to its theoretical implications, has been rather worrying; and there has been a general reluctance to consider it.”'' <ref name="Pasinetti 1966, p. 503"/>
 
The paper begins by setting a numerical example that shows -by constructing two alternative techniques- that even satisfying all [[David Levhari|Levhari]] and [[Paul Samuelson|Samuelson]] hypotheses, ''reswitching'' is a possibility at the aggregate level. Then Pasinetti set up a theoretical analysis to find out where the error was in Levhari's proof. Clearly, if the numerical example above refuted the theorem –as it did-, ''“It means that their logical arguments must have gone wrong at some stage”''.<ref>Pasinetti [1966], p. 510.</ref>
 
The conclusions of the article were truly remarkable, for if a monotonic relationship between [[rate of return|profit rate]] and capital-labour ratio could not hold, the [[production function]] concept was meaningless. Therefore he concluded that:
 
[[Image:Solow natmedal.jpg|left|250px|thumb|[[Robert Solow]].]]
 
{{cquote| “The foregoing analysis shows that this is not necessarily so; there is no connection that can be expected in general between the direction of change of the rate of profit and the direction of change of the "quantity of capital" per man.”<ref>Pasinetti [1966], p. 517.</ref> |4= L.Pasinetti}}
 
The other major contribution of Pasinetti to the [[Cambridge capital controversy|debate on capital theory]] was a 1969 paper titled ''“Switches of Technique and the ‘Rate of Return’ in Capital Theory”''. In this paper, Pasinetti showed that the concept of the [[rate of return]] on capital, introduced by [[Irving Fisher]], and resumed and used by [[Robert Solow|Solow]] in 1967 as a means of rescuing the neoclassical capital theory, had no economic significance.
 
Whichever of the two definitions given by Fisher on the rate of return was accepted, one of them was an accounting expression <ref>Harcourt, G. and Laing N. (eds.) [1977], p.266.</ref> and in the other (in order to say anything on interest) would entail accepting a rather ''unobtrusive postulate'' in order to avoid the problem of ''reswitching''.<ref>Harcourt, G. and Laing N. (eds.) [1977], p.276.</ref> That is, the concept of “rate of return”, which [[Robert Solow|Solow]] thought was the central concept of the theory of capital, had no autonomous theoretical content. The conclusion of the article is an illuminating summary of the results concerning the [[Cambridge capital controversy|debate on the theory of capital]]:
 
{{cquote|“The implications of the phenomenon of reswitching of techniques for marginal capital theory appear to be the more serious the deeper one goes in uncovering them and bringing them out into the open. The initial result of no general relationship between [[rate of return|rate of profit]] and value of capital goods per man came to contradict the marginal-theory interpretation of the [[rate of return|rate of profit]] as a selector of capital intensity[…] Further investigation now reveals that another traditional notion, that of ‘[[rate of return]]’, is devoid of any autonomous theoretical content”.<ref>Harcourt, G. and Laing N. (eds.) [1977], p.283.</ref> |4= L.Pasinetti}}
 
===Lectures on the Theory of Production===
''Lectures on the Theory of Production'' first appeared in Italian in 1975.<ref>''Lezioni di teoria della produzione'', Societá editrice il Mulino, Bologna, 1975.</ref> Already in 1956 some parts of the book circulated in the form of lecture notes in several Italian universities. The insistence of students to give these notes a more structured and compact form prompted Pasinetti to compile these lectures, enlarging them and then bringing them to the form in which the book appeared.
 
This is the main reason why the ''Lectures on the Theory of Production'' turned out to be the most successful of his publications didactically (translated in French, Spanish, German and Japanese). The English version, appeared two years later, in 1977 and maintained the character and the structure of the Italian version, although Pasinetti added some enlargements, in the form of more sections and new appendices.
 
At a theoretical level, ''Lectures on the Theory of Production'' is a book dedicated to the analysis of the [[Production, costs, and pricing|theory of production]], that is, the way in which societies produce [[wealth]] and then how it is distributed. It is curious to notice the unusual way in which Pasinetti introduced his ''Theory of Production''. He begins Chapter I by contrasting two possible definitions of [[wealth]]:
 
{{cquote|“The concept of “[[wealth]]” appears, at first sight, to be perfectly clear and familiar. It is traditionally defined as “the abundance of goods and services at the disposal of an individual or of a community” […] The principal distinction to be made is that “abundance of goods” might mean an endowment, or fund, of existing goods, i.e., [[wealth]] as a stock of commodities or claims, or it might mean a sizable periodic flow of goods and services, i.e., [[wealth]] as a flow of commodities or income. These two meanings are often confused, even today.”<ref>Pasinetti [1977], p.2.</ref> |4= L.Pasinetti}}
 
[[Image:Quesnay - Tableau économiques, 1759.djvu|right|160px|thumb|Quesnay's ''Tableau Economique'' is considered the theoretical background of modern ''Input-Output'' analysis.]]
[[Image:François Quesnay.jpg|right|160px|thumb|François Quesnay.]]
 
In fact, the understanding of [[wealth]] as a [[stock]] can be useful for investigations at the level of single individuals; but at the [[Macroeconomics|macroeconomic]] level, it is [[wealth]] as a flow that is the most relevant concept. Therefore, Pasinetti considers it as a great contribution – made already by the [[Physiocratic|Physiocratic school]] of 18th century France – to have concentrated on the concepts of [[surplus]] and economic activity presented as a circular flow in the ''[[Tableau Economique]]'', devised by [[François Quesnay]]. The [[Physiocratic]] ideas were developed by the [[Classical economists]] in Scotland and England and then by [[Karl Marx|Marx]]. All of them saw the importance of [[Production, costs, and pricing|production]] and [[wealth]] as a flow concept and further developed the [[Physiocratic]] ideas. Curiously enough, the [[Marginalist revolution]] of the late 19th century preferred to go back to study the concept of [[wealth]] as a [[stock]], thus largely de-emphasizing the problems of [[Production, costs, and pricing|production]] and [[Distribution (economics)|distribution]], and to focus on models of "pure exchange".
 
From this point onwards, Pasinetti develops and presents, in a terse way, a truly Classical theory of production. This book became a book from which a whole generation of Italian students (and in some Universities also non-Italian students) have learnt the theoretical scheme of [[Piero Sraffa]], expressed in matrix notation (with a mathematical appendix devoted to the basic elements of [[matrix algebra]]) and the [[Input-Output analysis]] of [[Wassily Leontief]].
 
In chapters 4, 5, and in an Appendix to Chapter 5, Pasinetti respectively deals with the [[Wassily Leontief|Leontief model]], with the [[Piero Sraffa|Sraffa system]], and Marx's transformation problem. He shows how, although the Leontief model and the Sraffa system were designed for different purposes, the former as an empirical tool and the latter as a theoretical framework, both have their basis in [[Physiocracy]] and [[Classical economics]]. The greatest theoretical achievement of the Sraffa system, Pasinetti says at the end of chapter 5, is that:
 
{{cquote|“…in this construction is to be found in the demonstration that it is possible to treat the [[Distribution (economics)|distribution of income]] independently of [[prices]] and in the demonstration, moreover, that this possibility is not tied to the pure [[labor theory of value]]. It is at last possible to state rigorously that the shortcomings and inadequacies of the Classical pure labor theory of value or, indeed, even the abandonment of such theory, leave quite unscathed the possibility of treating the [[Distribution (economics)|distribution of income]] independently of [[prices]].”<ref>Pasinetti [1977], p.120.</ref> |4= L.Pasinetti}}
 
The last two chapters are useful summaries of problems Pasinetti has dealt with extensively throughout his career. Chapter 6 explains some of the [[Cambridge capital controversy|controversies on capital theory]], the problem about reswitching and its implications for traditional economic analysis. In an appendix to chapter 6, Pasinetti also touches on linear programming. He points out that ''“unfortunately, linear programming was all too quickly constrained within the limits of traditional marginal analysis and lost its driving force”''.<ref>Pasinetti [1977], preface.</ref>
 
Chapter 7 is an introduction to dynamic production models and their implications for the [[Distribution (economics)|theory of distribution]]. Pasinetti exposits his own contributions to this field as a summary of the [[Von Neumann]] model, showing both its merits and limitations. For the sake of brevity Pasinetti does not present here his contributions to the field of [[structural change]]. But, this last chapter can be considered a proper introduction to his book ''Structural Change and Economic Growth'', where all the problems of structural dynamics are widely discussed.
 
===Structural Change and Economic Growth===
 
In 1981 “Structural Change and Economic Growth” appeared. It was a book that had been in gestation since 1963, when Pasinetti presented his PhD thesis at Cambridge on "A Multi-Sector Model of Economic Growth". Five of the nine chapters of the thesis had earlier been published in a long article in 1965.<ref>“A New Theoretical Approach to the Problems of Economic Growth”, ''Pontificiae Academiae Scientiarum Scripta Varia'', núm. 28, Ciudad del Vaticano, 1965, pp. 571-696.</ref> Afterward, Pasinetti rewrote and added some chapters to reach the total of 11 chapters with which the book appeared.
 
This book is a theoretical investigation on the long-term evolution of industrial systems. According to Pasinetti, such work surged from:
 
{{cquote|“A combination of three factors – one factual and two theoretical - originally prompted this investigation. The factual element was provided by the extremely uneven development – from sector to sector, from region to region - of the environment in which I lived (post-war Europe) at the time I began my training in economics. The two theoretical factors are represented by the two types of theories – specifically the [[Harrod–Domar model|macro-dynamics of economic growth]] and [[input-output analysis]]- […]”<ref>Pasinetti [1981], p.xi.</ref> |4= L.Pasinetti}}
 
Leaving aside for a moment the technical aspects, we can say that overall the book is completely new for three reasons. To begin with, this was the first book to offer a unifying framework and a consistent alternative to that proposed by the [[Neoclassical economics|Neoclassical theory]]. The latter strand of theory, which began in 1870, tried to explain the economic reality from a simpler view (exchange) under assumptions and analytical tools that were very restrictive, although its authors had the advantage that, “they have always clearly presented their arguments around a unifying problem (optimum allocation or scarce resources) and a unifying principle (the rational process of maximization under constraints).<ref>Pasinetti [1981], p.19.</ref>
 
It was therefore natural that contributions made in isolation and apart from [[Neoclassical economics]] were either discarded or transformed, doctored to fit into the neoclassical model. Pasinetti's purpose is therefore to offer an alternative paradigm and unify these theories in a new and solid set, which incorporates the contributions of [[John Maynard Keynes|Keynes]], [[Michal Kalecki|Kalecki]], [[Piero Sraffa|Sraffa]], [[Wassily Leontief|Leontief]], the macrodynamics [[Harrod–Domar model|models of Harrod and Domar]] and the distribution theory of the [[post-Keynesian economists]] in Cambridge: the whole lit and dotted with some of the theories, ideas and concerns of the [[classical economists]].
 
The second important point is that it is the first work in which Pasinetti does not solve a specific problem in isolation, but tries to offer a global vision of the economic process and integrates all the contributions he had made before. In this book we can find his ideas about [[Classical economics]], [[income distribution]], [[Capital (economics)|capital theory]] and the [[Production, costs, and pricing|theory of joint production]], all of them sorted out and assembled in order to explain the dynamics of industrial societies.
 
The third point is of a methodological nature, and is probably the most important of all. Following the [[Classical economists]], Pasinetti thinks that it is possible to frame the study of ''natural economic systems'', i.e., economic systems free of institutions. In these natural systems it is possible to deduce a series of characteristics, principles and general laws, which are independent of the institutions that have to be introduced in later stages of investigation. These institutions are the ones that shape the features of real economic systems: for instance, a [[Capitalist|capitalist system]] or a [[Socialist|socialist system]]. As he says, ''“is a distinctive feature of the present theoretical scheme to begin by carrying out the whole analysis at a level of investigation which the [[Classical economists]] called ‘natural’, that is to say, at a level of investigation which is so fundamental as to be independent of the institutional set-up of society”''.<ref name="Pasinetti 1981, p.xii">Pasinetti [1981], p.xii.</ref>
 
Despite the high degree of abstraction of analysis, this method can provide answers to many real-world practical problems:
 
{{cquote|“There is a further, very neat, methodological consequence that followed, namely a sharp discrimination between those economic problems that have to be solved on the ground of logic alone –for which [[economic theory]] is entirely autonomous- and those economic problems that arise in connection with particular institutions, or with particular groups’ or individuals’ behaviour –for which [[economic theory]] is no longer autonomous and needs to be integrated with further hypotheses […] Therefore, one will indeed have to go on, from the present analysis, to more detailed investigations concerning particular institutional set-ups, if more specific conclusions are to be drawn, but with no danger of confusing the two levels of enquiry.” <ref>Pasinetti [1981], p.xiii.</ref> |4= L.Pasinetti}}
 
The six first chapters of the book provide the analytical core of the work. In them, Pasinetti sets the conditions for an economy with neither unemployment nor idle production capacity. Pasinetti's analysis always runs from the simple to the more general models. Thus - after studying the equilibrium conditions in the [[Short-run|short run]] in chapter 2 - in chapter 3 he analyzes the most simplest of all growth models: [[Population growth|population]] grows at a steady percentage rate, while technical, and [[demand]] coefficients (i.e., consumer preferences) remain constant over time.
 
With these assumptions, two types of conditions are necessary to reach the full employment of resources: the first one is a [[Macroeconomics|macroeconomic]] condition: total expenditure must be equal to total income; and the second is a set of sectoral conditions: each sector must have a rate of accumulation of capital sufficient to cover [[demand]] growth. Roughly, this is a series of ''‘Harrod- Domar equations’'': a specific Harrod- Domar equation must be satisfied in each particular sector.<ref>Pasinetti [1981], p.54</ref>
 
The most important outcome of this analysis is that Pasinetti shows that, under such assumptions, it does not matter whether the analysis is carried out in [[macroeconomics|macroeconomic]] terms or -in a more disaggregated way- in sectorial terms. As the system expands, while its proportions remain constant, the analysis does not lose any generality if carried out in aggregate terms. So, this is the case to which [[macroeconomic models]] of growth can be correctly applied. ''“If the whole structure of the economic system were really to remain constant through time, any disaggregated formulation would not provided us with particularly useful insights, besides those that are provided already by the corresponding, much simpler, [[macroeconomics|macroeconomic]] formulations.”''<ref>Pasinetti [1981], p.60.</ref>
 
Chapters 4 and 5 are devoted to the elaboration of a really relevant general multi-sector dynamic model. While chapter 5 is devoted to the exposition of such a model, in chapter 4 Pasinetti displays one of the most important ideas of the whole book: not only does [[Technical change|technical progress]] affect the production methods of the economy, it also generates changes in the composition of demand. The way in which Pasinetti introduces the dynamic behaviour of demand over time is an up-dated resumption of [[Engel's Law]], which when generalized states that higher and higher levels of [[income]] lead to constantly changing [[Consumption (economics)|consumption patterns]].
 
This way of looking at the demand side allows Pasinetti to reach three notable findings. The first is that learning is an individual characteristic which is more basic and more realistic than the rational behaviour postulated by traditional economics. If [[income]] changes over time -and thus consumer preferences also change- consumers must continually be learning about new goods to consume. This implies that, ''“we can never expect each consumer to make the best possible consumption decisions”''.<ref>Pasinetti [1981], p.76.</ref>
 
The second finding is that because of changing consumer preferences over time, it is inevitable that ([[short term]]) sectorial imbalances will arise due to the changing structure of the demands for goods. Therefore, this will be a permanent source of disequilibrium in the system.
 
The third finding is that [[demand]] is going to play a major role in determining the structure of the main [[macroeconomics|macroeconomic]] variables over time. Even through the formation of [[Long term|long-term]] [[prices]], [[demand]] has a vital role to play in shaping the production quantities:
 
{{cquote|“This other series of solutions say that the quantities to be produced depend on [[demand]] factors, namely on the per capita evolution in time of consumers’ preferences and on [[population]]. In other words, in the [[long run]], [[demand]] determines the quantity of each commodity which has to be produced. This is the half of the problem which [[David Ricardo|Ricardo]] did not see, and which [[Alfred Marshall|Marshall]] then himself failed to bring out.” <ref>Pasinetti [1981], p.141.</ref> |4= L.Pasinetti}}
 
The second part of the book, from chapters 7 to 11, develops all the consequences derived from the dynamic model of chapters 4 and 5. The [[long term]] evolution of the major variables is explained in its composition: [[employment]], [[wages]], [[Profit (economics)|profits]] and capital/output and capital/labour ratios. Chapter 8 also provides a drastic distinction between the [[interest rate]] and the [[rate of return|profit rate]]; and this closes the theoretical framework of the entire book and makes it particularly complete and compact.
 
The last chapter (11) takes the conclusions and the scheme of the model in chapter 5 and applies them to international economic relations. This chapter appears as slightly different from the rest of the book, because it is devoted to analyzing economic systems with [[international trade]] and economic relations in general. It is a chapter that deals with open economies that not only trade with other economies, but try to import knowledge and ''know-how''. Pasinetti argues that the main benefits of international relations are in fact not so much those that derive from trade as those that derive from the international learning process between countries. [[Developing countries]] can strongly benefit from international relations if they succeed in imitating production methods from the [[developed countries]]. This is an encouraging possibility but has its limitations. [[Developing countries]] may not always be prepared to absorb all the technical methods of the [[developed countries]] because their lower levels of [[income per capita|per capita income]] cause (according to [[Engel's law]]) the goods demanded in these countries to be different from those that are demanded in [[developed countries]]. The latter generally are not only much more sophisticated, but such as to require facilities that are not yet available in [[developing countries]]. In addition, [[Engel's law]] may require a strict order in consumption decisions.
 
The last paragraph of the book gives an excellent summary of the contents and the tone of Pasinetti’s book:
 
{{cquote|“It may be consoling to think that the [[wealth]] brought to us by the [[industrial age]] is a much more favourable type of [[wealth]], that the old one, to relations among people and nations. For, if, in the pre-industrial world, the main way for a country to increase its [[wealth]] was to dominate and exploit its neighbours, today it has become to emulate them and do better. It is only a little less consoling to realise that, with all the new horizons open before us, we should so often let ourselves be prisoners of the old concepts and fall short of out actual possibilities, not because of objective difficulties, but because of the persistence of old ideas, which accomplish the rare combination of being both unfavourable and obsolete.”<ref>Pasinetti [1981], p. 276.</ref> |4= L.Pasinetti}}
 
In 1993, Pasinetti returned to the problems of structural dynamics with a beautifully compact book (''Structural economic dynamics – a theory of the economic consequences of human learning''). Scant attention has been paid thus far to this book. The book explores the complex inter-relations between the [[structural change]] of production, of [[prices]] and of [[employment]] as a necessary consequence of human learning, by carrying out the whole analysis in terms of a “pure labour model”, i.e., a model in which [[Labour (economics)|labour]], to be intended as human activity in general, is the only [[factor of production]]. This book has (incorrectly) been interpreted as an extreme simplification of the process of [[structural dynamics]], and this may explain why it has been neglected so far. But in fact, it goes to the very heart of the complex movements that are taking place in post-industrial societies as an effect of the accumulation and diffusion of knowledge. When these aspects will be fully understood, it may well emerge as containing the most fundamental of all the theoretical concepts thus far conceived by Pasinetti to interpret the basic economic features of the newly shaped world in which we live.
 
===Vertically integrated sectors and their importance for the dynamic analysis===
The deep study developed by Pasinetti in ''Structural Change and Economic Growth'' on the dynamics of growth of industrial systems led to the development of an entirely new analytical tool: the concept of ''vertically integrated sectors''.
In fact, in the 1965 paper, from which ''Structural Change'' was later developed, the notion of ''vertically integrated sector'' was already present, though more as a simplifying assumption than as a really important analytical concept. The publication of [[Piero Sraffa|Sraffa]]'s book ''Production of commodities by means of commodities'' in 1960 motivated Pasinetti to reflect on the importance of such a concept. As pointed out by Pasinetti:
 
[[Image:Sraffa.jpg|right|200px|thumb|[[Piero Sraffa]]]]
{{cquote|“[[Piero Sraffa|Sraffa]]’s book brought theoretical attention back to the process of [[Production (economics)|production]] considered as a circular process. This is precisely what, on purpose, I had completely eliminated from my analysis, by adopting not only a vertically integrated conception of the production process but also sharp simplifications as to the employment of [[Labour (economics)|labour]] and [[Capital (economics)|capital]] goods in each single sector. My approach had the great advantage of leading to dynamic analysis straightaway, without that fixity of coefficients which had constrained all [[Input-output model|inter-industry analysis]] into a static strait-jacket.” <ref name="Pasinetti 1981, p.xii"/> |4= L.Pasinetti}}
 
In 1973 Pasinetti published a paper, ''"The Notion of Vertical Integration in Economic Analysis"'', which would be a milestone for the development of all the analytical implications of the concept and its relation to the inter-industry theoretical schemes of [[Input-output model|Input-Output]] type.
 
The concept of vertically integrated sector is implicitly contained in the work of many economists. Most macroeconomic models, in order to avoid the analysis of intermediate goods, use that notion.<ref>Pasinetti [1980], p.16.</ref> The question then is why the use of the concept of a ''vertically integrated sector'' is much more advantageous for the dynamic analysis that, for instance, the classic [[Input-Output model]]s.
 
A vertically integrated sector is, above all, a purely theoretical construction. Each of these sectors is constructed behind each of the final goods production processes, so that these can be decomposed into two clearly distinguishable elements: an amount of labour and a quantity of capital goods. “In a vertically integrated model, the criterion is the process of production of a final commodity, and the problem is to build conceptually behind each final commodity a vertically integrated sector which, by passing through all the intermediate commodities, goes right back to the original inputs”.<ref>Pasinetti [1981], p.113.</ref>
 
The great advantage of this abstract construction is that, besides being much more relevant to the dynamic analysis, it can be easily converted by algebraic operations into an [[Input-Output model|Input-Output scheme]]. The coefficients of production of a ''vertically integrated model'' are basically a linear combination of the coefficients of production of an [[Input-Output model]]. This means that it is possible to obtain empirical values of the ''vertically integrated coefficients'' for an economy. We need only to obtain the values of the production coefficients on each [[industry]] (as it is commonly done by the different national account agencies) as well as the [[Capital (economics)|capital]] data at current prices; then we take the transposed inverse matrix of the estimated coefficients and we multiplied it by the vector of capital stocks. This allows us to obtain the vector of ''vertically integrated capital stock'' of an [[industry]], a vector that can be seen as a kind of composite good involved in the production of the final commodity considered, which Pasinetti calls unit of ''vertically integrated productive capacity''. A similar procedure is applied with respect to the coefficients of [[Labour (economics)|labour]]. Thus, each final good is summarized in a vertically integrated labour coefficient and a unit of vertically integrated productive capacity.
 
The importance of this algebraic manipulation is notable because it allows linking a measurable and observable magnitudes (corresponding to the [[Input-Output model|Input-Output analysis]]) with more compact magnitudes which have a deeper economic significance for the dynamic analysis. Thus, both methods ([[Input-Output model|Input-Output]] and [[vertical integration]]) are essentially different points of view to perceive the same thing.
 
Nonetheless, this relationship between the contribution of Pasinetti and [[Input-output model|Input-Output models]], valid for a static analysis, vanishes in a dynamic analysis. The matrix of technical coefficients, i.e., the link between the two methods of analysis, evolves over time due to [[technical change]] and change of production methods in the economy. That is, we would require an [[Input-output model|Input-Output]] table at each point in time for the dynamic analysis of an economy. However, the movement of vertically integrated coefficients can be analyzed over time, as these relationships include the expressions of [[technical change]]. This is the reason why the analysis in terms of vertically integrated coefficients is most appropriate for dynamic analysis. We can go back, however, to an inter-sectoral analysis ([[Input-output model|Input-Output]]) with reference to any given point in time when we are interested in it.
 
As Pasinetti says:
 
{{cquote|“In this context, the vertically integrated technical coefficients acquire a meaning of their own, independent of the origin of the single parts which compose them. The movements of these coefficients through time, and he various consequences thereof, can be investigated and followed as such. When more information is needed about the industrial structure at a particular point of time, the vertically integrated coefficients can be split and analysed into inter-industry coefficients particular to that point in time.” <ref>Pasinetti [1981], p.117.</ref> |4= L.Pasinetti}}
 
The result that the vertically integrated technical coefficients can be set up independently of the vagaries of technical change is a result of such importance that it could lead us to reconsider much of the work on structural economic dynamics:
 
{{cquote|“It may not be too much to hope that a better understanding, and a more explicit utilisation, of the logical process of vertical integration will help to overcome the widely recognised failure of modern economic theory to come to grips with the analytical difficulties of [[technical change]].” <ref>Pasinetti [1980], p.43.</ref> |4= L.Pasinetti}}
 
===Keynes and the Cambridge Keynesians===
[[Image:John Maynard Keynes.jpg|right|350px|thumb|[[John Maynard Keynes]].]]
''Keynes and the Cambridge Keynesians'' (2007) is the latest book published by Pasinetti.<ref>''Keynes and the Cambridge Keynesians: a “Revolution in Economics” to be Accomplished'', Cambridge University Press, 2007.</ref> Therein, Pasinetti proposes to consider [[Keynesian economics]] as an alternative paradigm to [[Neoclassical economics]], emphasizing the contributions of the [[Post-Keynesian economics|Cambridge Keynesians]] as well as future development lines on these issues.
 
Probably, Pasinetti -recognized as the heir of the Cambridge economists-,<ref>Baranzini M.; Harcourt G.C.[1993], pp. 2-7.</ref> is the most suitable economist to talk about that ambience, because, as he himself acknowledges:
 
{{cquote|“I happened to become, at a certain point, part and witness of this School. The inevitable emotional involvement of a participant may well have influenced my judgements, for better or worse. But I hope this will be counter-balanced by those insights that only insiders have the privilege to perceive.” <ref>Pasinetti [2007], p.xix.</ref> |4= L.Pasinetti}}
 
The gestation period of the book, as is usual for Pasinetti's books, was long: about 15 years.<ref>Pasinetti [2007], p. XX.</ref> In fact, with the notable exception of part three, the book is a collection of writings that Pasinetti had prepared years ago. Part three, on the other hand, is new and presumably the most important part of the book. That is, ''Keynes and the Cambridge Keynesians'' is composed of three parts or, more properly, of three Books.
 
Book I is a summary of what has been known as the "[[Keynesian Revolution]]". It is taken from set of lectures delivered by Pasinetti in memory of the Italian economist Federico Caffé, in October 1994 at [[La Sapienza University|La Sapienza University, Rome]]. In this Book, Pasinetti makes a chronological overview of the outbreak of the "[[Keynesian Revolution]]", from the first attempts of [[John Maynard Keynes|Keynes]] in the early 1930s, to the evolution of [[Keynesian economics|Keynesian thinking]] and the subsequent misinterpretation of his theory by the economists of the “[[Neoclassical synthesis]]”. Book I also contains some reflections on the progress of knowledge in [[economics]] and the rise and fall of [[Paradigms|scientific paradigms]] based on the work of the famous epistemologist [[Thomas Kuhn]]. The conclusions of Book I also advocate the revival of [[Keynesian economics]] with a touch of hope for future generations of economists:
 
{{cquote|“Perhaps, in spite of all, as a final consequence of the mounting difficulties in the attempts at reconciliations, it may well be the task of a new generation of economists to produce that break with orthodox economics that was started, genuinely attempted, strongly pursued, but not accomplished by [[John Maynard Keynes|Keynes]] and the Keynesian group. Many dramatic changes took place in the last two decades of the twentieth century on the economic and political scene. New minds –liberated from the prejudices that have been obfuscating our visions- may well have become better equipped to bring about that genuine [[Keynesian revolution]] which has so far remained unaccomplished.” <ref>Pasinetti [2007], p.50.</ref> |4= L.Pasinetti}}
 
Book II, entitled ''The Cambridge School of Keynesian Economics'' is by far the longest part of the book. It is composed of, in this order, by the biographies of [[Richard Kahn, Baron Kahn|Richard Kahn]], [[Joan Robinson]], [[Nicholas Kaldor]], [[Piero Sraffa]] and [[Richard M. Goodwin|Richard Goodwin]]. All of them had already appeared in various places several years earlier, although for this book Pasinetti re-arranged them. The chapter on [[Nicholas Kaldor|Kaldor]], for example, is a synthesis of two articles written on different occasions. In terms of space, [[Piero Sraffa|Sraffa]] is the economist treated in greatest detail by Pasinetti, dedicating to him three, quite independent biographical essays.
 
Besides the importance of each one of the biographies, the purpose of all of them is:
 
{{cquote|“The foregoing biographical sketches on [[Richard Kahn, Baron Kahn|Kahn]], [[Joan Robinson]], [[Nicholas Kaldor|Kaldor]] and [[Piero Sraffa|Sraffa]] may help –I hope- to highlight the multifaceted and significant aspects of the [[Post-Keynesian economics|Cambridge School of Keynesian Economics]]. I hope the reader may have been able to grasp the unity, in some basic sense, of their purposes and at the same time the intriguing disparities in their approaches in many other respects [...] <ref>Pasinetti [2007], p.199.</ref> I shall therefore argue that the relevant message that should be extracted from the works of the [[Post-Keynesian economics|Cambridge School of Keynesian Economics]] is, in fact, positive –not negative.<ref>Pasinetti [2007], p.xv.</ref> |4= L.Pasinetti}}
 
Book II ends with some suggestions, nine in total, which according to Pasinetti are at the heart of the "[[Keynesian Revolution]]". The issues involved are:
 
# Reality (and not simply abstract rationality) as the starting point of economic theory.
# Economic logic with internal consistency (and not only formal rigour).
# Malthus and the Classics (not Walras and the Marginalists) as the major inspiring source in the history of economic thought.
# Non-ergodic (in place of stationary, timeless) economic systems.
# Causality versus interdependence.
# [[Macroeconomics]] before [[microeconomics]].
# DIsequilibrium and instability (not equilibrium) as the normal state of the industrial economies.
# Necessity of finding an appropriate analytical framework for dealing with technical change and economic growth.
# A strong, deeply felt social concern.<ref>Pasinetti [2007], pp. 219-237.</ref>
 
Finally, Book III is a conclusion, not only of the previous chapters of this volume, but also of the whole conception of how Pasinetti would like [[Economic theory|economic analysis]] to be carried out. He asserts the need to rise above and go beyond [[Neoclassical economics]] through a genuine resurgence of a [[Classical economics|Classical]]-[[Post-Keynesian economics|Keynesian]] paradigm, which can be rescued and strengthened and developed by the methodology that Pasinetti has pursued during the whole of his life, made explicit for the first time in his ''Structural Change and Economic Growth''. Basically, he argues for the possibility of formulating, at a first level of investigation, a pure [[economic theory]], independently from the institutional framework of society, and then, at a second level of investigation, of developing an analysis of the relevant institutions, thus achieving a theoretical framework that may allow us to understand the basic features of the monetary production economies in which we live today.
 
==See also==
*[[Post-Keynesian economics]]
*[[Cambridge capital controversy]]
*[[Neo-Ricardianism]]
*[[Classical economics]]
*[[Ricardian economics]]
*[[David Ricardo]]
*[[John Maynard Keynes]]
*[[Michal Kalecki]]
*[[Richard Kahn, Baron Kahn|Richard Kahn]]
*[[Joan Robinson]]
*[[Nicholas Kaldor]]
*[[Piero Sraffa]]
*[[Richard M. Goodwin|Richard Goodwin]]
*[[Wassily Leontief]]
*[[Input-Output model]]
*[[Macroeconomics]]
*[[Engel's Law]]
*[[University of Cambridge]]
*[[Università Cattolica del Sacro Cuore|Università Cattolica Milano]]
 
==References==
{{Reflist|colwidth=30em}}
 
==Major works and bibliography==
 
===Works of Luigi Pasinetti===
*Pasinetti, L. [1960], "A Mathematical Formulation of the Ricardian System", in ''The Review of Economic Studies'', 1959–60, vol.27, pp.&nbsp;78–98.
*Pasinetti, L. [1962], ‘Rate of profit and Income Distribution in Relation to the Rate of Economic Growth’, ''Review of Economic Studies'', XXIX (4), October, 267-279.
*Pasinetti, L. [1965], "Causalità e interdipendenza nell'analisi econometrica e nella teoria economica", in: ''Annuario dell'Università Cattolica del S. Cuore'', 1964–65, Milan: Vita e Pensiero, pp.&nbsp;233–250.
*Pasinetti, L. [1965], "A New Theoretical Approach to the Problems of Economic Growth", in: ''Pontificiæ Academiæ Scientiarum Scripta Varia'', n.28; Proceedings of a Study Week on “The Econometric Approach to Development Planning”, Vatican City, 1963. Reprinted by: North Holland Publ. Co, 1965: Amsterdam, pp.&nbsp;572–696.
*Pasinetti, L. [1966], "New Results in an Old Framework: Comment on Samuelson and Modigliani", in ''The Review of Economic Studies'', vol.33, n.4, pp.&nbsp;303–306.
*Pasinetti, L. [1966], "Changes in the Rate of Profit and Switches of Techniques" (leading article of "Paradoxes in Capital Theory: A Symposium"), in ''The Quarterly Journal of Economics'', vol.80, pp.&nbsp;503–517.
*Pasinetti, L. [1969], "Switches of Techniques and the “Rate of Return” in Capital Theory", in ''The Economic Journal'', vol.79, pp.&nbsp;508–531.
*Pasinetti, L. [1973], "The Notion of Vertical Integration in Economic Analysis", in: ''Metroeconomica'', vol.25, pp.&nbsp;1–29. Reprinted in: L. Pasinetti (ed.), ''Essays on the Theory of Joint Production'', London: Macmillan; and New York: Columbia University Press, 1980, pp.&nbsp;16–43.
*Pasinetti, L. [1974], ''Growth and Income Distribution - Essays in Economic Theory'', Cambridge: Cambridge University Press. Translations: Italian: ''Sviluppo Economico e Distribuzione del Reddito'', Bologna: Il Mulino, 1977; Spanish: ''Crecimiento económico y distribución de la renta - Ensayos de teoría económica'', Madrid: Alianza Editorial, 1978; Portuguese: Rio de Janeiro, 1979; Japanese: Tokyo, 1985.
*Pasinetti, L. [1977],"On 'Non-substitution' in Production Models", in ''Cambridge Journal of Economics'', vol.1, pp.&nbsp;389–394.
*Pasinetti, L. [1977], ''Lectures on the theory of production'', MacMillan. Italian version: ''Contributi alla teoria della produzione congiunta'', Il Mulino Bologna, 1974, Translations: Spanish: ''Aportaciones a la teoría de la producción conjunta'', México City, Mexico: Fondo de Cultura Económica/Serie de Economía, 1986; Japanese: Tokyo, 1989.
*Pasinetti, L. [1980], ''Essays on the Theory of Joint Production'', London: Macmillan, and New York: Columbia University Press.
*Pasinetti, L. [1981], "On the Ricardian Theory of Value: A Note", in: ''The Review of Economic Studies'', vol.48, pp.&nbsp;673–675.
*Pasinetti, L. [1981], ''Structural Change and Economic Growth: a Theoretical essay on the dynamics of the wealth of nations'', Cambridge University Press. Italian version: ''Dinamica strutturale e sviluppo economico - Un' indagine teorica sui mutamenti nella ricchezza delle nazioni'', Turin: U.T.E.T., 1984. Translations: Spanish: ''Cambio estructural y crecimiento económico'', Madrid: Ediciones Pirámide, S.A., 1985; Japanese: Tokyo, 1983.
*Pasinetti, L. [1986], "Theory of Value - A Source of Alternative Paradigms in Economic Analysis", in: Mauro Baranzini and Roberto Scazzieri eds., ''Foundations of Economics - Structures of Inquiry and Economic Theory'', Oxford: Basil Blackwell, pp.&nbsp;409–431
*Pasinetti, L. [1988], "Growing Sub-systems, Vertically Hyper-integrated Sectors and the Labour Theory of Value", in ''Cambridge Journal of Economics'', vol.12, pp.&nbsp;125–134.
*Pasinetti, L. [1988], "Technical Progress and International Trade", in ''Empirica'', vol.15, pp.&nbsp;139–147.
*Pasinetti, L. [1989], "Ricardian Debt/Taxation Equivalence in the Kaldor Theory of Profits and Income Distribution", ''Cambridge Journal of Economics'', vol.13, pp.&nbsp;25–36.
*Pasinetti, L. [1993], ''Structural Economic Dynamics - A theory of the economic consequences of human learning'', Cambridge: Cambridge University Press. Italian version: ''Dinamica economica strutturale. - Un' indagine teorica sulle conseguenze economiche dell'apprendimento umano'', Bologna: Il Mulino, 1993; Japanese translation: Tokyo, 1998.
*Pasinetti, L. [1998], “The myth (or folly) of the 3% deficit-GDP Maastricht ‘parameter’”, in ''Cambridge Journal of Economics'', vol.22, pp.103-116.
*Pasinetti, L. [2003], Letter to the Editor, in: "Comments – Cambridge Capital Controversies", in ''Journal of Economic Perspectives'', Fall 2003, vol. 17, n. 4, pp.&nbsp;227–8. (A comment on Avi J. Cohen and Geoffrey Harcourt's "Cambridge Capital Theory Controversies" in ''Journal of Economic Perspectives'', Winter 2003, vol. 17, n. 1, pp.&nbsp;199–214).
*Pasinetti, L. [2007], ''Keynes and the Cambridge Keynesians: A ‘Revolution in Economics’ to be Accomplished'', Cambridge University Press. Italian version: ''Keynes e i Keynesiani di Cambridge. Una ‘rivoluzione in economia’ da portare a compimento'', Laterza, 2010.
 
===Other sources===
*Arestis, P. and Sawyer, M. (eds.) [2000], ''A Biographical Dictionary of Dissenting Economists'', Edward Elgar, second edition.
*Baranzini Mauro and Harcourt Geoffrey C. [1993], ''The Dynamics of the Wealth of Nations'', Macmillan, London.
*Blaug, M. [1985], ''Great Economists since Keynes'', Wheatseaf Books.
*Blaug, M. (1999), ''Who’s who in economics'', Edward Elgar, third edition.
*Cohen A. and Harcourt G. [2003], “Whatever Happened to the Cambridge Capital Theory controversies?”, ''The Journal of Economic Perspectives'', vol.17, no.1, pp.&nbsp;199–214.
*Fleck, F. H. and Domenghino, C. M. [1987], “Cambridge (UK) versus Cambridge (Mass.): a Keynesian solution of the ‘Pasinetti Paradox’, ''Journal of Post-Keynesian Economics'', vol. X, pp.&nbsp;22–36.
*Kaldor, N. [1956], Alternative Theories of Distribution, ''Review of Economic Studies'', vol. 23, pp.&nbsp;83–100.
*Kaldor, N. [1966], “Marginal Productivity and the Macroeconomic Theories of Distribution: Comment on Samuelson and Modigliani”, ''Review of Economic Studies'', XXXIII, October, pp.&nbsp;309–19.
*Harcourt, G. and Laing N. (eds.) [1971], ''Capital and Growth'', Penguin Modern Economics Readings.
*Harcourt, N [1975], ''Some Cambridge Controversies in the Theory of Capital'', Cambridge University Press.
*Leijonhuvfud, A. [2007], Between Keynes and Sraffa: Pasinetti on the Cambridge School.
*Meade, J. E. [1966], “The Outcome of the Pasinetti-process”: A Note”, ''Economic Journal'', vol.76, 1966, pp.&nbsp;161–165.
*Panico, C. and Salvadori, N. (eds.) [1993], ''Post Keynesian Theory of Growth and Distribution'', Edward Elgar.
*Robinson, J. [1953-1954], “The Production Function and the Theory of Capital”, ''Review of Economic Studies'', vol.21, pp.&nbsp;81–106.
*Samuelson, P. A. and Modigliani, F. [1966], “The Pasinetti Paradox in Neoclassical and More General Models”, ''The Review of Economic Studies'', pp.&nbsp;269–301.
*Scazzieri, R. [1983], “Economic dynamics and Structural Change: A Comment on Pasinetti”, ''Rivista Internazionale di Scienze Economiche e Commerciali'', 30, pp.&nbsp;597–611.
*Steedman, I. [1972], “The State and the Outcome of the Pasinetti Process, ''Economic Journal'', 82, December, pp.1387-95.
*Teixeira, J.R., [1998], ‘Luigi L. Pasinetti’ in: Ferdinando Meacci (ed.), ''Italian Economists of the 20th Century'', Edward Elgar, Cheltenham, UK, pp.&nbsp;272–294.
 
==External links==
*[http://docenti.unicatt.it/web/searchByName.do?cog_docente=pasinetti&nom_docente=luigi&x=0&y=0&op_parameter=op_find&tipo_ppd=LIGHT&language=ITA&currentpage=1&from=1&to=15 Biography at Università Cattolica del Sacro Cuore]
*[http://cepa.newschool.edu/het/profiles/luigi.htm Biography at History of Economic Thought CEPA website]
 
{{Authority control|VIAF=34468567}}
 
{{Persondata        <!-- Metadata: see [[Wikipedia:Persondata]] -->
| NAME              =Pasinetti, Luigi
| ALTERNATIVE NAMES =
| SHORT DESCRIPTION =
| DATE OF BIRTH    =12 September 1930
| PLACE OF BIRTH    = [[Zanica]]
| DATE OF DEATH    =
| PLACE OF DEATH    =
}}
{{DEFAULTSORT:Pasinetti, Luigi}}
[[Category:Living people]]
[[Category:Post-Keynesian economists]]
[[Category:Italian economists]]
[[Category:1930 births]]
[[Category:Università Cattolica del Sacro Cuore alumni]]
[[Category:Università Cattolica del Sacro Cuore faculty]]

Latest revision as of 17:43, 29 March 2014

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