(economic wonk alert - tough subject matter at the edge)

The debate was between economists at Cambridge University and some at MIT or Cambridge, Massachusetts from about 1950 to about 1970. It related to the nature of capital, its remuneration and how to aggregate it for macro production functions. Was it a fluid money input (US) or was it a wild array of different manufacturing equipment and techniques that has no common denominator and could not be aggregated for use in a production function(UK)?

Nearly everyone accepts that the UK technically won the debate on the aggregation point, something Paul Samuelson acknowledged early on. In the short run, capital is fixed as an aggregate pile of dissimilar equipment. In the long run, capital is a fluid, variable money input, not fixed at all and relative unlimited in supply, unlike the case for other factor inputs. In my view, this has serious implications and consequences for the marginal productivity factor remuneration of capital and indeed labor.

The capital debate goes to the very idea of capital and its remuneration. Classical political economy authors, from William Petty to Karl Marx, including Quesnay, Smith and Ricardo, treated the process of production as a circular one. In this view, capital is "a produced means of production," rather than a factor of production fixed in supply, at least in the short run, used to produce final goods.

The most important result of the debate is that, once capital is defined as a produced means of production, there is now no direct relation between the relative abundance or scarcity of capital (relative to say labor) as a means of production and thus the marginal productivity theory of value for its remuneration becomes compromised by political intervention, at least in the long run when plant and equipment are variable. Distribution to factors of production becomes not governed by supply and demand and relative scarcities because of such political intervention to negate capital's naturally low remuneration due to its relative abundance.

Typically, it is assumed that the capital debates relate simply to problems of aggregation, and whether the use of aggregate production functions and aggregative measures of capital were still justifiable, even for simplicity's sake. However, contrary to this viewpoint, in my view, the capital debates did not rest just upon the possibility of building aggregate measures, but on more important issues.

Since the Marginalist Revolution, and the rise of the so-called neoclassical school, the notion that relative prices are determined by supply and demand, and that these reflect the relative abundance or scarcity of all goods and services - including factors of production - became consensual. As a result, the supply and demand for capital became the determination for the remuneration of capital. The more abundant is capital, the lower its remuneration, and vice versa if it is scarce. Conflict had no role to play in the determination of distribution, and political and social issues vanished entirely from analysis.

Because the supply of money is substantially unlimited, because capital formation entails multiple factors of production being used, because of multiple substitution effects exist for those factors and because of the technological effects of innovation, the supply of capital itself in truth is substantially unlimited, unlike other production factors, especially in a low interest rate environment. Relative scarcity is less a concern for capital than it is for other factors, especially labor at full employment.This relative super abundance of capital should lead to its relatively less remuneration under marginal productivity factor pricing, but that is not what we now observe.

Instead, we observe US corporate management misappropriating by fiat most of labor's increased marginal productivity gains to capital since about 1973, due to the fact it can and management controls the corporate revenue stream, This is a counter and political move due to capital's reduced marginal factor productivity because of its relative super abundance, destroying marginal productivity factor pricing for capital and for labor, substituting corporate political muscle instead. Little consensual is left.

Capital or corporate management does not like the consequence of marginal productivity pricing for capital and if confronted would argue why should the costly supply of more capital increase labor's remuneration and reduce capital's. There is no economic justice in that. This is why in the US since 1973, we see corporate management misappropriating labor's increased productivity remuneration, tossing marginal productivity pricing for capital and labor out the window and also rewarding themselves more handsomely at the same time. We have political intervention in factor pricing.

Few seem to grasp the real implications and relevance of the key aspect of the Cambridge capital debate itself.