# Was there anything to the Cambridge capital debates?

Many readers raise this topic in the comments. Sadly I must characterize the Cambridge capital debates as a fruitless diversion. The non-neoclassicals won virtually every point on the modeling, but it doesn’t much matter when it comes to the substance. The critics showed that:

1. There is no unique measure of roundaboutness or capital intensity which is independent of the interest rate (i.e., market prices).

2. Since equations with exponents often have multiple roots, sometimes more than one interest rate can serve as an equilibrium in a simple capital theory problem.

On #1, I say so much the worse for roundaboutness. (By the way, I tried to find a good definition of "roundaboutness" on-line but I couldn’t; that is indicative.) The concept of risk is in any case far more useful for macro, capital theory, and finance. While the risk idea has its own problems, no credit goes to the Cambridge critics there.

On #2, multiple equilibria of the Cambridge sort are not a major problem or issue in modern capital markets. A variety of forces — including money markets, loanable funds and institutional frictions — hold interest rates in place. No real world interest rate is determined solely by the solution to a single equation with exponents. Empirically, interest rates do not suddenly leap to another equilibrium under stable basic conditions. The single-equilibrium supply and demand model for interest rates, modified possibly by credit rationing, seems to explain the real world reasonably well. Whatever puzzles exist do not seem attributable to the existence of multiple roots for an equation with exponents.

If you readers are not careful in your comments, you might soon get a post on the contributions of Piero Sraffa.