Pasinetti on the Measurement of Productivity Changes

During his stay at Harvard in 1957-1958, Pasinetti wrote, under the supervision of Wassily Leontief, an essay ‘On Concepts and Measures of Changes in Productivity’, later to be published in the Review of Economics and Statistics in 1959. It was the first controversy that he stirred, since it led Robert Solow, at Massachusetts Institute of Technology (MIT), to write a long ‘Comment’ trying to rebuke Pasinetti’s analysis (Solow 1959: 282-285). Pasinetti expressed a deep dissatisfaction with the way in which the marginalist school treated technical progress in general, and Solow in particular in his famous paper ‘Technical Change and the Aggregate Production Function’ (Solow 1957), which had appeared in the Review of Economics and Statistics in 1957. Pasinetti, who in this context asserts the prominence of technical progress over capital accumulation, notes that: ‘[T]he whole neo-classical movement and the increasing modern application of mathematics, which have contributed so much to improving the tools of economic analysis and to conferring rigor and definiteness on economic thought, have preferred to leave technical progress aside’ (Pasinetti 1959: 270).

We may recall that it was in the 1950s and 1960s that the rate of growth and the role of technical progress turned out to be so important in most industrialized countries. It is not surprising that Pasinetti goes on adding that:

The trouble is that technical changes are hard variables to deal with in analytical terms. The statistical data which have appeared in the last few decades have come as quite a surprise to economists, because their theories, from the Ricardian to the neo-classical, did not lead them to expect such results. I refer in particular to some statistical evidence for the United States and for other ‘capitalistic’ countries which has shown that, on the average and in the long run, shares of labor and capital in the national product have not changed very much, that wages have not remained at the subsistence level but have risen in proportion to national income, that capital per man has indeed increased but output per man has also increased in proportion, that the rate of remuneration of capital has remained almost constant (ibid.).

He adds:

There have been some attempts by economists to complete these evaluations and to introduce capital into the picture, by making use of theoretical notions like the production function, but these attempts—in the writer’s opinion—have neglected an important characteristic of capital—that it is reproducible and that its process of production is also subject to technical change (ibid.).

The question of technical progress and composition of demand has always been the thread along which Pasinetti has developed his research programme. In 1974, he wrote:

[In] my own discussion with Solow...I have pointed out that, according to Solow’s own findings, the aggregate capital-output ratio in the U.S. economy was lower in 1949 than in 1909. It could therefore be argued that, during that period, the overall capital intensity of the U.S. production processes, very far from increasing (as Solow’s ‘moving along the production function’ would suggest), has in fact decreased (Pasinetti 1974: 92, fn. 15).