ABSTRACT
The third point of this paper regards recent contributions that analyse possibilities and characteristics of perverse cases within general equilibrium models. How do the perverse cases represented in this framework relate to the old debates on capital theory? Bloise and Reichlin (2005) maintain that their general equilibrium scenario makes it possible to clarify a conceptual distinction between the principle of substitution and capital reversal. While some reservations about their definitions, and therefore their arguments, are advisable, the distinction they show between a (well-behaved) principle of substitution and a paradox of thrift (a decrease in steady state per capita consumption as the propensity to save increases) is a new and important result. Thus, in my view this contribution consists not in clarifying erroneous points from past debates, but in broadening the focus of the analysis in the direction of more complex possibilities of perverse behaviours, whose causes and characteristics remain, however, largely open to further investigation. The three points presented in the paper constitute clear examples of how the debate on perverse cases cannot be considered a closed book. Significant differences with respect to the debates of the 1960s emerge, however, and not only because the focus of the analysis has widened. The earlier debate had a very strong ideological impulse, which continues to pervade part of today’s discussion. Undoubtedly this impulse fostered a number of analytical results, but it also generated many distortions, which have been stressed and sometimes roundly criticized in the literature in recent decades. The contributions presented here appear free from ideological constraints. There is no theory to criticize for its alleged support of some ideological position, but rather “events” or possibilities to investigate: this seems to be a more fruitful approach and the arguments analysed in this paper appear firmly cast in this vein. “We must respect, and appraise, the facts of life”, Samuelson wrote in 1966 in his “Summing up” on the QJE, concluding his acknowledgement of the logical possibility of reswitching. This was an excellent teaching, one that remains very timely: the “facts of life” in this field are still largely open to investigation, hopefully a lay investigation, as any scientific investigation should be.
