ABSTRACT
Two issues have obscured the failure of neoclassical analysis to provide a coherent theory of the determination of the normal rate of profit in a competitive economy. First, the erroneous belief that the failure derived from an inability to ‘aggregate’ capital. It was shown by Pierangelo Garegnani in his 1958 Cambridge PhD dissertation (Garegnani, 1960) that in fact the failure derives from the impossibility (other than in single commodity models) of expressing the endowment of reproducible means of production in a manner which is compatible with the solution of the equations for the determination of long-period positions and the normal rate of profit. His exposure of the deficiencies of Walras’s theory of capital is the starting point of this essay. Second, the failure has been further obscured by a fundamental change in the notion of equilibrium (again first explored by Garegnani, in this instance in his contribution to the Buffalo conference on capital theory, 1976). The notion of equilibrium has been changed from the traditional concept of normal or long-run equilibrium to the relatively novel concept of intertemporal equilibrium 1 (Milgate, 1979). Instead of providing the starting point for an empirical analysis of the workings of a market economy, the concept of equilibrium has been reduced to a name for the solution of any set of equations, divorced from the systematic workings of a competitive economy.
