ABSTRACT
This paper argues that Hicks’ Capital and Growth, and its rewritten version Methods of Dynamic Economics, constitute a critique of both Neo-classical and Classical economics.The critique of the Neo-classical side is explicit: it appears in the series of explanations concerning the necessity to abandon the Temporary Equilibrium method of Value and Capital. Furthermore, the way in which Hicks argues against the assumption of a given aggregate saving ratio takes him straight into the Kaldor-Pasinetti Cambridge Equation. Having jettisoned both the Temporary Equilibrium and the Harrod type Fixprice methods, Hicks ends up with Sraffa type prices of production. By inserting those prices into the saving equation he obtains a model where any change in the natural growth rate implies a change in the distribution of income à la Kaldor with the underlying prices being determined à la Sraffa.
Up to this point the analysis runs in terms of comparing alternative equilibrium positions. Nothing has been said about how the system can get into equilibrium. The paper shows that Hicks’ Traverse represents the analytical framework dealing with this specific Robinsonian preoccupation. The outcome of Hicks analysis is particularly inimical to the Neo-classical idea of convergence, yet it provides also all the elements for a critique of Classical economics. The essence of the Classical view on the basis of which a change in the wage rate implies an inverse change in the profit and growth rates, is criticised by using Hicks’ own Traverse model. The difference vis à vis Hicks’ lies in that it is assumed that investment is exogenously 79determined à la Kaldor and that the techniques of production are uniform across the two sectors. In this way we obtain a Kaldorian-Classical model where Kaldorian adjustment is not possible. It is then argued that Kaldor’s theory of distribution is so rooted in Classical economics that the refutation of the Kaldorian adjustment process is an indirect refutation of the Classical mechanism. In this context, the structural Traverse is used to show that Classical adjustments are derailed by the emergence of the problem of effective demand.
