'Perverse cases' and the debate on neo-classical theory of distribution: recent contributions on an open issue

The aim of the essay is to clarify a number of ambiguities that the debates on capital theory of the 1960s and 1970s left open and to underscore new lines of analysis within which the possibility of ‘perverse cases’ can be studied. The essay is developed around three points. The first is to show that reswitching and capital reversal have no particular role in the critique of the aggregate neo-classical theory of distribution. The translation of curves of supply of and demand for capital in one-good models into n-good models runs into conceptual difficulties such as to make these curves a meaningless construction in n-good models, whatever the behaviour of the demand for capital may be and, thus, independently of whether ‘perverse cases’ occur or not. The second point is the assessment of the importance of ‘perverse cases’ on the basis of the probability analysis of such cases. The results obtained so far offer strong support for the consideration of capital reversal as a paradoxical or perverse case. The third point regards recent contributions that analyse the possibility and characteristics of ‘perverse cases’ within general equilibrium models. Within this context, a paradox of thrift (a decrease in steady state per capita consumption as the propensity to save increases) appears as a quite new result. In conclusion, the three points underscore both an interesting broadening of the focus of the analysis of capital theory and significant differences with respect to the debates of the 1960s.