This article looks at the contributions of Joan Robinson in understanding the elasticity of substitution, a key concept used in the study of inequality today.
Author
Rahul Menon, Associate Professor, Jindal School of Government and Public Policy, O.P. Jindal Global University, Sonipat, Haryana, India.
Summary
Independently devised by John Hicks and Joan Robinson, the elasticity of substitution (σ) plays an important role in mainstream theories of inequality. This paper examines the role of σ in Robinson’s writings, charting the differing ways in which she used it to examine questions of distribution. Robinson initially applied the concept to examine distribution in a Keynesian framework, proceeding to downplay its importance later on in spite of having played a central role in its formulation.
Her criticisms of the nature of neoclassical production functions led her to dismiss mainstream theories of distribution as tautological, while seeing σ as an expression of the potential for rising profit shares under full employment. The use of a single parameter such as the substitution elasticity in mainstream frameworks neglected the important role played by investment and institutions, drawing focus away from an understanding of the ‘rules of the game’ that determined distributive shares in capitalist economies.
Given the primacy of σ in discussions today — in textbooks and in the works of economists such as Thomas Piketty — her writings offer an important critique of established frameworks, while also advancing alternatives that stress the role of institutions and class conflict in modern economies.
Published in: Review of Political Economy
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