Revisting the 'machinery effect': from Ricardo to Hicks

The controversy between optimists and pessimists that followed and keeps dividing the economists is the result of the absence in the dominating economic theory of an analytical framework able to deal properly with out-of-equilibrium processes as is the one through which a technological restructuring of production takes place. This theory looks in fact at capital as a stock of physical goods into which free capital has been already embodied, and which is divided into fixed capital goods (structures and machinery) and working capital (which includes wage goods). The Neo-Austrian representation of the process of production introduced by Hicks puts into the shade the argument of fixed vs. circulating capital that has characterized the controversy, to shift the focus on the real issue at stake in the technological restructuring process, that is, ‘that investment at cost is not the same as investment of output capacity'. It allows re-establishing the classic analysis of the wage fund as the economic beginning of a production process. Focusing on the coordination problems involved in phase of restructuring, the paper confirms the Ricardo's intuition as well as the analytical advance by Hicks, and shows that the so called technological unemployment is not a temporary mechanical problem due to the characteristics of technology but a more general problem due to market behaviours and policies.