Sraffa and Calculation

Steve.Keen at unsw.EDU.AU Steve.Keen at unsw.EDU.AU
Thu Aug 4 17:13:20 MDT 1994

While I agree with the vast majority of Chris' comments on the
incompatibility of the dynamics of actual capitalism with any conception
of price formation based on the statics of ANY school of economics
(marxian, sraffian, post-keynesian or neoclassical!), I must put a
word in for Sraffa here.

Most critics of Sraffian economics seem to think that Sraffa's work
was intended to be the foundation of a new school of economics (or,
as Chris put it, the revival of Ricardian economics). They seem to
gloss over the sub-title to that work": "Prelude to a critique of
economic theory". As my colleague Peter Kriesler emphasises, Sraffa
was a pedant who on one occasion spent weeks arguing with Dobb over
the location of a comma: therefore, each word in his title was
important, and this phrase implies that what was intended was a
critique of existing theories, not an attempt to construct new ones.

If you want to see what Sraffa would have preferred as a foundation
to a new kind of economics, consult his 1926 EJ article "The Law
of returns under competitive conditions", where he in part suggests
what he would prefer to the then Marshallian orthodoxy. A short

"Everyday experience shows that a very large number of undertakings...
work under conditions of individual diminishing costs... Businessmen,
who regard themselves as being subject to competitive conditions,
would consider absurd the assertion that the limit to their
production is to be found in the internal conditions of production
in their firm... The chief obstacle against which they have to
contend ... [lies] ... in the difficulty of selling the larger
quantity of goods without reducing the price, or without having
to face increased marketing expenses. (p. 543)

This is clearly an utterly different basis than that used in the
_Production of Commodities by means of commodities: prelude to a
critique of economic theory_. In that work, I would arhgue that
he did a "moot point": he dedic (typo) decided to accept the
definition profferred by his debating opponents (the neoclassicals)
and still show them to be wrong. Thus he set out the conditions
which would prevail in a perfectly competitive economy which was
in long run equilibrium. In that world, no appeal can be made to
marginal pricing methods, precisely because nothing is changing:
there is no margin. Sraffa then demonstrated that, once one
incorporates the manifest fact that commodities in such a world
are produced entirely by commodities and labor, the prices are
indeterminate unless the distribution of income between profits
and wages is decided prior to the calculation of proce (type0)
prices. This showed that the neoclassical method could not
explain the distribution of income as an "objective" outcome
of the pricing system--which metaphorically drove a Mack truck
through neoclassical theory. The debates it spawned between
conservatives and critics eventually led one of the leading
lights of the conservatives--Paul Samuelson--to effectively
cond concede defeat.

This has not stopped the vast majority of neoclassical cohorts
from pressing on regardless, of course (they are as wedded to
the meoclassical --deliberate typo!-- vision as it seems many
marxists are to the LTV). But it is an immense service to
critical thought.

Steve Keen


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