Date: Fri, 05 Aug 1994 09:13:20 +1000 From: Steve.Keen-AT-unsw.EDU.AU Subject: Re: Sraffa and Calculation 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 excerpt": "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. Cheers, Steve Keen ------------------
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