pierosraffa

[sraffasnotes-blog]

Summer 1927, D3/12/3: 37 ‒ 40; A4.14.ii ‒ iii

We shall mainly be concerned with the study of the causes of the determination of the price of an individual commodity, considered separately from all the others; we shall assume that all prices and quantities of other commodities are constant (i.e. not affected by variations of our own), and regard them as data of our problem.*

[* We shall also assume that our commodity is only one of a great number that is produced with the same factors of production and consumed by the same consumers, so that its variations cannot appreciably affect marginal utility of money and cost of factors of production.]

We shall therefore take into consideration only demand prices and expenses of production, without regard of the utilities and real costs which may be behind them.*

[* expand according to Marshall 338–9.]

It would not be legitimate, under the given hypotheses, to follow a different course: in fact, the only way of measuring the utilities of our commodity, is to observe the amount of money sacrifice that each successive dose is able to call forth and, being a very specialised commodity, the slope of the demand curve for it will be chiefly determined by the prices of substitutes (at fixed prices) and by their efficiency in giving utility, and only to a negligible extent by its «absolute utility»: and we shall not be able to go behind the prices of substitutes to find out their utility, as, ex hypothesis, we cannot make vary their consumption.*

[* Demand curves are inter-destructive: Wicksteed.]

On the other hand, cost of production would be only the loss of remuneration {of production factors} involved in not using them (at fixed remuneration) in the other industries, which would, ex hypothesi, be willing to take any amount of them at fixed prices.*

[* expand explain why it is necessary to stick very rigidly to the hypotheses.]

But this method of reasoning {about distribution} is legitimate only in respect of one commodity at a time: we could of course apply it in succession to each of the other commodities (so far as they can reasonably be brought within such hypotheses: not, e.g., corn) but not to all or several commodities at the same time.

We can therefore go without a conception of ultimate standard of value: our standard is − the value of other commodities: and this can be done, and is useful so far as we want to inquire into the internal organisation of an industry and its methods of marketing.

But so soon as we want to analyse how the general equilibrium is reached – i.e. we want to analyse the interactions of one commodity upon the other, how they affect each other’s conditions of production and utilities, and how the remuneration of common factors of production is determined − then an ultimate standard of value is required. We can no more refer the costs and utilities of one article to the costs and utilities of another one − in this case this would beg the question, and we would be reasoning in a circle.

Two standards offered: they are the same thing – words. But the intermediate is illegitimate: you cannot say where one begins and the other ends: and they are not independent. And if they were could they be measured one in terms of the other? crossing curves, Bernoulli? or Wicksteed

However there is one reality in cost, i.e. labour.

[neomarxian]

Two Sraffian journals were started in the 1980s, one, Contributions to Political Economy, continues to be published, while the other, Political Economy: Studies in the Surplus Approach, ended a long while ago. Now the Centro Sraffa has made all the issues available for free electronically. Really good news. Enjoy!

[pierosraffa]

Reconstructing the classical theory of value and distribution

[radicaleconomics]

A striking feature of the present position of economic science is the almost unanimous agreement at which economists have arrived regarding the theory of competitive value, which is inspired by the fundamental symmetry existing between the forces of demand and those of supply, and is based upon the assumption that the essential causes determining the price of particular commodities may be simplified and grouped together so as to be represented by a pair of intersecting curves of collective demand and supply. This state of things is in such marked contrast with the controversies on the theory of value by which political economy was characterised during the past century, that it might almost be thought that from these clashes of thought the spark of an ultimate truth had at length been struck. Sceptics might perhaps think that the agreement in question is due, not so much to everyone being convinced, as to the indifference felt by the majority nowadays in regard to the theory of value–an indifference which is justified by the fact that this theory, more than any other part of economic theory, has lost much of its direct bearing upon practical politics, and particularly in regard to doctrines of social changes, which had formerly been conferred upon it by Ricardo and afterwards by Marx, and in opposition to them by the bourgeois economists. It has been transformed more and more into “an apparatus of the mind, a technique of thinking” which does not furnish any “settled conclusions immediately applicable to policy.” It is essentially a pedagogic instrument, somewhat like the study of the classics, and, unlike the study of the exact sciences and law, its purposes are exclusively those of training the mind, for which reason it is hardly apt to excite the passions of men, even academical men–a theory, in short, in respect to which it is not worth while departing from a tradition which is finally accepted. However this may be, the fact of the agreement remains.

Piero Sraffa, The Laws of Returns under Competitive Conditions (1926)

[grahamjoncas]

A lovely little essay on Cantillon providing a brief biography, summarizing his magnum opus, and hinting toward an integration of Cantillon’s work into a Sraffian framework (particularly the topic of inflation). Here’s my favorite part:

Cantillon presents a vivid description of how market prices are formed:

Prices are fixed by the proportion between the produce exposed for sale and the money offered for it; this takes place in the same spot, under the eyes of all the villagers of different villages and of the Merchants or Entrepreneurs of the Town. When the price has been settled between a few the others follow without difficulty and so the market price of the day is determined (Cantillon 1755: 13).

Hence, the produce brought to the market would be sold at the existing market price. Since the farmer has no way of knowing these market prices in advance, he carries out farming at a risk. The market prices would vary according to how much the buyers wanted to consume and how much they were willing to pay. The ability to pay, in turn, was determined by the incomes they received which was determined by their role in the production process. Moreover, the market prices would influence the future production decisions of the farmer. This is one of the reasons why Cantillon is considered to have visualised the economy as a circular process between production and consumption.

[grahamjoncas]

For those new followers looking for a short intro to Sraffa and explanation of the importance of his work, this is probably the shortest and most accessible introduction to Sraffa on the internet. It consists of a set of brief essays spanning his entire career. The table of contents is as follows:

Piero Sraffa’s Contributions to Political Economy

Piero Sraffa’s Early Academic Career

Piero Sraffa in Cambridge

The Years Of Preparation

Sraffa on Ricardo

Production Of Commodities By Means Of Commodities

Sraffa’s Method

A Solution to Ricardo’s Invariant Measure Problem

  It leaves out the more complicated theoretical aspects (such as his controversy with Hayek), which are impossible to describe concisely, instead tailoring itself to Marxians by showing how Sraffa solves the problems of value that Marx found intractable, thus reviving the research programme begun by Ricardo.

For an introduction to Sraffa from a more orthodox economic perspective (and which delves more into the philosophical influences upon Sraffa’s work), look here.

[grahamjoncas]

Piero Sraffa is one of the key intellectual protagonists of the 20th century. This book provides a comprehensive overview of Sraffa’s life and his influence on politicians, economists and philosophers such as Antonio Gramsci, John Maynard Keynes and Ludwig Wittgenstein. 

Alessandro Roncaglia closely examines Sraffa’s ideas and theoretical contributions, from the critique of Marshallian theory of the firm to his revival and reinterpretation of the classical approach. This book considers the explosive potential of Sraffa’s celebrated work Production of Commodities by Means of Commodities, which provided both the solution to the problems left open by the classical theory of value and provided the foundations for a critique of marginalist-neoclassical theory of capital and distribution. 

Sraffa aimed at a complete turn-around of economic theory from the dominant neoclassical-marginalist approach to a classical-Keynesian one, and this book discusses present trends of research within this latter approach, the full impact of which has not been understood by mainstream economics. This perceptive and in-depth account is a must-read for all interested in rediscovering the development of the ‘Sraffian Revolution’. 

[grahamjoncas]

An Unofficial Synopsis of Sraffa, by Steve Keen

[The following is a response to a skeptical colleague asking for “a summary of the robustness of Sraffa’s position in a way that would be intelligible to a non-economic Marxist.” It’s still fairly dense, however, and not recommended to the reader unfamiliar with economics of any form. For a more accessible introduction which doesn’t dwell on nitty-gritty theoretical points, see here.]

Keep reading

[pierosraffa]

[deathwombcatechesis]

Thank you fuckyeahpierosraffa for this even though I already speak Spanish <3

[libertarians-and-stoya-deactiva]

Sraffa is laughable at best.  Nothing has come out of his school of thought that has had any major impact on economic thought.

[marlkarx-deactivated20130226]

Yeah, Neoclassicism’s refusal to listen to Sraffa means he’s totally wrong.

Keen talks about the lack of empirical evidence to support Neoclassical economics.  While I admit I don’t know as much as I want to about economics (which is why I’m an Econ Major - I want to learn) I can hardly see why this one person sees the lack of empirics and everyone else is just blind.

To me, that borders on conspiracy theory.

That’s not a criticism he and only he has made.

Keen’s critique of the Neoclassical theory of the firm is an interesting one, and something I’d like to delve into.

However, neglecting to read any modern economics because a few people who are similar in ideological thought to you is the essence of idiocy.  It’s confirmation bias and makes you look stupid.  Have fun ranting about things you don’t know about because you refused to learn it.

I’m not refusing to read it because Steve Keen or Piero Sraffa told me not to. I’m just not interested in economism.

[libertarians-and-stoya-deactiva]

>refusal to listen

Right, because Economics is one big debate, not like, a bunch of PhDs trying to keep it a rigorous scientific inquiry or anything.

Sraffa wasn’t able to convince the economics community for whatever reason.  That’s a failure on his part for obviously not bringing in enough data to support his belief.

Economics is not a conspiracy theory against left-wingers.

I’m not refusing to read it because Steve Keen or Piero Sraffa told me not to. I’m just not interested in economism

It doesn’t surprise me that a communist does’t want to engage in economics.  Communism has a really good set of moral values set up, but fails when it comes to the economics side of things.

It’s a shame, really.

[grahamjoncas]

Ah, I had wondered what sentiment lay behind this post of yours.

This is sort of an obligatory reply, but I want to make clear from the outset that I’m not on MK’s “side,” and in fact that I agree with you much more than him. The main ‘mistake’ I think you’re making is to assume that Sraffa had the same motivation as the multitudes of hipster (pseudo-)economists who skim a blog post about Sraffa and then squeal about how “OMG NEOCLASSICAL ECONOMICS IS WRONGGGGGGG.” Admittedly, even a lot of prominent Sraffians feel the same way, but given the empirical success of orthodox economics that you rightly allude to, I’m of the opinion that such a view is absurd, except in rare cases. Sraffa’s own motivation can primarily be attributed to his feeling that ‘subjective’ concepts about utility, preferences, and the like aren’t rigorous, so therefore he wanted to figure out a new way of doing economics that didn’t involve these sort of concepts. This is why it’s ridiculous for MK to cite Sraffa in favor of his dislike of economics’ portrayal of ‘human nature’—contrary to those formerly known as the Post-Autistic economists, Sraffa thought that economics isn’t ‘autistic’ enough, and hence his theory only focuses on ‘objective’ (as opposed to ‘metaphysical’) quantities such as the level of profit a firm needs to make in order to perpetuate itself.

The other mistake you make is to overgeneralize about Sraffa’s supposed lack of influence on normal economics. I’m not sure how much you know about Sraffa’s ouevre, but early in his career he wrote a critical article about Alfred Marshall, pointing out some of the flaws in his Principles of Economics, and it was very well-received. These flaws (minus some of the extreme ones, like Sraffa’s critique of the supply curve) were subsequently expunged from the canon of economics. And, of course, there have doubtless been thousands upon thousands of similar refutations of misguided ideas in economics—even in the case Paul Samuelson’s famous textbook, I hear—but you never heard about them because there’s no point in naming names for something so trivial. If textbooks named every person who debunked a mistake someone made in economic theory, they would be ten times as thick as they are now.

More importantly, there is certainly a fair amount of orthodox acceptance of Sraffa. The best example I can think of is Greg Mankiw, who agrees that marginalism is incapable of fully theorizing international trade because of its inability to quantify capital, and thus that for this we’re forced to turn to Sraffa’s work. This goes back to the Cambridge capital debates, the basic argument of which (besides reswitching, which is also very interesting) is that the marginalist concept of quantity of capital has no basis in reality, but is in fact circular, since it can be ‘known’ only when one already knows the period of production, which can be known only when one knows the rate of profit, which can be known only when one knows the quantity of capital. So you can calculate in terms of ‘marginal product of capital’—say, in intermediate econ classes where you’re computing a general equilibrium—but actual economists don’t bother, since there’s just no point.

As for empirical work done by Sraffians, it is possible and has been done, but it’s impractical for a lot of things. It involves a lot of matrix algebra, and most major empirical work would require economists to pile matrices upon matrices, whereas marginalist methods are way more convenient, except in such things as international trade which marginalism can’t theorize, as mentioned above. If you’re curious about Sraffian work on trade, Ian Steedman is probably the most well-known economist to publish work on the subject, and he’s been very productive. For the most part, however, Sraffian economics is used for the comparative analysis (and critique) of economic systems.

And on this last note, I want to point out that there is a way of thinking about Sraffa’s work that doesn’t involve a naïve dismissal of economics as rubbish: namely, to use the metaphor of different geometries. Euclidean geometry proceeds by certain specific definitions and axioms, and once these are accepted the entire Euclidean edifice can be deduced from them. BUT, Euclidean geometry only applies to flat surfaces, and is entirely inaccurate when it comes to, say, measuring a square drawn on a sphere. So, eventually geometers came up with Non-Euclidean geometry, which, by changing one of the axioms and slightly modifying a few of the definitions, is able to theorize round surfaces, but not flat surfaces. See where I’m going with this? There are some economic ‘surfaces’ that marginalism is just incapable of theorizing, i.e. anything involving capital in its quantitative aspect, just as Sraffian economics is incapable of answering questions about preferences and other ‘subjective’ concepts. And just as it would be ridiculous to measure a baseball diamond using non-Euclidean geometry because of the infinitesimal curvature of the Earth, so in most situations marginalist economics is just more practical to use.

So in short, Sraffian economics is not necessarily more ‘true’ than marginalism, but it’s just a different but equally legitimate way of doing economics. And the handy thing about having a different perspective on economic matters is that Sraffian economics is able to point out those situations in which economics makes no sense, i.e. when it’s neither right nor wrong. I’ll leave it at that for now. Let me just note parenthetically that Sraffian analysis is equally applicable to Marxism and Austrian economics.

[grahamjoncas]

The question asked of the theory of value is the following: Given (from experience) the prices of all commodities at one moment, find a set of conditions that will make these prices appear to be necessary. This means, given the unknowns, find the equations (i.e. the constants): we therefore have given, and know, the “unknowns”, and are looking for the constants. But this is the general question, the problem of finding the theory of value: when it is solved, once and for all, the particular questions asked are the reverse, i.e.: given the constant equations, if the value of one of the constants is varied, how are the resultant prices determined? But of course this is only a matter of calculation.

Sraffa, July 1928 (D3/12/7/85), quoted in Gilibert, G. (2006). “The Man From The Moon: Sraffa’s Upside-Down Approach To The Theory Of Value.” Contributions to Political Economy 25(1), p. 36

After outlining how Sraffa’s approach to value theory involves figuring out the conditions that an economy must satisfy in order to reproduce itself, he glosses the above as follows:

In general, apart from the special case of a world without surplus, Sraffa’s surprising new approach to the problem of value derives from a simple argument, which is that an actual economy, which is able to reproduce itself year after year, is obviously viable. This means that—once granted its physical feasibility—it does work with a set of relative prices which are the “just” ones. Therefore, the true aim of a theory of value is not to determine relative prices (which can be considered as known) but to outline the set of technical requirements and social rules that make those relative prices “appear to be necessary”.

(via fuckyeahpierosraffa)

[grahamjoncas]

Piero Sraffa & Natural Monopoly

Piero Sraffa (1898-1983), an Italian born economist, developed the idea of natural monopoly. He migrated to England, where he became a student of Alfred Marshall (1842-1924), and later a teacher, at Cambridge. In 1940, when Germany began the blitzkrieg into France, Sraffa was interned by the British as an enemy alien. John Maynard Keynes denounced the ill treatment of distinguished refugee scholars such as Sraffa, writing, “If there are any Nazi sympathizers still at large in this country, we should look in the War Office and our Secret Service, not in the internment camps.

Sraffa observed that in some production processes, average costs fall as output expands. He wrote:

Everyday experience shows that a very large number of undertakings—and the majority of those which produce manufactured consumers’ goods—work under conditions of individual diminishing costs. Almost any producer of such goods, if he could rely upon the market in which he sells his products being prepared to take any quantity of them from him at the current price, without any trouble on his part except that of producing them, would extend his business enormously. It is not easy, in times of normal activity, to find an undertaking which systematically restricts its own production to an amount less that which it could sell at the current price, and which is at the same time prevented by competition from exceeding that price. Business men, 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, which do not permit of the production of a greater quantity without an increase in cost. The chief obstacle against which they have to contend when they want gradually to increase their production does not lie in the cost of production— which, indeed generally favours them in that direction—but in the difficulty of selling the larger quantity of goods without reducing the price, or without having to face increased marketing expenses.1

Given a limited market demand for output, Sraffa concluded that efficiency concerns would lead to a decreasing number of firms in the industry, with the extreme possibility of a natural monopoly. This idea ran contrary to the popular belief that markets operated more in accord with perfect competition. In perfect competition, rising marginal and average costs limit how much output one firm can profitably sell in the market. With a natural monopoly, the firm is limited only by the size of the market, which is in part a function of the prices set by the monopoly.

Sraffa’s work on natural monopolies was consistent with neoclassical economics, the conservative mainstream in economics. Later years would see a dramatic shift in Sraffa’s thinking, as he became a leading figure of the more radical post-Keynesian school of economic thought.

– McConnell, Brue, Flynn - Economics 19/e

1: Piero Sraffa, "The Laws of Returns under Competitive Conditions,” Economic Journal 36 (December 1926) p. 543.

[grahamjoncas]

In an attempt to counter Robinson’s ‘perverse relationship’, Paul Samuelson constructed a ‘surrogate production function’ which allowed for heterogenous capital goods but exhibited all the nice properties required for the validity of the neoclassical ‘parables’. Pierangelo Garegnani (1970) then demonstrated that Samuelson’s results are not valid in general but only for the special case of uniform ‘organic composition of capital’, i.e. equal proportions of labour and capital in all sectors. The basis for this critique was laid in Sraffa’s 1960 book, which carried the subtitle Prelude to a Critique of Economic Theory. Sraffa demonstrated that a technique can be cost-minimizing at a low level of the rate of profit, be substituted by another technique which is less costly at a higher rate of profit, and then become cost-minimizing again with a further increase in the rate of profit. This ‘reswitching of techniques’ is a sufficient but not a necessary condition for the existence of ‘reverse capital deepening’. Obviously, these findings are relevant to economic theory whenever capital is involved. These findings destroy, for example, the general validity of Heckscher-Ohlin-Samuelson trade theory (as authors such as Sergio Parrinello, Stanley Metcalfe, Ian Steedman, and Lynn Mainwaring have demonstrated), of the Hicksian neutrality of technical progress concept (as Steedman has shown), of neoclassical tax incidence theory (as Steedman and Metcalfe have shown), and of the Pigouvian taxation theory applied in environmental economics (as Gehrke and Lager have shown).

Lager - “Sraffian Political Economy: History and Major Contemporary Themes,” p. 2 (via fuckyeahpierosraffa)

[grahamjoncas]

Thus every economist tends to frame his theories in such a way that certain elements acquire in them importance which is entirely out of proportion of the part they play in real life, but reflects the necessity ofᴵᴺ which the economist has been of opposing oppositeᵒᵇˢᵒˡᵉᵗᵉ theories or popular prejudices. And when the theory has crystallized and we have forgotten the way in which it has grown, we are often inclined to over-estimate the importance of certain elements simply because for long forgotten historical reasons they play a very large part in accepted economic theory.

A further disturbing element is that in the background of every theory of value there is a theory of distribution. The real problem to be solved by a theory of value, that is: «Why is a commodity exchanged with another in a given ratio?» is constantly transformed into the entirely different one: «How is the price received for the product distributed between the factors of production?». […] There is a continuous attempt at visualizing in the microcosm of any one particular commodity a process which takes place only in all commodities as a whole, considered simultaneously, that is in society as a whole.

And often theories of distribution in their turn are meant not so much as a means to analyzing the actual process through which the product is distributed between different classes, as for showing either that the present system is wrong and should be changed, or that it is right and it should be preserved. Thus it becomes an analysis of what is it ᵗʰᵉ ᵗʰᵉᵒʳʸ becomes a form of propaganda for what ought to be.

– Sraffa papers (D2/4.3.3-4), quoted in Panico, Pinto & Ayul - “Income Distribution and the Size of the Financial Sector: A Sraffian Analysis,” 4

[grahamjoncas]

One of the objects of this enquiry is to serve as a preliminary to an investigation of the theory of distribution. […] The way in which we are proceeding is to see how far we can go in assuming that the distribution is indeterminate with respect to the internal conditions of the system; and at what point, if any, do we find it necessary to acknowledge that the technical conditions of production determine the distribution.

Sraffa papers (D3/12/42, 78; dated 23 March 1957), preparatory draft of the introduction to POC, quoted in Panico, Pinto & Ayul (2010: 4, fn. 3)

[grahamjoncas]

A theory of price is fundamental to economic theory, as the real products an economy produces and consumes are heterogeneous in nature and so cannot be added or subtracted. Therefore, economic analysis needs to homogenize these heterogeneous physical things and can do so by multiplying them by their prices. But all of the dominant theories of prices economic science has developed require some notion of equilibrium, even though we know that empirically economies are almost never in equilibrium.

[My] research focus is that since empirical economies are almost never in equilibrium, an analysis of the empirical system must have a theory of price for the state in which it exists (i.e., of disequilibrium) and not for the ideal situation in which it could exist. Sraffa developed a theory of price that was applicable to empirical systems, as it functions even without the assumption of equilibrium. Unfortunately, even Sraffa’s theory was understood as an “equilibrium” theory of prices for the least 50 years. It was not well understood that, in Sraffa’s theory, prices do not carry any information regarding demand and supply but rather perform a function of accounting distribution of income, which is determined from outside the market. Clearly, going “back to Sraffa” has the potential to revolutionize economic theory. It shifts the foundation of economic analysis from the subjective notion of human behavior to the objective fact of income distribution. It will make economics relevant to empirical economic systems and challenge the mythical importance of the market and equilibrium theories of price. 

– Ajit Sinha, “A Revolution in Economic Theory” (INET grant proposal)