Sraffa and the Marshallian tradition*

Abstract

The paper retraces some of the stages in Sraffa's thinking about the work of Marshall, by drawing on unpublished material in the Sraffa archive from 1923 to 1930. It argues that Sraffa transformed his dissent – which was based on ideological grounds – into a ‘quest for the fatal error’ to demolish the logical construction of Marshallian theory. Some of his attacks were successful (for example, the critique of the relation between costs and output); other attempts failed (the critique of the ‘normal rate of profit’ and the critique of the concept of marginal productivity) since Sraffa could not find enough textual evidence to support his position.     

Sraffa,interdependence and demand: the Gramscian influence

The influence of Sraffa' early commitments to Gramscian Marxism on his subsequent economic analysis have been little investigated by Sraffa scholars. The discussion here argues for a philosophical connection. Specifically, it is argued that organicist ideas found their way into Sraffa's thinking about interdependence in his 1926 critique of Marshall, in his reported critique of Wittgenstein's early philosophy, and in his 1960 Production of commodities. In each instance, atomist views were challenged in an understanding of agent or sectoral interdependence that made use a single criterion for agent or sectoral autonomy: that such autonomy depends upon the fulfilment of identify conditions for the individuation of autonomous agents or sectors. It is suggested that Sraffa's thinking in this regard ses the attempted fulfilment of these conditions in neoclassical theory as self-contradictory, thus allowing the characterization of his thinking as a form of impossibility logic. This impossibility logic is contrasted to that of Arrow, in order to advance general propositions about Sraffa's understanding of demand.     

Keynes's realisms

Abstract

Some authors pointed to a realist orientation in Keynes's thought. However, since ‘realism’ is a wide and sometimes equivocal term, one may ask what kind of realism Keynes's realism is. This paper argues that Keynes held to an ontological, logical–semantic and epistemic realism. Whereas ontological realism has metaphysical connections, logical–semantic realism involves a notion of truth, and epistemological realism presupposes a theory of knowledge. The character of the subject matter circumscribes the scope of this last kind of realism. Epistemological realism is related to the role of intuition and convention in Keynes's thought, the meaning and evolution of which is explained.     

Can We Meaningfully Speak of Changes in Price under the Regime of Changes in Techniques?

Abstract

This paper presents a simulation exercise on Sraffa's system under various types of technical changes to show that the direction of changes in prices of commodities is contingent on the choice of the numeraire. Thus, such a comparison of prices in two systems turns out to be meaningless. This result points to the arbitrary nature of the neoclassical supply functions, as they inevitably compare prices across several Sraffa systems on the basis of an arbitrarily chosen numeraire. We anticipated such a result from our reading of Sraffa as part of his ‘prelude to a critique of economic theory’.     

Keynesian uncertainty and the instability of beliefs

In an influential critique, Coddington (1982) argues that Keynes uses the theme of uncertainty in an opportunistic way in the General theory emphasizing it when it suits his purposes and ignoring it when it does not. This reading is examined in the light of Keynes's earlier Treatise on probability. The first part of the paper argues that Keynes's epistemology differs in important respects from the one Coddington is attacking, and in particular, that Keynes's account contains conceptions of uncertainty not considered by Coddington. The two premises of Coddington's argument are then assessed. These are: 1) that Keynes provides no account of the relative impact of uncertainty in different decision-making contexts; and 2) that uncertainty is not a sufficient condition for unstable beliefs about future outcomes of current (investment) decisions. It is argued that Coddington is mistaken in asserting 1) and, although 2) is correct in principle, that there is nevertheless a strong presumption that uncertainty does lead to unstable beliefs in the particular situations Keynes describes. The conclusion is that the connection between uncertainty and unstable beliefs cannot be regarded as either analytically destructive or somehow beside the point, even on Coddington's terms.     

A historiographical exhumation of J.A. Hobson's Over-Saving Thesis: General theory versus historiography

Abstract

The discussion of J.A. Hobson's understanding of over-saving has been largely confined within John Maynard Keynes' famous critique in the General Theory. I argue that gauging Hobson's contribution by ‘general theory’, that is, by an ahistorical, non-evolutionary yardstick, is to miss the larger part of Hobson's achievement. Hobson's conception of over-saving was contained within an evolving historiography of capital accumulation and took on various meanings depending on whether Hobson was discussing a competitive or monopolistic environment. I show that Keynes' ‘corrected’ version of over-saving was implicitly contained within Hobson's analysis of an evolving monopolistic industrial structure.     

The Role of credit in a Keynesian monetary economy

Abstract

This paper describes the features of a monetary economy on the basis of Keynes's distinction between a real exchange economy and a monetary economy. In The General Theory, Keynes identifies the reasons for the non-neutrality of money by highlighting the store of wealth function of money; this approach has been adopted by most Keynesian economists. The aim of this paper is to show that such an approach only partially explains the reasons for money non-neutrality and that important elements which demonstrate the relevance of monetary variables emerge when the means of payment function of money is considered. Investigating the role of this function requires that we deal explicitly with how spending decisions are financed. The paper argues that the market for credit must be considered separately from the market for money, and that a viable credit theory can be built from Keynes's post-General Theory writings.     

Technical Change,Effective Demand and Employment

Ricardo and Marx saw technological change as a possible cause of long-period unemployment. Neoclassical and Schumpeterian economists regard technological unem ployment as a transitory phenomenon. This paper argues that the capital critique (i) demolishes the neoclassical claim that market mechanisms will restore full employment whenever workers are displaced by technical change, and (ii) rehabilitates the old Ricardian argument that automatic compensation factors are generally absent. The neo-Schumpeterian notion of autonomous investment is also rejected, in favour of the view that, in the long period, all investment is induced. By extending Keynes's theory of effective demand to the long period through a model based on the supermultiplier, this paper suggests that the ultimate engines of growth are located in the autonomous components of effective demand--exports, government spending and autonomous con sumption. Technical change plays a role in the accumulation process through its effects on consumption patterns and the material input requirements. However, the impact of technical change is now seen to depend upon circumstances such as income distribution, the availability of bank liquidity and exchange rate policy.     

Sraffa and von Neumann

This paper discusses the relationship between Piero Sraffa's 1960 book and John von Neumann's 1937 paper on economic growth in the light of some of the material contained in Sraffa's unpublished papers and correspondence. It is argued that the two contributions share a similar outlook and exhibit conceptual parallels; in fact, they can both be said to belong to the 'classical' approach to the theory of value and distribution. The latter is characterized, among other things, by an asymmetric treatment of the distributive variables, the rate of return on capital and the real wage rate. Sraffa's papers show that when he came across the von Neumann model in the mid-1940s his own analysis was already quite advanced, including his analysis of joint production. The paper also contains an exchange of letters between John Richard Hicks and Sraffa on some of the issues dealt with in the latter's book.     

Foreword to the Symposium

This paper investigates a number of aspects of Piero Sraffa's early philosophical thinking by placing him within the historical materialist tradition of reasoning about the relation of ideas to the historical process. It first distinguishes Alfred Marshall's views about the historical development of ideas by addressing Marshall's responses to the criticisms of William Cunningham of the English Historical School. Marshall's concept of economics as a universal engine of discovery was rejected by Sraffa in his early writings. Sraffa's critique of Marshall is then argued to lead to two early philosophical commitments on Sraffa's part: that deductivist modes of explanation are inappropriate in economics and that economics aims to explain the underlying structures of causal interaction that had been the concern of the classical political economists. The paper closes with brief remarks on how Sraffa's later philosophical thinking might be approached.     

Profit Expectations and Confidence: Some unresolved issues in the Austrian/Post-Keynesian debate

Austrian and Post-Keynesian economists both continue to make important contributions to subjectivism in economics. Yet, as the ongoing debate between members of the two schools demonstrates, Austrians and Post-Keynesians have very different views about the possibility of intertemporal coordination in a market economy. This paper returns to the debate between Hayek and Keynes in order to respond to a contemporary Austrian critique of Keynes's theory of expectations. The paper shows that the fundamental difference between the two schools ultimately boils down to the nature of conventional expectations and the question of confidence. If the conventional expectation holds to assume the future will look enough like the present to give investors confidence in their decisions, Hayek's arguments about the possibility of intertemporal coordination merit attention. If, however, this convention does not hold, as Keynes thought was sometimes likely, the self-regulating potential of a market economy is called into question.     

On the importance of institutions and forms of organisation in Piero Sraffa's economics: the case of business cycles,money, and economic policy

Abstract

This paper is based on an investigation of the Sraffa Archives and tries to characterise Piero Sraffa's approach to business cycles and economic policy. It includes two parts. The first part of the paper shows the importance of economic institutions and social conventions in Sraffa's contribution to economics and their relation with social conflicts. The second part of the paper shows how this importance permits to understand better business cycles and economic policy but also indirectly contributes to a re-interpretation of Sraffa's contribution to economics.     

Notes on a Mischaracterization of the Classical Theory of Value

This paper discusses the widespread view that the classical determination of relative prices is closely connected to the study of the conditions allowing for the 'reproduction' of the economy. It is argued that this view obscures the generality of Sraffa's contribution and, furthermore, that it does not provide a solid criterion for distinguishing the classical from the marginalist approach to the theory of value.     

Keynes and probability: An assessment

Abstract

Most interpreters agree that Keynes had a wide-ranging, complex, ‘vision of the world’, which underlies his theoretical contributions. Whenever this is forgotten, as happens in the so-called neoclassical synthesis, not only the original Keynesian spirit goes lost but also, and especially, we lose substantive bricks for our theoretical constructions. The paper considers an important instance of this general rule; namely Keynes's views on the logic of probability, meant as the field concerning human behaviour in an uncertain world (hence connected to, but distinct from, the pure theory of probability, meant as a field of mathematics). The paper begins by recalling the main aspects of the classical and frequentist approaches to probability and the main criticisms they received, pertaining among other things to the limits of their applicability. We then consider Keynes's own views, stressing three aspects: the definition of probability as pertaining to the field of logic, the notion of uncertainty and of the ‘weight of the argument’, the ‘theory of groups’. We then discuss the subjective approach of de Finetti, Ramsey and Savage, and contrast it with Keynes's own views. Finally, we consider the implications of our analysis for the interpretation of Keynes's General Theory, and of his attitude towards econometrics.     

Keynes,Ricardo and the classical theory of interest

Keynes made harsh and repeated attacks on the work of Ricardo, blaming him particulary for what Keynes called the ‘classical theory’ of interest. Garegnani and others argue that Keynes' criticisms of the classical theory of interest apply to later neoclassical writers, but not to Ricardo. This paper re-examines Keynes' criticisms. It argues that Keynes attacked Ricardoapos;s theory of interest despite his awareness that Ricardo did not hold the ‘classical theory’. Moreover, Keynes not only expressed sympathy for Ricardo's understanding of interest, but his criticisms which do apply to Ricardo do not address Ricardo's theory of interest.     

Mr Keynes,the Classics and the new Keynesians: A suggested formalisation

Abstract

The paper suggests a new Keynesian model of the General Theory. A reduced form entails a diagram with three curves relating employment and the real wage, which represent the two fundamental classical postulates and the principle of effective demand. This diagram illustrates better than IS–LM the generality of Keynes's theory, clarifying the distinction between voluntary and involuntary unemployment. Other significant features are the role of the distribution of expected interest rates among heterogeneous agents, whether dispersed or concentrated, in shaping the LM curve, as well as the role of wage competitiveness constraints as a foundation of Keynes's relative wage hypothesis.     

KEYNES ON WAGE FLEXIBILITY AND THE AUSTRALIAN WAGES SYSTEM*

Keynes' General Theory briefly discusses the Australian wages system, as an example of a system in which an attempt was made to fix real wages by law. Keynes argues that such a system, strictly enforced, generates an unstable unemployment equilibrium or highly volatile money wages and prices. This paper clarifies Keynes' views on the Australian system, with a view to their wider relevance for the significance of real and money wage flexibility and inflexibility in Keynes' economics. The most striking finding is that money wage stickiness is a conclusion, not an assumption, of Keynes' theory of employment.     

Sraffa: the theoretical world of the ‘old classical economists’ *

Sraffa's mature work is seen here as a re-discovery and resumption of the ‘submerged and forgotten’ approach of the ‘old classical economists from Adam Smith to Ricardo’. Wages determined by broad economic and social forces entail there product prices determined independently of demand and supply functions. Some main questions raised for the modern economists by this radical reorientation of economic theory are then considered in order to conclude that it is aginst that background that Sraffa's mature work should be set with its three main contributions, of a rediscovery of the approach, of a complete and transparent solution of the problems of price determination it raises, and of its application to the critique of neoclassical theory. Among several developments originating from Sraffa's seminal work, two are singled out for mention: (i) the possibility of deficiencies of aggregate demand in the long period no less than in the short one; this follows naturally from the abandonment of the neoclassical theory of distribution, of which the role of the interset rate in equilibrating savings and investment is a corollary; (ii) the question of the distribution of the surplus between wages and profits in a modern economy where wages are no longer confined to subsistence.     

Ronald Coase's Method of Building More Realistic Models of Choice

This paper argues that Ronald Coase's major contributions to economic theory are best understood in terms of the distinct method he used to build more realistic models of choice. We call his method the benchmark-comparison method. It consists of building models of choice and then using them as benchmarks in the further investigation of economic interaction, either by comparing the benchmark models with observed interaction or by building additional models of choice, which may themselves function as benchmarks. The paper first describes the method then demonstrates how Coase used it in his two most famous papers. We go on to show how an understanding of the method confirms Coase's own statements about the continuity of his thought. Finally, we assess Coase's critique of Milton Friedman's positivist methodology and discuss a recent paper on Coase's methodology.     

The Fault Line between Keynes and the Cambridge Keynesians: A Review Essay

This essay reviews Michael Ambrosi's important but neglected book on the formative period of Keynesian economics. The book traces the evolution of a Cambridge macroeconomic tradition running from Marshall and Pigou to Keynes, and interprets The General Theory as a response to Pigou's analysis of unemployment. Ambrosi also argues that Keynes's disciples, Richard Kahn, Nicholas Kaldor and Joan Robinson, were, in the 1930s, wedded to a Pigovian methodology and did not immediately recognise that Keynes had redefined the meaning of equilibrium in The General Theory. Keynes's attempt to redefine the analytical basis of neoclassical economics was thwarted, not merely by the neoclassical synthesis, but by those who claimed to be the inheritors and guardians of his vision.