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The Routledge Handbook of Heterodox Theorizing, Analyzing, and Transforming Capitalism Tae-Hee Jo, Lynne Chester, Carlo D'Ippoliti

The social surplus approach

Publication details https://www.routledgehandbooks.com/doi/10.4324/9781315707587.ch3 Nuno Ornelas Martins Published online on: 28 Jul 2017

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Downloaded By: 10.3.98.104 At: 17:29 27 Sep 2021; For: 9781315707587, chapter3, 10.4324/9781315707587.ch3 of classicalpoliticaleconomy inlinewithhisown neoclassical contribution, toMarx’s contrarily radically different way, sinceitrelies onsubjective offered concepts.Marshall are-interpretation Léon Walras, andAlfred Marshall. revolutiondefinitely rejected afterthemarginalist Jevons, undertaken by StanleyCarl Menger, developed by Marx.AfterRicardo, approachisprogressively thesocialsurplus abandoned, andis sical politicaleconomy,’ fromPetty atraditionofeconomicthinkingranging toRicardo, and becomes adominantapproachwithSmithandRicardo, withinwhichwhatMarxcalled ‘clas- activity. forthereproduction ofsocio-economic ofthelaborwhichissociallynecessary tudes interms production notonlywages, but also themeansofproduction, allthesemagni- whilemeasuring subsequently developed by KarlMarx, by subtractingfromtotal whodefinesthesocialsurplus between totalproductionandwages, ofembodiedlabor. measured Ricardo’s interms was theory other economicsectors. emerges,to theproductionofsocialsurplus asQuesnay andthephysiocrats argue, but also eralized Quesnay’s approach, socialsurplus thatcontributes arguingthatitisnotjustagriculture a circularisproduced.AdamSmithgen- economicprocessofreproduction inwhichasurplus physiocrats approachthatconceptualizes provide systematicoutlineofasocialsurplus thefirst William Petty,Cantillon. FrançoisQuesnay andthe andsubsequentlyelaboratedby Richard ofeconomicperformance. is thusanessentialdeterminant into productive activities, ofthesocialsurplus .Thedistribution orusesitforluxury byto economicdecline. asocialclassthatre-invests Thisdependsonwhetheritisappropriated it theexistingeconomicsystem,to expandandtransform orwastedconsumption, inluxury leading caneitherbere-investedfor thereproduction oftheexistingsocialsystem.Thesurplus inorder For classicalpoliticaleconomists, ofproductionthatisnotnecessary isthepart thesocialsurplus Introduction Unlikeauthors, othermarginalist referstoasocialsurplus, Marshall whichisdefinedina provides Eachoftheseauthors approach, significantadvances tothesocialsurplus which elaboratedSmith’s perspectiveasthedifference anddefinedthesocialsurplus forthedevelopment Theingredients approachwere ofasocialsurplus addressed first by The socialsurplusapproach Historical originsandpresentstate Nuno Ornelas Martins 3 41 Downloaded By: 10.3.98.104 At: 17:29 27 Sep 2021; For: 9781315707587, chapter3, 10.4324/9781315707587.ch3 provides apromisingrouteforthedevelopment ofheterodox economics. of classicalpoliticaleconomy. Ishallarguethatadevelopment approach ofthesocialsurplus approach withanexplicitreference toMarx’s elaborationofthecircular reproduction schemes KeynesiansCambridge whodeveloped approach, sical socialsurplus thesocialsurplus and the classical politicaleconomists, whiledistinguishingbetween Marshall’s development ofaneoclas- approach. tion ofclassicalpoliticaleconomy instead, leadingtoarevival oftheclassical-Marxiansurplus Sraffa, MichałKalecki,, and adoptedanddeveloped Marx’s interpreta- original Nevertheless, KeynesianCambridge tradition, several suchasPiero associatedwiththe authors sical’ school, whichhedidnotdistinguishfromMarshall’s andPigou’s neoclassicalapproach. rather thanMarx’s interpretation, original andthuspresented ofthe hiswork asacritique ‘clas- a Keynesian branch.Keynes followed Marshall’s ofclassicalpoliticaleconomy, interpretation economictraditionintoaMarshallian–Pigovian branchand Cambridge to theseparationof economictradition,Cambridge Sidgwick, shapedby Henry early Marshall, andPigou. Cecil Pigoucontinued Marshall’s contribution, Arthur interpretation. leadingtothe original Nuno OrnelasMartins 42 activities, to thereproduction ofthesocial surplus. allofwhich contribute productive thanartificers, manufacturers, andmerchants, thelatteralsoengageinproductive laborers employed are andcountry more inagriculture argues thatalthoughinhisview farmers artificers,Quesnay forconsidering manufacturers, andmerchants asunproductive classes. Smith evermation totruth publishedinpolitical . ButSmith ([1776]1999: 387)criticizes (Smith [1776]1999: Quesnay’s 357).Smithconsiders asthenearest approxi- economictheory to economicdevelopment, andunproductive orinluxury activities, leadingtoeconomicdecline process ofreproductionemerges. where asurplus economic decline. Quesnay provides systematicconception oftheeconomy thefirst asacircular activities, leadingtoeconomicdevelopment, and unproductive orinluxury activities, leadingto duces asurplus, whichcanbefoundasrent. Thesurplus, forQuesnay, canbeusedinproductive that producesmore thanwhatit needstoreproduce itself—thatis, itistheonlysectorwhichpro- istheonlysector Quesnay (seeKuczynskiof thesurplus. &Meek 1972)arguesthatagriculture Ireland but noting, however, thatPetty causes. tounderstand focusedoneffectsandfailed Chapter IX ofPetty’s tosustainthelaborer, necessary to whilereferring Chapter XI(Part I)ofhis Cantillon alsoarguesin Chapter X(Part I)ofhis ofwealth—for example,matter andlaboristheform 12)of (paragraph inthelastparagraph of his1662book Chapter 4 13of the totalproduceofland(anexamplethisclaimcanbefoundinparagraph surplus, tosustainthelaborer isthenobtainedby from subtractingtheproduceoflandnecessary Rent, whichlaborisperformed. taining thelaborer throughoutthequantityoftimeduring the ofthequantityland,also notesthatlaborcanbemeasured interms forsus- which isnecessary ofwealth, arguedthatlandandlaborare themotherandfather famously respectively. ButPetty ofclassicalpoliticaleconomy KarlMarx([1867]1999)datesthebeginning toWilliam Petty, who The classicalsocialsurplusapproach I shall here trace the historical development approach, Ishallhere tracethehistorical ofthesocialsurplus withthe starting oftheMarshallian–Pigovian provided framework, acritique leading Like Quesnay, canbeusedinproductive Adam Smitharguesthatthesurplus activities, leading FrançoisQuesnay,Cantillon, was influencedby whointurn alsofocusesonlandastheorigin Cantillon, Richard drawing onPetty, alsofocusedonlandandlabor, notingthatlandisthe TreatiseTaxes on andContributions , onwhichseevolume 1ofPetty 1899). EssaisurlaNatureduCommerceenGénéral Essai thatwe ofthe canmeasure laborinterms (seeBerg2015).Butagain, Political Anatomy of Downloaded By: 10.3.98.104 At: 17:29 27 Sep 2021; For: 9781315707587, chapter3, 10.4324/9781315707587.ch3 sical social surplus approachwithinthemainstream economicperspective,sical socialsurplus whichisprogressively ductive activities, andrents are typicallywasted by and unproductive landlords inluxury activities. and unproductive For Ricardo, useofthesurplus. profitsare typicallyusedby capitalists forpro- vided by betterlands.Ricardo alsoadoptsQuesnay’s andSmith’s distinctionbetween aproductive obtainedintheworst land,the surplus andrentsabove constitutethedifferential surplus profitspro- ingeneral. the classicalauthors plays rate. acentralrolein Ricardo’s Agriculture tural surplus analysis, asitdidforQuesnay and willensure have sectors thatothersectors ratesimilartotheagricul- capitals invarious asurplus between stillexists. whileasurplus will leadalsotoareduction in inputprices can beusedasinputs, soeven down, ifcompetitiondrives thereduction ofoutputprices objectively ofembodiedlabor. Ricardo interms alsonotesthatinagriculture, outputs produced ence between totalproductionandwages, where producedgoodsandwage goodsare measured cause ofvalue in exchange. in theprocessofproductionisnotonlyanobjective measure ofvalue inexchange, but alsothe tion. Infact, by sincevalue thecostofproduction, inexchangeisdetermined thelaborembodied exchange, canbeobjectively ofthelaborembodied intheprocessofproduc- measured interms 2013).Ricardo alsoarguesthatthecostofproduction,tion (Martins in whichdetermines accidental forces thatdrive theobserved backtothecostofproduction. leading theprice the quantityofproductionwilltypicallybeincreased asaresponse totheincrease indemand, includes , rents, andprofits, asforSmith), andiflaborisavailable production, forfurther ofacommodityabovethe price value, itsordinary by thecostofproduction(which determined supply anddemandcannotbetheultimatecausesofvalue. Ricardo arguesthatifdemanddrives ofthelaborthatcanbecommandedinmarket exchange.terms Ricardo, incontrast, arguesthat (1820) arguesthatsupplyanddemandare theultimatecausesofvalue, whichismeasured in David Ricardo.between Malthusand ThomasRobert Inhis provides amore exactmeasure. providesthat corn anapproximate measure ofvalue but thatlaborcommanded inthelong-run individual, by providing thepower topurchaseSmith([1776]1999: thelaborofothers. 40)notes duces, Smithfocusesmore explicitlyonthesocialpower over thatwealth others toan confers focus onwealth assuch, andmeasure value itpro- inobjective suchaslandandthecorn terms case thepower topurchaseWhilePetty, orcommandthelaborofothers. Cantillon, andQuesnay has insociety. AsSmith([1776]1999: 37)says, citingThomasHobbes, ispower, inthis cancommand. that aperson level ofdevelopment, themeasure ofwealth becomes, according toSmith, thequantityoflabor and amusements oflifewithoutothers’ labor. Thus, afterthedivision oflaborhasreached some development ofthedivision oflabor, cannotachieve eachperson allthenecessities, conveniences, in theproductionofacommodityandvalue ofthecommodityinsociety. Butwiththe are producedmostlyby labor, andsothere isamore direct relation between thelaborembodied Chapter VIofBookIthe 1999) arguesin the economy, AsSmith([1776] totheproductionofsocialsurplus. contribute allthesesectors Thedebatebetween pointoftheabandonmentclas- Ricardo andMalthusisthestarting According toRicardo, isdivided between the socialsurplus profitsandrents. Profitsconstitute For Ricardo, thecostofproduction includesthesocialsurplus, whichhedefinesasthediffer- Ricardo ([1817]1821), like Smith([1776]1999), arguesthatsupplyanddemandare merely Thedistinctionbetween laborcommandedandembodied isattherootofdebate Thequantityoflaboronecancommandgives amore precise measure ofthepower aperson For Smith, of sectors inthevarious outof humanlabor. value Sincelaborisperformed arises Wealth ofNations away fromtheunderlyingcostofproduc- away Principles ofPoliticalEconomyPrinciples , inprimitive societiescommodities Social surplusapproach , Malthus 43 Downloaded By: 10.3.98.104 At: 17:29 27 Sep 2021; For: 9781315707587, chapter3, 10.4324/9781315707587.ch3 defined in terms ofsubjectivedefined interms desires suchasutility, ofthecostproduction. rather thaninterms tion ofasubjectivist approachwhere supplyanddemandforces play akey role, andvalue tobe starts revolution Gossen.Themarginalist Heinrich leadstotheconsolida- Dupuit andHermann Jules by SubjectiveCairnes. John Elliot ‘desires’ are alsointroducedintotheexplanationofdemandforces introduced intotheexplanationofsupplyforces,,John Mill, by Stuart and the explanationofdemandandsupply, respectively. ofsubjectiveeconomic theory notionssuchas ‘desire’ and ‘sacrifice,’ whichassumeakey rolein economy’ approach, according toMarx([1867]1999), issymptomaticoftheinclusionwithin individuals desire aspossible. toobtainwealth Senior’s withaslittlesacrifice ‘vulgar political postulate ofeconomicsisthat Nassau William Seniorarguesthatthefirst subjectivist notions. surplus, ‘vulgar politicaleconomy’ focusesonsuperficialphenomena suchassupplyanddemand. from Petty ofthe toRicardo focusontheunderlyingconditionsofproductionanddistribution cal politicaleconomy’ towards whathecalled ‘vulgar politicaleconomy.’ Whereas classicalauthors from thecostofproduction.According toMarx([1867]1999), this leadstoashiftfrom ‘classi- ofvalue,ultimate determinants ratherthanmere accidentalforces thatdrive market prices by theconditionsof(re)production. forces thatdriveaway themarket price this presupposition thatleadsRicardo, like Smith, toseedemandandsupplyasmere accidental of laboravailable production, forfurther thatis, labor, surplus orlabornotfullyemployed. Itis ment thatanincrease indemandisoffsetby anincrease inproductionpresupposes theexistence ofsupplyanddemandforces,reframed interms asMalthusarguesitshouldbe. Ricardo’s argu- Nuno OrnelasMartins 44 demand curves, explains supplycurves. andsacrifice in contrast, relies uponsubjective conceptssuchasutilityandsacrifice, where utilityexplains difference betweennumerical thevalue oftotalproductionand thevalue ofwages. Marshall, contrastsstarklytoRicardo’s,definition ofthesocialsurplus asthe whodefines thesocialsurplus price. linesetby theequilibrium the horizontal Theproducer’sprice. area above isdefinedasthegeometrical surplus thesupplycurve, andbelow area belowgeometrical thedemandcurve, andabove linesetby theequilibrium thehorizontal er’s surplus, Theconsumer’s whichtogether constitutethe socialsurplus. isdefinedasthe surplus curves. Usingsupplyanddemandcurves, identifiesaconsumer’s Marshall surplus, andaproduc- quantities, between simultaneously at theintersection whichare supplyanddemand determined conception. the classicalapproach, definedaccording toMarshall’s conception, ratherthanMarx’s original approach asthebestwork donewithinwhathecallsthe ‘neoclassical’ school, whichcontinues price, Veblen 2013).Thorstein (Martins but alsoofthenaturalprice (1900)saw Marshall’s where supplyanddemandplay asystematicroleintheexplanationnotonlyofmarket Ricardo). MalthushadalreadySmith’s interpreted ofhisown ofvalue analysis, theory interms tonoteanyprets significantdifference inlinewithMalthus(whilefailing between Malthusand ginalists, were ofclassicalpoliticaleconomy. Mostmarginalists critical ButMarshall, unlike othermar- The neoclassicalsocialsurplusapproach Subjective elementsdrawing uponsuchnotionsas ‘sacrifice’ or ‘abstinence’ are progressively Inorder toexplainsupplyanddemand, many influentialeconomistsafterRicardo drew upon For Malthus, andforthesubsequentdominanteconomictheory, supplyanddemandare the Marshall claimstobeincontinuity with theclassicalapproachofSmithandRicardo, Marshall but his and prices ([1890]1920)usessupplyanddemandcurves todefineequilibrium Marshall

seeshisperspective asacontinuation ofclassicalpoliticaleconomy, whichheinter- from the ordinary ornaturalprice,from theordinary whichisdetermined away away Downloaded By: 10.3.98.104 At: 17:29 27 Sep 2021; For: 9781315707587, chapter3, 10.4324/9781315707587.ch3 rather than by focusing on isolated parts as Marshall does (Martins 2013). does(Martins rather thanby asMarshall focusingonisolatedparts analysis.Sraffa,rium like Keynes, arguesthattheeconomicsystemmust bestudiedasawhole, curves whileassumingeverything equilib- elseremains doesinhispartial constantasMarshall Keynesian (1926)arguesthatonecannotstudychangesinsupplyand demand tradition.Sraffa Cambridge supplyanddemandanalysisalsoplaystique ofMarshallian asignificantroleinthe Keynesian tradition, which challengedtheMarshallian–Pigovian framework. PieroSraffa’s cri- before Keynes’ written originally (1936) place,independent datainthefirst asKeynes (1936)notes. explain changealsothelevel ofincome, andthusthecurves whichwe are usingassupposedly supply anddemandcurves forlabor, sincethechangesinwages whichthosecurves are meantto on agiven changewhileassumingthateverything elseremainswith constant.Thisalsooccurs and thusachangeintheothercurve. Thus, we methodoffocusing cannotapplytheMarshallian ing agiven level ofincome. Achangeineithercurve willentailachangeinthelevel ofincome, ofcapital(theinterest rate), theprice determine becausethosecurves presuppos- are constructed andthesupplyofcannotbeexplainedusingdemandcurves inorder to different linestoRobbins.Keynes between thedemandfor (1936)arguesthattheequilibrium withinthismainstream isnolongeracentralconcern approach. of thesurplus science thatstudiestheallocationofscarce thathave alternative uses.Thedistribution Robbins([1932]1935)alsoledtotheredefinition ofeconomicsasthe todistribution. pertaining ofefficiencydefinedseparatelyissues adoption ofPareto optimalconditionsasacriterion ofutilityledtotherelative comparisons neglectofthislineresearch,of interpersonal andthe and ledtotheemergenceoffieldwelfare economics.ButLionelRobbins’ (1938)critique would behumanactivities, ratherthanhumanwants. ofmankind, thehistory forinterpreting choose oneofthemasthemostimportant thataspect foreconomics, thoughtbothaspects areMarshall important healsothoughtthatifonewere to ofwants,the satisfaction but alsothroughitseffectsondwarfing humanactivity. Andalthough ductivity. For Marshall, of thenegative notonlyfromitscurtailment effectsofinequality spring capabilitiesofthepoorest classes, onthelaboring of redistribution withpositive effectsonpro- increase totalutilityforsocietyasawhole. Pigou, like Marshall, alsostressed thepositive impacts utilityfromincomethanthosewithmore ,marginal thereduction ofinequalitymust which draws uponSidgwickandMarshall, isthatsincethosewithlessincomeobtainahigher human labor, asthesource ofvalue. argumentunderlyingPigou’s Animportant (1920)analysis, Cambridge Keynesian tradition. These appear more clearly in the Cambridge Cambridge Keynesian‘controversies’Cambridge tradition.These appearmore clearlyinthe in would sidewithRicardo.Sraffa certainly There are, however, commonelements thatshapedthe the earlydebatebetween Malthus andRicardo, Keynes would probablysidewith Malthus, and plus approachconsistentwithMarx’s ofclassicalpoliticaleconomy. interpretation Ifwe consider wasSraffa ledtoamuch more thanKeynes, radical departure and toarevival oftheclassicalsur- ofPigou’swas critical ofMarshall’s development. fromacritique started approach. But Sraffa and retained ofclassicalpoliticaleconomy much includinghisinterpretation althoughKeynes Keynes fromMarshall’s background. approach independentlyoftheMarshallian started approach There are significantdifferences between Keynes, Kalecki, Kaleckideveloped andSraffa. his ofcapital The Cambridgecontroversies inthetheory Keynes’ critique, many elementsofwhichhadbeen anticipatedby Kalecki(1971)inarticles John Maynard TheMarshallian–Pigovian by Keynes explanationwas criticized (1936)along TheMarshallian–Pigovian framework continued topay attentiontoproblemsofdistribution, , whiletakingmarginal addresses Marshall theproblemofdistribution ratherthan General Theory , led to the emergence of the Cambridge Cambridge , ledtotheemergenceof Social surplusapproach 45 Downloaded By: 10.3.98.104 At: 17:29 27 Sep 2021; For: 9781315707587, chapter3, 10.4324/9781315707587.ch3 depends uponsocialandpolitical power. (2003:Cohen &Harcourt According 208): to productivities,marginal whileVeblen ofthesocialsurplus (1908)stresses thatthedistribution of betweenClark (1891)explainsthedistribution capitalandlaborinterms the sameproblem. divided leadsstraighttosocialism”be arbitrarily (citedinGaregnani 2005: 489). to haddeeppoliticalimplications,that thisfact “with itssurplus sinceclassicalpoliticaleconomy isanexogenous aspect, believedsurplus ButSraffa by institutionalandpoliticalfactors. determined approachoftheclassicalpoliticaleconomistsandMarx,the surplus ofthe where thedistribution theory.ematically throughmarginal AsGaregnani (1984)explains, thisleadsbackto view ofeconomictheory, meaningthere math- isnoconsistentway distribution ofdetermining contribution, incontrast, asanexogenous aspectfromthepointof conceptualizesdistribution productivity endogenously theory. throughmarginal distribution to determine Sraffa’s (1960) throughthemathematicalanalysisofsupplyanddemand. equilibrium theprocessofadjustmentthroughtimetowardscies aroseagainwhenattemptingtodescribe 2003;Cohen &Harcourt 2013: Martins (excess) demandfunctions(see 61–63)andinconsisten- hadalready shown theory againthatonecannotassumemonotonically decreasingequilibrium productivity 2003).However, ofcapital(Cohen&Harcourt ginal several problemswithgeneral avoid capitalandtheideaofdecreasing theinconsistenciesfoundinideaofaggregate mar- Bliss(1975)andFrankHahn(1981), which,Christopher theory wouldequilibrium according to rate neednotexist. concede defeat, whileacceptingthatamonotonicrelation between capitalintensityandinterest were againfoundinSamuelson’s productionfunction, surrogate leadingSamuelson (1966) to it arelevant conceptinaneconomy withmore thanonegood.Asiswell known, inconsistencies Samuelson (1962)attemptedtoovercome theproblemsofproductionfunctionwhilemaking good usedinitsown production, capitalare sothatinconsistencieswithaggregate avoided. Paul the sametimeasTrevor Swan (1956), simplyadoptedaproductionfunctionwithonlyonecapital ordifferent techniquesatapointintime.from different timeperiods measureaggregate ofcapitalbefore knowing theinterest capital ratethatenablesustoaggregate realm. TheessentialpointraisedbyandRobinsonisthatitnotpossibletoobtain an Sraffa oftheproductionfunctiontopublic roundwhenshebroughtthecritique thefirst triggered Joan Robinson(1953–4) oflabor.tivity oflaborwas ofanexplanationfortheprice seenaspart ofcapital,the price thatis, therateofinterest, whileinananalogous way produc- themarginal between productivity, thequantityofcapitalanditsmarginal of whichisseenasadeterminant , andthepossibilityofestablishingamonotonicallydecreasing relationship controversies roundthekey ofcapital.Inthefirst bridge inthetheory issueatstake was the 1972). Bliss)(seeHarcourt Christopher Cambridge, UK(suchasFrankHahnand of bridge, MassachusettsintheUnitedStates(suchasPaul Solow), Samuelson andRobert andother Joanas PieroSraffa, Robinson, Pasinetti, Luigi andPierangeloGaregnani,Cam- economistsof (UnitedKingdom)KeynesiansCambridge such ofcapital.Thisdebatewasthe theory between Nuno OrnelasMartins 46 As Cohen & Harcourt (2003:Cohen &Harcourt 210)note, As Veblen’sClark addressed John Bates of critique controversies ofcapitalshowedCambridge inthetheory several The inconsistenciesinattempts moved authors Afterconcedingdefeatthemarginalist toathird togeneral roundresorting Inthesecondroundofcontroversy, between 1956and1966, Solow Robert (1956, 1957), at Cohen &Geoffrey (2003)note, Harcourt AsAvi Cam- we canidentifyseveral roundsinthe production process. totake created ashare by andeconomicauthority ofthesurplus the ists thelegalright ing ofcapitallay owned intheproperty by thecapitalist class, oncapital- whichconfers Robinsonargued—citingVeblen (1908)andraisingthespecterofMarx—thatmean- Downloaded By: 10.3.98.104 At: 17:29 27 Sep 2021; For: 9781315707587, chapter3, 10.4324/9781315707587.ch3 such asKalecki, Sraffa, andRobinson. Keynesians whodraw uponMarx’s anddevelopment interpretation ofclassicalpoliticaleconomy, economy; and, secondly, approach,Cambridge theclassical-Marxiansurplus elaboratedby the approachthatdraws uponMarshall’ssurplus anddevelopment interpretation ofclassicalpolitical in thetwentieth canbeidentified, century whichremain untiltoday: firstly, theneoclassicalsocial controversies ofcapitalunfolded,bridge inthetheory two key approachestothesocialsurplus their impacton humanwell-being, value andalsoaninstrumental inthe sensethatthey foster tion, andculture. AsSen(1992)explains, humancapabilitieshave value becauseof anintrinsic totheexpansionoftheircapabilities, whichare important and services suchashealth, educa- ofthepopulationtovarious Inequality reducesperformance. theaccessofamajority channels throughwhichinequality influencesnotonlyhumanwell-being, but alsoeconomic a more subjectivist direction. subjective) wants. Ofcourse, thesubsequentdevelopments oftheneoclassicalapproachwent in (and objective) , (andmore ratherthantothosewhowilluseitsatisfyless important utility, but becauseitgives more incometothosewhowilluseitinorder tosatisfymore urgent notbecauseitgivesequality isimportant more incometothosewithahighersubjective marginal human wants, asakey ([1890]1920) arguesthatgreater aspectofeconomic analysis.Marshall Marxian approach, even ifitisalsopresent inMarshall’s emphasisonhumanactivities, ratherthan be ordo(Sen1982, 1992, 2005). well-being, centered onthenotionofhuman ‘capabilities,’ orwhathumanbeingscanobjectively moving fromasubjective utility-based approachtowards amulti-dimensional approachtohuman as , desire, FollowingDobb’s andsatisfaction. notionof description,’‘rich Senadvocates Marshall, andPigou,John Mill, Stuart different alldrawing typesofutility, upon discerns such are alwaysthat exactandcompletecomparisons andeverywhere possible. Sen, like Sidgwick, ofutility, comparisons when advocating interpersonal thepossibilityofpartial withoutassuming stilldrawcontributions upontheMarshallian–Pigovian framework tosomeextent, forexample toclassical-Marxianperspective.Dobb andSenproposeinsteadareturn Sen. Sen’s (1982)early tradition whodonotadopttheneoclassicalframework,Dobb andAmartya suchasMaurice by Atkinson. like contributions ThomasPiketty’sthe debatesurrounding (2014), whowas much influenced use ofMarshall’s , incontemporary notionofasocialsurplus but also in 2009). Theimpactofthistraditionisstillimportant, ascanbeseennot only inthecontinuing Cambridge ‘’ ofthe as part by traditionstarted Sidgwick, Marshall, andPigou (Martins more equaldistribution. traditionby andPigouledtoargumentsfora Marshall Cambridge withinthe of attempts atredistribution, suchassocialism.Walras, forone, was asocialist.Andthedevelopments that wereries selectedandbecamedominantwere developed withtheintentiontoundermine ‘environment ofselection’ Butthisneednotmeanthatthetheo- thatfavorstheories. certain suggests, basedonSraffa’s unpublishedwritings, saw thatSraffa thepoliticalatmosphere asan was Marginalism developed without aclearpoliticalpurpose, althoughGaregnani (2005: 489) Inequality, welfare,andeconomic performance After the consolidation of the Cambridge Keynesian tradition that took place as the Cam- KeynesianCambridge traditionthattookplaceasthe Aftertheconsolidationof Sen’s multi-dimensional approachtoinequalityraisesseveral the possibilities concerning Thismore objective approachtohumanwell-being more inline withtheclassical- iscertainly welfare Cambridge withinequalityisshared by connectedtothe Thisconcern authors James Meade(1976)andAnthony Atkinson(1975), Someexamplesare whocanbeseen Social surplusapproach 47 Downloaded By: 10.3.98.104 At: 17:29 27 Sep 2021; For: 9781315707587, chapter3, 10.4324/9781315707587.ch3 . by Keynes andKalecki, whostudiedtheimplicationsofinequalityforeffective demandand discussed more recently by Sen), must beseentogether withthedemand-sideeffectsidentified supply-side effectsofinequality oneconomicperformance, stressed by andPigou(and Marshall throughsupply-sidechannels.The essentially how inequalityinfluences economicperformance welfare traditionemphasizes Cambridge throughdemand-side channels,nomic performance the the increase ofincomeinequality. ofincome.the remaining part For thisreason, consumptionoutofincomewillbereduced with spendasmallerpercentage even consumptionisconsidered, whenluxury whilesaving simplyforachievingcentage ofwhattheybasicconsumption needs.Thosewithhigher earn of consumptionpatterns, andthosewhoreceive asmallerincomemust per- spendagreater previous income. Theflow sustainability ofincomeisthekey thelong-term tounderstanding by theflow ofincome, asKeynes (1936)notes, andsoitreferstopostponedconsumptionofa consumptionisoftenfinancedby thestockofwealth,what happensisthatluxury ratherthan from fullemployment. compensatesthelackofconsumption, theeconomy would systematicallytend capitalists consumeashare oftheirincome. Keynes andKaleckinoted, unlike Pigou, thatunless oped before by Kalecki(1971), whopresupposes thatworkers consumealltheirincome, while Keynes (1936)provides amuch more systematicdevelopment ofhisidea, whichwas alsodevel- is, aperson richer oftheirtotalincomethey willconsume. thesmallerproportion Ofcourse, 2013:pensity toconsume(seealsoMartins 105–107) overall consumptionsincemoretothosewhohave incomeistransferred pro- ahighermarginal more urgentandobjective needs, noted), asMarshall Keynes equalityincreases arguesthatgreater tothosewhohaveferred utility(ortothosewhouseincomeforsatisfying ahighermarginal fare. equalityincreases WhilePigouargues thatgreater overall utilitysincemore incomeistrans- propensitytoconsume,higher marginal asKeynes (1936)argues. side. thatthosewithalower Thedemand-sidechannelsare connectedtothefact incomehave a the supplyside(connectedtohumancapabilitiesandproductivity), but alsothroughthedemand ontheoverall ofthesurplus the impactofdistribution economicsystemnotonlythrough cannotfocussolelyonthemeasurement ofinequality.distribution Rather, they must alsolookat tins (2013). ensures theachievement ofbasiccapabilities, asarguedby Putnam&Walsh (2012)andMar- intotheclassical-Marxianframeworkincorporated inorder to define thelevel ofwages that in Sen’s standard ofliving), notionofbasiccapabilities(thatenableacertain whichcanbe Wages are reflected Theseinstitutionalfactors by areinstitutionalfactors. alsodetermined economicvariables,various 1960)andoutput(Kalecki1971: (Sraffa suchasprices 98–99). Distribution,and Kalecki. andtheshare ofwages inparticular, of isacentraldeterminant KeynesiansCambridge likeclassical-Marxian framework Robinson, undertaken by Sraffa, Pigou (1920). effect oneconomicperformance, whichwas notedearlyonby ([1890]1920)and Marshall on humanwell-being, but alsoanindirect impactonhumanwell-being throughitsdetrimental 2009,socio-economic change(seealsoMartins 2013).Inequalityhasnotonlyadirect impact Nuno OrnelasMartins 48 Insummary, KeynesiansCambridge discusstheinfluenceofinequalityoneco- whilethe demand.But consumptioncompensatesthislackofaggregate Onecouldthinkthatluxury Pigouhimselfhadappliedthisreasoning toconsumptiontoo. Pigou(1920)arguesthatthe Keynes’ approachtoconsumption isquitesimilartoPigou’s (1920)approachtohumanwel- Ifwe want toachieve oftheconsequencesinequality, abetterunderstanding studiesof There connectionsbetween are important Sen’s capabilityapproachandtherevival ofthe away away Downloaded By: 10.3.98.104 At: 17:29 27 Sep 2021; For: 9781315707587, chapter3, 10.4324/9781315707587.ch3 approach through administrative procedures, ofacompany’s whichare part planningactivities. tions, canbe setwithinthisobjective which guidethereproduction of economicactivities. Prices expecta- in Sraffa’s andorganizations toform enablesacting persons (1960)system.Thisprice throughtimeandmultiple transactions,that persists inamore andappears abstractformulation , oraverage whichissimply theordinary based onthecostofproduction, price following periods. over oftime, extendedperiods tobesetinthe oftheprice but isalsoacentraldeterminant 1998). Theconventional notonlypersists anditscompetitors administered by thefirm price tive intheeconomy, prices (seealso, especiallyaftertheemergenceof largecorporations Lee remain relatively stablethroughtime. Kalecki(1971: 43–49)notesthecentralityofadministra- tion oftheeconomicsystem, Kaleckiprovides amore concrete may explanationofwhy prices thatenablethereproduction oftheeconomicsystem(seeGaregnani 1984, prices the normal 2005). work thatcanbeusedforstudyingthemoreelementsofeconomicsystem, persistent suchas the generalconditionsforreproduction ofthesocio-economicprocess, provides Sraffa aframe- for thereproduction ofthesocio-economic process, whiletakingquantitiesasgiven. Bydefining same classical-Marxiancircular conceptionofproduction. andquantitiesseparately.prices Inreality, andquantitiesdraw uponthe theirstudiesofprices thatthey Keynesiansstudy fromthefact Cambridge spring the apparent divergences withinthe KeynesianCambridge tradition.However, coherencethe appearanceofgreater thanthe many of and throughthesameframework, ofsupplyanddemandcurves. For thisreason, interms it offers approach asthe ‘classical’ school, 2013: it(seeMartins whilecriticizing 93–96). confusionby(1936) himselfcreated designatingtheneoclassical much oftheterminological (1937), andconsolidatedby (1947)(seeRobinson1975).Asnotedabove, Keynes branches ofKeynesianism,John thanintheneoclassical-Keynesian Hicks synthesis initiated by inwhichKeynesthe neoclassicaldoctrines himselfwas brought up.” thanwith more halfofthenineteenthcentury incommonwiththeclassicalschooloffirst cratic framework. forces, withinanethicaland demo- shouldbedetermined whereas Senarguesthatdistribution curves. by Intheneoclassicalframework supplyanddemand isthusdetermined distribution product oftheeconomicforces ofsupplyanddemand, represented by supplyanddemand social surplus, constitutedby theconsumer’s andproducer’s surplus surplus, isessentiallyaside neoclassicaleconomics, approach.Within contemporary the neoclassicalsurplus Marshall’s welfare tradition andCambridge approach,classical-Marxian surplus ratherthanwithinthe KeynesianCambridge tradition, anditsrevival essentiallywithinthe occurred theory ofthe Keynes’ up reaching similarresults tothoseofKalecki.Thus, Robinson([1974]1980: 48)arguesthat andquantities.Andevenas prices Keynes, framework, fromtheMarshallian whostarted ends approach, onkey such ofthesurplus economicvariables andoftheimpactdistribution developments andKaleckiprovide important Sraffa further oftheclassical-Marxiansocialsurplus The Kalecki–Keynes–Sraffasynthesis This conventional price is consistent with the natural or normal price asdefinedinclassical price Thisconventional isconsistentwiththenaturalornormal price provides thatenable thereproduc- WhileSraffa amore abstractexplanationoftheprices ofvaluethatprovides (1960)focusesonatheory anddistribution thegeneral conditions Sraffa andquantitiessimultaneously ofprices Theneoclassicalsynthesisaddresses thedetermination Thecircular processofreproductionmore appears clearlyin theKaleckianandSraffian However, withinthevery ofeconomic analyticalstructure attemptstoincludedistribution General Theory has, like Kalecki’s ofemployment theory andSraffa’s approach,“much Social surplusapproach 49 Downloaded By: 10.3.98.104 At: 17:29 27 Sep 2021; For: 9781315707587, chapter3, 10.4324/9781315707587.ch3 aspects, is similar to the conclusions reached within the Cambridge aspects,Cambridge ‘welfare’ issimilartothe conclusionsreached within the traditionsof both decline, but economicprosperity. rathertogreater Thisconclusion, focusingondemand-side increases duetotheincrease inwages. in thewage-goods industries, andsoprofitsremain thesame fortheeconomy asawhole, while nected toinvestment goodsare ofthoseindustries spent by goodsandluxury thewage earners change theamountofprofitsinthatindustry. con- The profits whichare reduced inindustries In -goods industries, anincrease inwages isspentinthegoodsproduced, soitdoesnot towage-goods industries. profits frominvestment-goods industries andluxury-goods industries workers (whoonaverage lower earn incomesthancapitalistswhoreceive profits)merely diverts ofincome,distribution donotreduce profits.AsKalecki(1971)explains, theincrease inwages of Kaleckinotedthatincreasesinfluences economicperformance. inwages, leadingtoamore equal betweenDrawing wages upontheKaleckianapproach, andprofits. we canseehow distribution ofwhatKalecki(1971:terms 80–81)calls factors,’‘distribution thedistribution whichdetermine combined withKeynesian andSraffianelements. Perhaps thisexplainsRobinson’s overall fortheKaleckianapproach, tobefurther Robinson was lookingforwas already present, even ifunintentionally, ofKalecki. inthewritings ofeffectiveterms demand.ItwouldJoan seemthatthesynthesisbetween andKeynes Sraffa that economy, ofcostproduction, interms withinwhichheexplainedprices andquantitiesin conception ofreproduction suchastheclassical-Marxianone? be achieved, sothattheKeynesian ofeffective principle demandisexplainedwithinacircular Can asynthesis asanoutcomeoftheprocessreproduction. conception thatexplainsprices in contrast, ofeffective explainsquantitiesinterms demand, but withoutdeveloping acircular conception oftheeconomy, whileassumingthatthere are nochanges inquantities.Keynes, phenomenaare theresult ofcyclicalfluctuations. notes thatlong-term fluctuations, suchaseconomiccycles.Thelatterhave ofKalecki, beenacentralconcern who averagesbest seenaslong-term andtrends, by economic withinaturbulent processcharacterized throughtime. ofelementsthatpersist Butwhatevercorrelates throughtimeare elementspersist the overall conditionsforsocio-economicreproduction, whichcanbe seenasthetheoretical differencesaccount themethodological between Sraffa, Kalecki, andKeynes. focuseson Sraffa on otheroccasions(Robinson1985).Whenattemptingsuchasynthesis, onemust alsotake into Kalecki synthesisonsomeoccasions(Robinson[1974]1980)andaSraffa–Keynes synthesis and theKaleckian/Keynesian ofeffective principle demand, emphasisonaSraffa– putting greater tive demand.Robinsonarguesfor asynthesisbetween Sraffa’s ofvalue theory anddistribution, (Kalecki1971:produced) ratherthanchangesinprices 43–49). ofwhatwas todemand(includingthedestruction often changesinquantitiessoastoconform ratherthanadministrativeoften demand-determined prices, but themechanismofadjustmentis are inthosesectors fortheircommodities.Prices chain where largecompaniessetupprices andextractive ofavalue are(including agriculture industries), andproducers part thesmallfirms ance onadministrative planning twentieth century, but themore substantialdifferences must befoundelsewhere thanonthereli- were differences many between important thecapitalistandsocialisteconomiesthroughout capitalist (pastandpresent), there Certainly thatare largelycoordinated by planning. Nuno OrnelasMartins 50 This means that greater equality in the distribution of the surplus willnotleadtoeconomic ofthesurplus equalityinthedistribution Thismeansthatgreater InKalecki’s approach, istaken distribution asanexogenous aspect, explainedin tobefurther Suchanapproachwas developed by Kalecki, whoprovided acircular conceptionofthe withinacircular approachbecausehefocusesonprices isledtohismethodological Sraffa Quantities, inturn, by theKaleckian/Keynesian ofeffec- canbeseenasdetermined principle AsKalecki(1987: 19–21)notes, itisnotonlythesocialisteconomiesofpast, but alsothe per se . Even in sectors constituted by smaller firms or producers . Evenorproducers constitutedby insectors smallerfirms Downloaded By: 10.3.98.104 At: 17:29 27 Sep 2021; For: 9781315707587, chapter3, 10.4324/9781315707587.ch3 marginal productivities. Thus,marginal drawing contributions onotherheterodox traditionsthataddress bycontroversies institutional factors, isbestseenas determined isthatdistribution ratherthan controversies conclusionofthelatter ofcapital.Animportant Cambridge in thetheory in the Indeed, Veblen’sClark anticipatesmany of theissuesraisedby Robinson andSraffa of critique by aleisure isappropriated class. approachinwhichthesurplus presupposes) asocialsurplus saw. Veblen provided themostinfluentialnon-Marxian perspective thatdraws upon(oratleast contributions, Lee&Tae-HeeJo asFrederic (2011)argue. Veblen isacase inpoint, asRobinson many other heterodox approach underpins approach.Butasurplus tion totheclassicalsurplus ofthesurplus. distribution the maximizationofutilityorprofits, but rathertheprocessofsocialprovisioning, thatis, the tion continues withintheheterodox economic traditions, where thecentralissueatstake isnot andpolicy.within mainstream economictheory withtheroleofpower Aconcern in distribu- the economy and . Theroleofpower hasbeenprogressively indistribution forgotten state, andthe modern corporation economic analysisofthemodern anditsimplicationsfor spend alloftheirincome(asKaleckiandKeynes argue), whilealsoproviding arealistic micro- aspects, notingthemacroeconomic problem thatthosewithhigherincomedonotnecessarily themacroeconomicaspectswithmicroeconomic (1967) putsforward thatintegrates atheory affluentsocieties.Galbraith isthecentralproblem forcontemporary arguing thatdistribution supply,connected withaggregate andhumanwell-being ingeneral. forces demand, connectedtoaggregate effectonhumancapabilities, hasadetrimental whichare notes, bothaspectsare connected, sinceunemployment, whichistheresult ofmacroeconomic channel was acentralaspectofMarshall’s ([1890]1920).Butas Sen (1999) throughthesupply-side of inequalityonhumanwell-being andoneconomicperformance demand-side channelwas acentralaspectofKeynes’ (1936), whiletheimpact economics, we may throughthe say thattheimpactofinequalityoneconomicperformance macroeconomicanalysis,modern whichwas extentshapedby toagreat Keynes’ contribution. microeconomic analysis, whichwas shapedby greatly Marshall’s andWalras’s contribution, and approachtoeconomics.Thisincludesmodern pioneered theemergenceofmodern who oftheauthors socialclasses.Inequalityisalsothecentralconcern acrossvarious surplus oftheeconomic tral questionofeconomicanalysisisthestudyproductionanddistribution fortheclassicalpoliticaleconomistsandMarx, Inequalityisacentralconcern forwhomthecen- Concluding remarks controversies ofcapital. bridge inthetheory Cam- especially given theinconsistenciesidentifiedinneoclassicalframework the during approach,in theclassical-Marxiansocialsurplus provides forthosestudies, amore solid ground objective anddemand-sidefactors, explanationofsupply-sidefactors suchasthatundertaken Butitseemsthatamore ofthesocialsurplus. the implicationsofinequalityindistribution also ameansforimproving economicperformance, asSen(1999)argues. Greater equality, leadingtotheexpansionofhumancapabilities, isnotonlyanethicalgoal, but capabilities, whilealsonotingthepositive equalityforhumanwell-being. implicationsofgreater framework. focusonsupply-sideaspectssuchastheexpansionofhuman Alloftheseauthors the Marshallian–Pigovian neoclassicalframework andSen’s development oftheclassical-Marxian Theemphasisofthischapterwas onthetraditionsthatattempttoestablishanexplicitconnec- (1958, 1967)provides approachtothisproblem, anintegrated while Infact, ifwe distinctionbetween want tousethemodern microeconomicsandmacro- work Muchfurther isstillneededinorder toprovide abroaderandclearer perspective of Social surplusapproach 51 Downloaded By: 10.3.98.104 At: 17:29 27 Sep 2021; For: 9781315707587, chapter3, 10.4324/9781315707587.ch3 Piketty, T. 2014. Pigou, A.C. 1920. Petty, W. 1899. Meade,J. 1976. Putnam, H.&Walsh, V. (eds.)2012. Ricardo,D. [1817]1821. Garegnani, P. 1984. ‘Value intheclassicaleconomistsandMarx.’ anddistribution Galbraith,J.K. 1967. Galbraith,J.K. 1958. Cohen, A.&Harcourt, G.C. controversies?’ 2003. capitaltheory Cambridge ‘Whatever happenedtothe Clark,J.B. 1891. by thelaw asdetermined ofrent.’‘Distribution C.J.Bliss, 1975. social provisioning isaimedattheachievement ofhumandevelopment. Pigovian neoclassicalapproachundertaken by Keynes andSraffa, ofaconceptioninwhich aspart approach, whichhasbeenrediscovered anddeveloped oftheMarshallian– afterthecritique and humanwell-being.approachprovides Theclassical-Marxiansurplus suchamore objective ity, towards oneconomicperformance acleareroftheimpactdistribution understanding through asolidframework, whichenablesonetogobeyond themere measurement ofinequal- ofutility.parisons willnotbeofconsequenceunlessthetopicisaddressed Studiesofdistribution But subjectivism madePigou’s approachaneasyprey com- toRobbins’ ofinterpersonal criticism havecertainly tothistopic. much tocontribute institutional aspects, approach, totheclassical-Marxiansurplus even withoutexplicitlyreferring Nuno OrnelasMartins 52 Berg, R.2015. Atkinson, A.1975. References Harcourt, G.C. 1972. Hahn, F.H. 1981. theory,’‘General equilibrium Garegnani, P. 2005. pointinSraffa’s‘On aturning theoretical andinterpretative positioninthelate1920s.’ Kalecki, M.1971. 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