An Monetary Theory of Distribution Within the Surplus Approach, an Unified Theory?
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An monetary theory of distribution within the surplus approach, an unified theory? Introduction In 1960 Production of Commodities by Means of Commodities was published, by Italian economist Piero Sraffa, a book that, besides accomplishing the objective advanced in its subtitle, to be the prelude of a critique of dominant marginalism, also gave the first step towards the recovery of the approach of economists such as William Petty, Francois Quesnay and the physiocrats, Adam Smith, David Ricardo and Karl Marx, whose theoretical approach was based upon the distinction between two different parts of a society’s economic product, one part which is necessary for its reproduction and another of which such society can freely dispose, the latter being its economic surplus; hence, we can assert that Piero Sraffa started the renewal of the surplus approach. If we are to seriously take Sraffa’s book as a first step towards the revival of the surplus approach, then we must highlight the ending wods of chapter V of PCMC “The rate of profits, as a ratio, has a significance which is independent of any prices, and can well be ‘given’ before the prices are fixed. It is accordingly susceptible of being determined from outside the system of production, in particular by the level of the money rates of interest.” (Sraffa, 1960, p. 33), such sentences have a key role to play in theoretical analysis because of two reasons. The fact that Sraffa wrote this just before chapter VI “Reduction to dated quantities of labour” implies that his suggested theory of distribution was to be understood as one to apply to a circular flow economy, specifically, to a monetary circular flow economy. While, as correctly pointed out by Pasinetti (Pasinetti, 1990, p. 460) , still being a mere suggestion towards a theory of distribution, and not a concrete one, these sntences started the focus of the Monetary Theory of Distribution, a theory that saw its main developments in the final 1980’s and start of 1990’s with two books, Carlo Panico, Interest and Profit in the Theories of Value and Distribution and Massimo Pivetti, An Essay on Money and Distribution. It is precisely the theories presented in this last two books which will constitute the main object of analysis of the present paper, which looks forward to identify the common features of both authors, emphasizing the measurable categories they give rise to, but also pointing out the differences between them, arguing that they’re not fundamental, that they’re second order differences, which exist because of the distinct objectives on which each author focused 1. Common ground Before proceeding to the compare and contrast section of the paper, it is of outmost importance to give some common ground where to stand, that’s the purpose of this section, to deal with the roots of the surplus approach, in order to do that, we must put on the table the main features that classical economists added to their thought, and that Piero Sraffa and theorists of monetary distribution share with them. Pre-contemporary surplus approach The first economic categories were brought about by William Petty, in the XVIIth century, when he conceptualized “the stock-flow distinction between wealth and income; the national expenditure=national income identity; an analysis of the different sources of income” (Murphy, 2009, p. 34), and also "correctly identified production as the ultimate source of income" (Mongiovi, 2011, p. 1149), of all these, together with te production-income link, the stock-flow distinction is the most important, Petty, we assume, would not have worried himself with the formulation of such categories had he not been worried about the study of wealth, such a preoccupation implies a concern with the long term, it precisely this what we deem to be one of Petty’s most important additions, not only to the surplus tradition, but to economic science, the initial concern with the long period method, hence, focusing the main study of political economy on the persistent and fundamental of the economic system, in his own words: “I am content. You must 1 It is precisely because of this that Amadeo and Dutt identify them as an unified theory (Amadeo and Dutt, 1990) therefore know that theses intrinseck causes are principally foure, vizst. Weight, extent, colour or water, cleaness from faults, & to theise you may adde the mode and workmanship of the cutting.” (Petty, 1662(1899), p. 626)2, a concern that remains alive today 3, such focus on persistent causes implied studying the qualities of an economy that were most directly associated with the socio- institutional economic system, capitalism being that system for the last centuries, hence the specificity that it brings to production, distribution, and prices, and their consequences, became the object of study of political economy; however, it does not suffice to postulate long term topics as the main concern of the political economist, the flows that add to the stock must be studied, causation had yet to be introduced, and that was done by Francois Quesnay who introduced the Tableau Economique, “an expenditure-driven diagram. (where) Three sources of expenditure are outlined” (Murphy, p. 125), and whose “Objects to be considered (were): (1) three kinds of expenditure; (2)their source; (3) their advances; (4) their distribution; (5) their effects; (6) their reproduction; (7) their relations with one another; (8) their relations with the population; (9) with agriculture; (10) with industry; (11) with trade; (12) with the total wealth of the nation.” (Quesnay, (2003), p. 29), in the Tableau each kind of expenditure was related to an economic class, in Quesnay’s case farmers, landlords, and sterile sector, so, while correctly identifying the economic system as one that reproduces itself through expenditure decisions, and through the production of a net product, by a class of farmers that reproduces “whatever comes to it in the form of income” (Murphy, p. 127), it is the existence of a reproduction of what has been received as income what makes the economic system to be a circular flow, expenditure of the three kinds is realized, exchange comes up in the market, where goods, that require production are sold, thus generating income for the ones selling it, “This circulation and mutual distribution are continued in the same way by means of subdivisions down to the 2 It must also be noted that in the dialogue of diamonds, not only the seeds of the long term concern are there, but there’s also a conception of markets different from that of marginalist economics, see specially Petty, 1662, p. 630 3 Murray Milgate referred to long period method as something shared by both classic and marginalist economists, both distinguishing “the nature of the causes that operate in the situation under consideration –and the distinction at this level is between ‘fitful and irregular’ causes and those of a ‘permanent’ nature” (Milgate, 1983, p. 22), and focusing primarily on the latter. last penny of the sums of money 4 which mutually pass from the hands of one expenditure class into those of the other” (Quesnay, p. 32), the previous reasoning is not affected by the fact that Quesnay thought of a division between sterile and non-sterile sectors, only agriculture being non-sterile, hence, having the possibility of producing a surplus, a distinction that can no longer be maintained in modern capitalist economies, however, the basic flow of the system: expenditure- production of surplus-reception of income, being the basis of a circular flow, is a quality still featured by contemporary economies, so the issue is how it is that modern capitalism shapes its expenditure classes (which are really income classes), hence, what now follows is Adam’s Smith approach, in his study of wealth, he saw two main contributors to economic growth, labour and capital 5, these were not only the main sources of economic growth, but also the basic socio-economic division under capitalism, from this follows his famous assertion: “In the primitive state of society, which precedes capital accumulation and land appropriation, the only circumstance that can serve as a norm for reciprocal exchange of different objects seems to be the proportion between different kinds of labor needed to acquire them…But as soon as capital is accumulated under certain people, some of them try to regularly use it to give job to laborious people, giving them materials (inputs) and food, so as to gain benefit from the selling of their product or of the value that labor adds to the materials. When changing a finished product, for money, or labor or other goods, besides paying what is sufficient to pay for the value of materials and labor’s wages, it is also necessary to give something as profit that corresponds to the entrepreneur, who compromised his capital through this contingency.” (Smith, 1776 (1958), p. 47-8)6, having identified such classes not 4 For the sake of future reasoning let us remark the use of the term “sums of money” by Quesnay. 5 “he immediatly linked the division and specialization of labour with capital” (Murphy, p’. 170) 6 Own translation from Fondo de Cultura Económica version: “En el estado primitivo y rudo de la sociedad, que precede a la acumulación de capital y a la apropiación de la tierra, la única circunstancia que puede server de norma para el cambio recíproco de diferentes objetos parece ser la proporción entre las distintas clases de trabajo que se necesitan para adquirirlos…Mas tan pronto como el capital se acumula en poder de personas determinadas, algunas de ellas procuran regularmente emplearlo en dar trabajo a gentes laboriosas, suministrándoles materials y alimentos, para sacar un provecho de la venta de su producto o del valor que el trabajo incorpora a los materiales.