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Sraffa and the Reconstruction of Economic Theory: Volume Two Aggregate Demand, Policy Analysis and Growth Sraffa and the Reconstruction of Economic Theory: Volume Two Aggregate Demand, Policy Analysis and Growth Edited by Enrico Sergio Levrero Antonella Palumbo and Antonella Stirati Copyright material from www.palgraveconnect.com - licensed to University of Sydney - PalgraveConnect - 2014-01-27 - PalgraveConnect of Sydney - licensed to University www.palgraveconnect.com material from Copyright 10.1057/9781137319166 - Sraffa and the Reconstruction of Economic Theory: Volume Two, Edited by Enrico Sergio Levrero, Antonella Palumbo and Antonella Stirati Sraffa and the Reconstruction of Economic Theory: Volume Two Aggregate Demand, Policy Analysis and Growth Edited by Enrico Sergio Levrero Antonella Palumbo and Antonella Stirati Copyright material from www.palgraveconnect.com - licensed to University of Sydney - PalgraveConnect - 2014-01-27 - PalgraveConnect of Sydney - licensed to University www.palgraveconnect.com material from Copyright 10.1057/9781137319166 - Sraffa and the Reconstruction of Economic Theory: Volume Two, Edited by Enrico Sergio Levrero, Antonella Palumbo and Antonella Stirati Contents List of Tables and Figures vii Preface ix Acknowledgements xi List of Contributors xii Introduction 1 Antonella Palumbo Part I Demand-Led Growth in the Classical Approach 1 Public Debt and Aggregate Demand: Some Unconventional Analytics 15 Roberto Ciccone 2 The Inevitable Dependence of Investment on Expected Demand: Implications for Neoclassical Macroeconomics 44 Fabio Petri 3 The Meaning of Output Trends in the Analysis of Growth 68 Attilio Trezzini 4 Potential Output and Demand-Led Growth 92 Antonella Palumbo 5 A Historical Approach to Demand-Led Growth Theory 120 Matthew Smith 6 Normal Paths of Growth Shaped by the Supermultiplier 139 Óscar Dejuán 7 The Pattern of Economic Growth of the Brazilian Economy 1970–2005: A Demand-Led Growth Perspective 158 Fabio N. P. de Freitas and Esther Dweck Part II Understanding the International Economic Order - 2014-01-27 - PalgraveConnect of Sydney - licensed to University www.palgraveconnect.com material from Copyright 8 Continuity and Change in the International Economic Order: Towards a Sraffian Interpretation of the Changing Trend of Commodity Prices in the 2000s 195 Franklin Serrano v 10.1057/9781137319166 - Sraffa and the Reconstruction of Economic Theory: Volume Two, Edited by Enrico Sergio Levrero, Antonella Palumbo and Antonella Stirati vi Contents 9 The Political Economy of the Rise and Decline of Developmental States 223 Carlos Aguiar de Medeiros 10 Harmonic and Conflict Views in International Economic Relations: a Sraffian View 242 Sergio Cesaratto 11 Lessons from the Crisis: the Macroeconomics of Leverage 265 Paolo Leon Index 273 Copyright material from www.palgraveconnect.com - licensed to University of Sydney - PalgraveConnect - 2014-01-27 - PalgraveConnect of Sydney - licensed to University www.palgraveconnect.com material from Copyright 10.1057/9781137319166 - Sraffa and the Reconstruction of Economic Theory: Volume Two, Edited by Enrico Sergio Levrero, Antonella Palumbo and Antonella Stirati List of Contributors Sergio Cesaratto, University of Siena Roberto Ciccone, Roma Tre University Óscar Dejuán, University of Castilla – La Mancha Esther Dweck, IE, Federal University of Rio de Janeiro (UFRJ) Fabio N. P. de Freitas, IE, Federal University of Rio de Janeiro (UFRJ) Paolo Leon, Roma Tre University Carlos Aguiar de Medeiros, IE, Federal University of Rio de Janeiro (UFRJ) Antonella Palumbo, Roma Tre University Fabio Petri, University of Siena Franklin Serrano, IE, Federal University of Rio de Janeiro (UFRJ) Matthew Smith, University of Sydney Attilio Trezzini, Roma Tre University Copyright material from www.palgraveconnect.com - licensed to University of Sydney - PalgraveConnect - 2014-01-27 - PalgraveConnect of Sydney - licensed to University www.palgraveconnect.com material from Copyright xii 10.1057/9781137319166 - Sraffa and the Reconstruction of Economic Theory: Volume Two, Edited by Enrico Sergio Levrero, Antonella Palumbo and Antonella Stirati Introduction Antonella Palumbo One of the fields of research to which the modern revival of the sur- plus approach has devoted much attention, in the fifty years following Sraffa’s Production of Commodities by Means of Commodities, is the theory of output and the analysis of the processes of growth and development in capitalist economies. Although no explicit theorisation about the determinants of output levels is to be found in Sraffa’s work, the revival of the classical approach to value and distribution and the critique of neoclassical theory prompted by his work, as shown in Garegnani’s (1978–79) seminal contribution, have relevant implications for the analysis of output. On the one hand, the critique of neoclassical mechanisms based on factor substitutability implies (i) the lack of the analytical basis on which traditional analysis affirms the automatic tendency of the system to the full utilisation of resources and (ii) a criticism of the reduction of Keynes’s contribution to the analysis of the transitory incapability of the system of ensuring sufficient demand to absorb potential output. On the other hand, the fact that in the classical theory of value and distribution output levels are regarded as given when determining rela- tive prices and the residual distributive variable (in the so-called ‘core’ of surplus analysis – Garegnani, 1984), implies a degree of freedom with respect to output determination and thus compatibility with different theories of output. In the words of Garegnani (1978, p. 340), ‘Ricardo’s - 2014-01-27 - PalgraveConnect of Sydney - licensed to University www.palgraveconnect.com material from Copyright theory of distribution is open, in the sense that it neither provides premises capable of justifying the tendency of investment to adjust to saving, nor depends on the existence of such a tendency. This “open” character sharply distinguishes the Ricardian theory from the subse- quent marginalist theories, which saw distribution as the result of forces of demand for and supply of “factors of production”.’ 1 10.1057/9781137319166 - Sraffa and the Reconstruction of Economic Theory: Volume Two, Edited by Enrico Sergio Levrero, Antonella Palumbo and Antonella Stirati 2 Introduction The eleven essays contained in this volume may be said to build on these original insights, by contributing new material to the general aim of explaining the determination of output levels and their evolution over time on the basis of two fundamental notions: the absence of any mechanisms whatsoever ensuring the tendency of the system to the optimal use of resources (and thus the necessity of studying the evolu- tion of demand and the limits it may pose on the level and growth of output); and the fundamental independence between output determi- nation and distribution, or, more accurately, the absence of any neces- sary relation between them. This independence, which stems from the very structure of the clas- sical theory of value and distribution, is a distinctive element of the long-period theory of output developed within the modern revival of the surplus approach, which sets it apart from other theories attempting the extension of the principle of effective demand to the long period on different bases. One of the most influential of such attempts has been the ‘Cambridge’ theory of distribution (Kaldor, 1955–56; Robinson, 1956 and 1962) postulating a strict and necessary direct relation between the rate of accumulation and the rate of profit. Starting from the ‘Keynesian hypothesis’ (Kaldor, 1955–56, p. 195) according to which it is the level of investment, independently determined, which causes and generates the corresponding level of saving, the Cambridge approach interprets this causation as entailing that in the long period any autonomous increase in the rate of accumulation must necessarily be met by a corresponding increase in the ratio of saving to the stock of capital, which can only be obtained if the proportion of profits in national income grows, given the higher propensity to save out of profits. The Cambridge theory of distribution is thus based on the assumption that in the long period the overall level of output does not have sufficient elasticity in responding to autonomous changes in investment, and that for this reason the composition of output between consumption and saving must necessar- ily change to accommodate the higher rate of investment. This would happen through an increase of money prices relative to money wages (induced by the temporary excess demand) which will produce the - 2014-01-27 - PalgraveConnect of Sydney - licensed to University www.palgraveconnect.com material from Copyright necessary fall in real wages. However, as shown by Garegnani (1992) and Garegnani and Palumbo (1998), such rigidity of long-run output to independent changes in demand – which in Kaldor (1955–56) takes the form of the full- employment hypothesis while in Robinson (1956, 1962) is represented by the assumption of the long-run rigidity of the output/capital ratio – is in 10.1057/9781137319166 - Sraffa and the Reconstruction of Economic Theory: Volume Two, Edited by Enrico Sergio Levrero, Antonella Palumbo and Antonella Stirati Antonella Palumbo 3 reality unwarranted when taking seriously the conception of the growth process as driven by demand. An essential part of this conception is in fact the notion that productive resources, far from being exogenously determined, are mainly the result of the long-run level of
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