DOCSLIB.ORG

Revisiting the Cambridge Capital Theory Controversies: a Historical and Analytical Study

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Revisiting the Cambridge Capital Theory Controversies: a Historical and Analytical Study ANDRÉS LAZZARINI Andrés Lazzarini, Ph.D. in Economics from Roma Tre University, is a Visiting Fellow at the Institute of Advanced Study – Jawaharlal Nehru University, New Delhi. He has been Visiting Assistant Professor of Microeconomics at the University of Alicante, Spain, in 2010, and Research Fellow and Lecturer of History of Economic Thought at the Department of Political Economy and Quantitative Methods, University of Pavia, in 2008 and 2009. His main research areas are: History of Economic Analysis, Methodology of Economics and Economic Development in Historical Perspective. E-mail: [email protected] / [email protected] Revisiting the Cambridge Capital Theory Controversies: A Historical and Analytical Study Analytical and Historical A Controversies: Theory Capital Cambridge the Revisiting This book deals with the Cambridge capital theory controversies both from a historical and from an analytical standpoint. In the first part the author addresses the basic analytical and methodological issues underlying the neoclassical theory, with special emphasis on how the problem of a measure of capital arises within the marginalist theory of value and distribution. The second part surveys the most relevant contributions to the Cambridge debates in the light of the salient results of ‘reswitching’ and ‘reverse capital deepening’, and shows how the implications of these results, which touch the principle of factor substitution, brought about different strategies pursued by neoclassical scholars to overcome these theoretical problems. Andrés Lazzarini The book concludes that since the results of this debate touch the foundations of the theory, and hence are of a general character, it is hard to accept that the contemporary versions of the theory are free of capital problems, while at the same time the Cambridge controversies are absent in the current literature used for training economics students. The book should Revisiting the Cambridge Capital Theory therefore be useful to the undergraduate and graduate students, as well as to scholars devoted to the History of Economic Analysis. Controversies: A Historical and Analytical Study Texts published by Pavia University Press in the series “Editoria scientifica” have been peer-reviewed prior to acceptance by the Editorial Board. www.paviauniversitypress.it/scientifica ISBN 978-88-96764-17-6 € 22,20 PP Pavia University Press Edizioni dell’Università degli Studi di Pavia Editoria scientifica Editoria scientifica ANDRÉS LAZZARINI Revisiting the Cambridge Capital Theory Controversies: A Historical and Analytical Study Lazzarini, Andrés Revisiting the Cambridge capital theory controversies: a historical and analytical study / Andrés Lazzarini. – Pavia : Pavia University Press, 2011. – VI, 172 p. : ill. ; 24 cm. ISBN: 978-88-96764-17-6 1. Economia – Teorie – Gran Bretagna – Sec. 19. – 20. 330.1 CDD-22 – Economia, sistemi, scuole, teorie © Andrés Lazzarini, 2011 – Pavia ISBN: 978-88-96764-17-6 Texts published by Pavia University Press in the series “Editoria scientifica” have been peer-reviewed prior to acceptance by the Editorial Board. www.paviauniversitypress.it/scientifica. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without written permission from the author. The cover shows: The Mathematical Bridge, Cambridge (UK), Margarita Olivera, 2007 Publisher: Pavia University Press – Edizioni dell’Università degli Studi di Pavia Biblioteca Delle Scienze - Via Bassi, 6 – 27100 Pavia <http://www.paviauniversitypress.it> Printed by: Print Service – Strada Nuova, 67 – 27100 Pavia Contents Preface and Acknowledgements ................................................................................ V Chapter 1. Why a study on the capital theory controversies? 1.1. Capital as a factor of production and the capital theory debates .............................1 1.2. The relevance of this conflict to contemporary economic analysis .........................3 1.3. A first phase in the capital controversies ................................................................5 1.4. A second phase in the capital controversies............................................................6 1.5. Radically different views on the meaning of the critique for the contemporary versions of the theory .............................................................................................9 1.6. Sketch of this study ..............................................................................................10 PART I. Analytical and Methodological Issues in Neoclassical Economics: Setting the Ground to Understand the Capital Controversies Chapter 2. Understanding the foundations of neoclassical economics: The principle of factor substitution and the problem of capital 2.1. The data of the Marginal Theory. The direct mechanism of factor substitution....17 2.2. The indirect mechanism of factor substitution......................................................18 2.3. From ‘employment’ functions to ‘demand’ functions (I)......................................19 2.4. From ‘employment’ functions to ‘demand’ functions (II).....................................21 2.5. The capital supply function ..................................................................................23 2.6. Key role of the downward-sloping shape of factors’ demand curves....................24 2.7. Problems connected with the heterogeneity of capital goods................................25 2.8. Supply-side role of capital....................................................................................27 2.9. Persistence character of the determining circumstances: The traditional method of ‘normal positions’ ............................................................................................31 2.10. Demand-side role of capital: Conclusion............................................................34 Chapter 3. ‘Reswitching’ and ‘Reverse Capital Deepening’: Introduction to the heart of the controversies and their implications 3.1. Some premises......................................................................................................39 3.2. Economies with heterogeneous capital goods. The wage curve............................42 3.3. The wage-frontier. Economies with more than one system of production.............46 3.4. Implications for the basic premises of the theory: Conclusion..............................49 Andrés Lazzarini – Revisiting the Cambridge Capital Theory Controversies PART II. The Capital Theory Debates in a Historical Perspective and the Transformation of Dominant Theory Chapter 4. A first phase in the controversies: Samuelson’s 1962 intervention, the 1966 Symposium, neoclassical reactions and the highest point of the debates 4.1. Introduction..........................................................................................................55 4.2. Samuelson’s (1962) model with heterogeneous capital goods ..............................57 4.3. Samuelson’s ‘special sub-class of realistic cases’.................................................59 4.4. The neoclassical ‘parable’: ‘Surrogate’ capital and the ‘Surrogate’ production function ................................................................................................................60 4.5. What did Samuelson actually demonstrate?..........................................................63 4.6. There is no heterogeneous capital goods model in Samuelson’s (1962) ...............68 4.7. Levhari (1965) and the 1966 Quarterly Journal of Economics Symposium ..........70 4.8. Pasinetti (1966a)...................................................................................................73 4.9. Garegnani (1966)..................................................................................................74 4.10. The meaning of the 1966 Symposium: A turning point in the controversies.......75 4.11. Neoclassical reactions: Samuelson (1966a) ........................................................78 4.12. Further neoclassical reactions after the Symposium: Ferguson (1969) ...............80 4.13. Garegnani’s 1970 critique of the marginal theory...............................................85 4.14. Bliss’s 1970 intervention. Prelude to the shift to neo-walrasian equilibria and the beginning of a second phase in the debates.....................................................87 4.15. The zenith of the debates....................................................................................89 Chapter 5. A step back in the debates: Joan Robinson’s role in the controversies and first neoclassical reactions 5.1. Introduction..........................................................................................................91 5.2. Robinson’s critique: Aggregate production functions as her main target..............91 5.3. Equilibrium and expectations ...............................................................................93 5.4. Understanding Robinson’s way: The ‘Pseudo-production function’ and the ‘curiosum’ ............................................................................................................95 5.5. Conclusion .........................................................................................................101 5.6. Champernowne’s (1953) contribution ................................................................103 5.7. Further replies to Robinson:
Load more

Recommended publications
  • Cambridge Controversy DOI: 10.1177/0486613414557916 Rrpe.Sagepub.Com
    RRPXXX10.1177/0486613414557916Review of Radical Political EconomicsLazzarini 557916research-article2015 Review of Radical Political Economics 1 –18 Some Unsettled Issues in a © 2015 Union for Radical Political Economics Second Phase of the Cambridge- Reprints and permissions: sagepub.com/journalsPermissions.nav Cambridge Controversy DOI: 10.1177/0486613414557916 rrpe.sagepub.com Andrés Lazzarini1 Abstract The aim of this paper is to clear up some issues in a second phase of the Cambridge-Cambridge capital theory controversies, when the neoclassical argument was chiefly conducted in terms of the Walrasian specification of capital in intertemporal and temporary general equilibrium models. It is held that the response by the neoclassical side in that phase has not been as satisfactory to rebut the implications of reswitching and capital reversing as some neoclassical scholars have argued. The reason for this can be traced in the overlooking of the implications of the redefinition of equilibrium implied in those models. JEL classification: A10, B21, B22, B24, B40 Keywords Cambridge Controversy, capital, equilibrium, marginalist theory, Walras, neo-Walrasian models 1. Introduction It is broadly acknowledged in the history of contemporary economics that the theoretical conflict known as the Cambridge-Cambridge capital theory controversies shook the tenets of neoclassical theory. One of the most significant outcomes of the controversy for that theory has been that the basic principle of factor substitution cannot be generalized to study market economies with het- erogeneous capital goods. Indeed the results known as reswitching and capital reversing showed that factors demand functions will not necessarily be inversely related to their respective rates of remuneration. The reason behind those results ultimately lies in the fact that the capital endow- ment is specified in value terms among the data of equilibrium in neoclassical theory.
    [Show full text]
  • What Remains of Sraffa's Economics
    DEPARTMENT OF ECONOMICS, MANAGEMENT AND STATISTICS UNIVERSITY OF MILAN – BICOCCA DEMS WORKING PAPER SERIES What remains of Sraffa’s economics Pier Luigi Porta No. 242 – May 2013 Dipartimento di Economia, Metodi Quantitativi e Strategie di Impresa Università degli Studi di Milano - Bicocca http://dems.unimib.it/ What Remains of Sraffa’s Economics Pier Luigi Porta Department of Economics University of Milan Bicocca Abstract Recently the Cambridge Journal of Economics have launched a project on New Perspectives on the Work of Piero Sraffa in a Conference and a Special Issue of the Journal. “Almost two decades after the opening of the Sraffa Archives – the Introduction reads – and 50 years on from the publication of PCMC seemed an appropriate moment to reflect on ongoing debates on Sraffa’s overall contribution to economics and, in particular, on the relevance of the opening of the Sraffa Archives in this regard. Does Sraffa’s lasting contribution to economic analysis essentially remain limited to PCMC or is it taken beyond this by his unpublished writings? In the latter case, is it possible to identify a distinctive research project that Sraffa had in mind?”. This paper discusses these problems and proposes an answer to both questions. It is argued that the opening of the Archives changes substantially the judgment that can be given of the intellectual legacy of Piero Sraffa. The contributions to the ongoing debate on Piero Sraffa’s economics are discussed. It is argued that the publication of Sraffa’s literary remains is the necessary step to make the debate more productive. Keywords: Sraffian economics, Structural economic dynamics Jel Classification: A10, B12 1 1.
    [Show full text]
  • Critica Dell'economica: Keynes E Sraffa
    Stefano Lucarelli Critica dell’economica: Keynes e Sraffa Appunti dalle lezioni di Giorgio Lunghini versione riveduta e corretta Milano, settembre 2004 2 PREMESSA Questi appunti sono stati tratti dalle lezioni di Giorgio Lunghini sullo schema teorico neoclassico e sulle critiche mosse contro di esso da J.M. Keynes e da P. Sraffa. Sono lezioni dettate nella seconda parte del corso progredito di Economia politica (I modelli economici) tenuto nell’Università Bocconi, e che integrano Riproduzione, distribuzione e crisi, (Unicopli, Milano 1995). Gli appunti sono stati rielaborati tenendo conto di altri scritti di Giorgio Lunghini. In particolare: La crisi dell’economia politica e la teoria del valore, Feltrinelli, Milano 1977. Marx prima di Sraffa, in R. Bellofiore (a cura di) Tra teoria economica e grande cultura europea: Piero Sraffa, Franco Angeli, Milano 1986. Intervento e Replica in Piero Sraffa e l’economia politica degli anni ’80, Atti del convegno organizzato dall’Istituto di Economia politica il 22 gennaio 1988, Università Bocconi, Milano 1989. Equilibrio, in G. Lunghini (a cura di e con la collaborazione di M. D’Antonio) Dizionario di economia politica, Bollati Boringhieri, Torino 1988. Capitale, in Enciclopedia delle scienze sociali, Istituto della enciclopedia italiana, Roma 1991. Valore, teorie del (con F. Ranchetti), in Enciclopedia delle scienze sociali, Istituto della enciclopedia italiana, Roma 1998. Introduzione a M. Dobb, Storia del pensiero economico, Editori Riuniti, 1999. A Comment, in T. Cozzi e R. Marchionatti (a cura di), Sraffa’s Political Economy, Routledge, Londra 2001. I nuovi compiti dello Stato, in M.Aglietta e G. Lunghini, Sul capitalismo contemporaneo, Bollati Boringhieri, Torino 2001.
    [Show full text]
  • Value, Distribution and Capital Essays in Honour of Pierangelo Garegnani Edited by Gary Mongiovi and Fabio Petri
    Value, Distribution and Capital Essays in honour of Pierangelo Garegnani Edited by Gary Mongiovi and Fabio Petri London and New York Routledge Frontiers of Political Economy 1 Equilibrium Versus Understanding Towards the rehumanization of economics within social theory Mark Addleson 2 Evolution, Order and Complexity Edited by Elias L.Khalil and Kenneth E. Boulding 3 Interactions in Political Economy Malvern after ten years Edited by Steven Pressman 4 The End of Economics Michael Perelman 5 Probability in Economics Omar F.Hamouda and Robin Rowley 6 Capital Controversy, Post Keynesian Economics and the History of Economics Essays in honour of Geoff Harcourt, volume one Edited by Philip Arestis, Gabriel Palma and Malcolm Sawyer 7 Markets, Unemployment and Economic Policy Essays in honour of Geoff Harcourt, volume two Edited by Philip Arestis, Gabriel Palma and Malcolm Sawyer 8 Social Economy The logic of capitalist development Clark Everting 9 New Keynesian Economics/Post Keynesian Alternatives Edited by Roy J.Rotheim 10 The Representative Agent in Macroeconomics James E.Hartley 11 Borderlands of Economics Essays in honour of Daniel R.Fusfeld Edited by Nahid Aslanbeigui and Young Back Choi 12 Value, Distribution and Capital Essays in Honour of Pierangelo Garegnani Edited by Gary Mongiovi and Fabio Petri 13 The Economics of Science Methodology and Epistemology as if Economics Really Mattered James R.Wible 14 Competitiveness, Localised Learning and Regional Development Specialization and prosperity in small open economies Peter Maskell, Heikki
    [Show full text]
  • Sraffa's Price Equations in Light of Garegnani and Pasinetti
    Munich Personal RePEc Archive Sraffa’s price equations in light of Garegnani and Pasinetti - The ‘core’ of surplus theories and the ‘natural’ relations of an economic system Bellino, Enrico Università Cattolica del Sacro Cuore, Milano, Istituto di Teoria Economica e Metodi Quantitativi 18 December 2014 Online at https://mpra.ub.uni-muenchen.de/60730/ MPRA Paper No. 60730, posted 18 Dec 2014 10:12 UTC Sraffa’s price equations in light of Garegnani and Pasinetti The ‘core’ of surplus theories and the ‘natural’ relations of an * economic system Enrico Bellino Università Cattolica del Sacro Cuore, Milano December 2014 [email protected] English to be revised “Quelli che ti spiegano le tu idee senza fartele capire ...” (E. Jannacci, “Quelli che ... ”, 1975, Italian pop song) Abstract. Within the rich literature that has flowed from Sraffa’s framework of Production of Commodities by means of Commodities a prominent position is occupied by the research programmes carried out independently by two authoritative exponents of this school: Pierangelo Garegnani and Luigi Pasinetti. Certain specific features of their approaches might lead one to perceive them as alternative to one another. Yet, when analysed through a constructive perspective, one discovers not only a common origin and methodology, but also strict complementarity in analysing the main characteristics of industrial systems. J.E.L. classification: B12, B24, B51, D33, E11, E12, E2 Keywords: surplus approach, ‘core’ of a capitalist system, structural economic dynamics, ‘natural system’, Garegnani, Pasinetti, Sraffa, Keynes, post-Keynesians 1. Introduction The ‘modern classical political economy’ is a field of research that has flowed directly from the analytical framework proposed by Sraffa (1960) and from the works of those scholars that gravitated around Cambridge (UK) between the Sixties and the Eighties.
    [Show full text]
  • Critical Essays on Piero Sraffa's Legacy in Economics
    Critical Essays on Piero Sraffa's Legacy in Economics Edited by HEINZ D. KURZ University of Graz, Austria PUBLISHED BY THE PRESS SYNDICATE OF THE UNIVERSITY OF CAMBRIDGE The Pitt Building, Trumpington Street, Cambridge, United Kingdom CAMBRIDGE UNIVERSITY PRESS The Edinburgh Building, Cambridge CB2 2RU, UK http://www.cup.cam.ac.uk 40 West 20th Street, New York, NY 10011-4211, USA http://www.cup.org 10 Stamford Road, Oakleigh, Melbourne 3166, Australia Ruiz de Alarco n 13, 28014 Madrid, Spain # Cambridge University Press 2000 This book is in copyright. Subject to statutory exception and to the provisions of relevant collective licensingagreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2000 Printed in the United States of America Typeface Times Roman 10/12 pt System 3B2 [KWP] A catalog record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Critical essays on Piero Sraffa's legacy in economics / edited by Heinz D. Kurz. p. cm. Includes index. ISBN 0-521-58089-7 (hardbound) 1. Sraffa, Piero. 2. Economists ± Italy. 3. Classical school of economics. I. Kurz, Heinz-Dieter. HB109.S73C75 2000 330.1± dc21 99-30162 CIP ISBN 0 521 58089 7 hardback Contents Preface Page vii List of contributors xiii Part I. Introduction 1. Piero Sraffa's contributions to economics: a brief survey 3 Heinz D. Kurz and Neri Salvadori 2. Revisionist ®ndings on Sraffa 25 Paul A. Samuelson Comment by John Eatwell 45 Comment by Pierangelo Garegnani 48 Comment by Bertram Schefold 69 Reply by Paul A.
    [Show full text]
  • A Reflection on the Samuelson-Garegnani Debate
    Economic Thought 4.2: 48-67, 2015 A Reflection on the Samuelson-Garegnani Debate Ajit Sinha, Azim Premji University, Bangalore, India [email protected] Abstract This paper argues that Samuelson’s criticisms of Sraffa mainly concentrated on Sraffa’s claim that the propositions of his book (Sraffa 1960) did not depend on the assumption of constant returns to scale. Garegnani’s defence of Sraffa against Samuelson’s criticisms remained ineffective because Garegnani’s own interpretation of Sraffa’s prices as classical ‘centre of gravitation’ or ‘long term’ prices requires constant returns to scale assumption. The paper goes on to critique Garegnani’s interpretation of Sraffa and the classical economics to show that Garegnani’s interpretation of Sraffa and the classical economics is highly problematic and that Samuelson’s criticism of Sraffa does not hit the target because Sraffa’s prices are not necessarily ‘equilibrium’ prices and therefore there is no need of returns to scale assumption in his theory. Keywords: classical economics, constant returns to scale, Garegnani, Samuelson, Sraffa, standard commodity 1. Introduction Sraffa’s book (1960), Production of Commodities by Means of Commodities, is perhaps the most enigmatic theoretical work ever published in economic theory. Of course, all classics are somewhat puzzling and do give rise to a number of interpretations over a period of time. But Sraffa’s book is special in this respect. Upon its publication, many contemporaries of Sraffa hailed it as a definite classic but at the same time acknowledged their inability to completely understand what the book was all about (e.g., Harrod, 1961).
    [Show full text]
  • David Ricardo on Natural and Market Prices
    Munich Personal RePEc Archive David Ricardo on natural and market prices Signorino, Rodolfo University of Palermo 4 June 2011 Online at https://mpra.ub.uni-muenchen.de/39212/ MPRA Paper No. 39212, posted 04 Jun 2012 15:13 UTC 04/06/2012 David Ricardo on Natural and Market Prices Rodolfo Signorino The distinction between the natural and market prices of commodities is one of the hallmarks of Classical economic theory. As is well-known, the distinction refers to the sharply different nature of the forces involved: unlike their market counterparts, natural prices were taken by Classical authors to reflect the permanent and systematic forces at work whenever competition operates without restraint.1 As a consequence, natural and market prices have a quite different analytical status and relevance within Classical economics: Classical economists devoted their best analytical energies to the study of the former, leaving the analysis of the latter somewhat in the background (Ciccone 1999, Salvadori and Signorino 2012). In an oft-quoted passage of Chapter 4, ‘On Natural and Market Price’, of his Principles of Political Economy and Taxation Ricardo plainly acknowledged Adam Smith’s authority on the subject: In the 7th Chapter of the Wealth of Nations, all that concerns this question is most ably treated. Having fully acknowledged the temporary effects which, in particular employments of capital, may be produced on the prices of commodities, as well as on the wages of labour, and the profits of stock, by accidental causes, without influencing the general price of commodities, wages, or profits, since these effects are equally operative in all stages of society, we will leave them entirely out of our consideration, whilst we are treating of the laws which regulate natural prices, natural wages and natural profits, effects totally independent of these accidental causes.
    [Show full text]
  • Newsletternewsletter
    ROYAL ECONOMIC SOCIETY NEWSLETTERNEWSLETTER Issue no. 156 January 2012 Another New Year (They seem to come round more quickly as time goes on). Traditionally, the January issue of the Newsletter is the most crowded of the year and this one is no exception. Hence we need to start with some thanks to those contributors who have generously agreed to see publication of their work deferred to April. For similar reasons, we owe an apology to authors whose work in this issue has been trimmed and compressed — by just about every device known to editors — to get it to fit the space available. We hope that no material damage has occurred. Finally, while the spirit of regret is in the air, we need to apologise for three errors that appeared in the last issue. Firstly, we transferred Andy Mullineux from the Birmingham to the Bristol Business School; we delayed Adam Smith’s arrival in Panmure House by ten years — it should have been 1778, not 1788 — and we managed at least one misspelling of what should have been ‘Heriot-Watt’. Apologies to all. Recent issues of the Newsletter have featured contrasting views on the pros and cons of austerity packages. In this issue, Prof Robert Neild, whose career involved working through some difficult times in the 1960s and 1970s, argues the case for a calmer approach to deficits, based upon the UK’s long-run history. In the last Newsletter we wondered whether there was a case for a ‘plan B’ and if so what it might look like. Since then, little has changed.
    [Show full text]
  • Economic Theory and Its History
    Economic Theory and its History This collection brings together leading economists from around the world to explore key issues in economic analysis and the history of economic thought. This book deals with important themes in economics in terms of an approach that has its roots in the works of the classical economists from Adam Smith to David Ricardo. The chapters have been inspired by the work of Neri Salvadori, who has made key contributions in various areas including the theory of production, the theory of value and distribution, the theory of economic growth, as well as the theory of renewable and exhaustible natural resources. The main themes in this book include production, value and distribution; endogenous economic growth; renewable and exhaustible natural resources; cap- ital and profits; oligopolistic competition; effective demand and capacity utiliza- tion; financial regulation; and themes in the history of economic analysis. Several of the contributions are closely related to the works of Neri Salvadori. This is demonstrated with respect to important contemporary topics including the sources of economic growth, the role of exhaustible resources in economic development, the reduction and disposal of waste, the redistribution of income and wealth, and the regulation of an inherently unstable financial sector. All contributions are brand new, original and concise, written by leading expo- nents in their field of expertise. Together this volume represents an invaluable contribution to economic analysis and the history of economic thought. This book is suitable for those who study economic theory and its history, political economy and philosophy. Giuseppe Freni is Professor of Economics at the University of Naples Parthenope, Italy.
    [Show full text]
  • “Adam Smith's Natural Prices, the Gravitation Metaphor, and the Purposes of Nature”
    “Adam Smith’s natural prices, the gravitation metaphor, and the purposes of nature” Author: David Andrews1 Abstract: Adam Smith’s “natural price” has long been interpreted as a “normal price” or “center of gravitation price” based on the famous gravitation metaphor of the Wealth of Nations I.vii, natural in the sense that it is the price that would result if competition were truly free, unobstructed by monopoly or government regulation, and could also therefore be called normal price, appealing to a sense of natural opposed to that which is produced artificially. This essay has three purposes. First I criticize this interpretation of Smith’s gravitation metaphor. For Smith, it is not a Newtonian metaphor for the attractive character of natural price, but rather an Aristotelian metaphor for the pattern of movement of market prices, in which natural price serves merely as a reference point. Second I present an interpretation of Smith’s natural price based on his understanding of nature, in the context of his assertions that the goals of nature are the self-preservation of individuals and the propagation of species, goals humans pursue with divided labor under bonds of mutual dependence, facilitated by exchange and hence prices. The natural price of a commodity is the price that supports nature’s goals by providing for the maintenance of those who participate in production and supply in a manner that is just sufficient for these activities to continue indefinitely. Third I highlight the similarity between natural prices construed in this way and the prices of Piero Sraffa’s Production of Commodities by Means of Commodities.
    [Show full text]
  • Neo-Ricardian Economics
    Uncorrected proof from The New Palgrave Dictionary of Economics 2nd edition. Edited by Steven Durlauf and Lawrence Blume. Published by Palgrave Macmillan. Forthcoming. NEO-RICARDIAN ECONOMICS N000150 This article deals with the revival of the classical theory of value and distribution, championed by Piero Sraffa. The general rate of profits and relative prices are shown to be determined exclusively in terms of the given system of production and real wages (or the share of wages). Prices generally depend on income distribution. So does the cost-minimizing technique. The ‘quantity of capital’ cannot be ascertained independently of prices and thus the rate of profits. Techniques cannot generally be ordered monotonically with the rate of profits. Marginalist ideas regarding input proportions and input prices therefore cannot generally be sustained. The term ‘neo-Ricardian economics’, as it is understood today, can mean several things. It was coined in the aftermath of the publication of The Works and Correspondence of David Ricardo, edited by Piero Sraffa with the collaboration of Maurice H. Dobb (Ricardo, 1951– 73), and the publication of Sraffa’s Production of Commodities by Means of Commodities (Sraffa, 1960). One meaning of the term simply refers to these facts and interprets Sraffa’s work in the way Sraffa himself saw it: as a return to the ‘standpoint of the old classical economists from Adam Smith to Ricardo, [which] has been submerged and forgotten since the advent of the “marginal’’ method’ (Sraffa, 1960, p. v; see Smith, 1776, and Ricardo, 1951–73). However, the term was first used by Marxist economists to distinguish Sraffa’s approach to the theory of value and distribution, which explained relative prices and income distribution strictly in material terms (that is, quantities of commodities and labour), from the Marxist one, which starts from labour values (see Rowthorn, 1974).
    [Show full text]