Piero Sraffa

First Writings: Money and Banking

Piero Sraffa (1898-1983) is one of the leading intellectuals of the twentieth century not only for his strictly economic contributions but also for his influence on others, from Antonio Gramsci to Ludwig Wittgenstein. In the field of economic sciences, Sraffa’s cultural project was an extremely ambitious one: to expose the weak points of the marginalist approach and at the same time to re-propose the classical approach of Adam Smith, David Ricardo and, in certain respects, Karl Marx.

Piero Sraffa was born in Turin, the son of a professor of commercial law and subsequently Dean of the Bocconi University in Milan, and studied in Parma, Milan and Turin, where he attended the classical lyceum and then the faculty of Law. From March 1917 to March 1920 he did his military service; in November 1920 he graduated with a dissertation on L’inflazione monetaria in Italia durante e dopo la guerra (Monetary Inflation in Italy during and after the War), discussed with Luigi Einaudi.1

  • 1 Luigi Einaudi (1874-1961), a pragmatic liberal, professor of public finance at Turin as from 1902 and member of the Senate as from 1919, withdrew from public life under Fascism and became Governor of the Bank of Italy in 1945, minister for the budget in 1947 and president of the Italian Republic (1948-55). It is worth recalling here his controversy with Croce on the relationship between economic and political liberalism (cf. Croce and Einaudi 1957). Einaudi and Croce agreed on the fact that economic liberalism cannot be an absolute tenet, unlike political liberalism, but only a practical rule. However, Einaudi stressed the instrumental role of liberalism in favouring the diffusion of economic power (which otherwise would be concentrated in the hands of the State or ofthe political elite). The fact remains that no one could call himselfa liberal if his liberalism is confined to the most widespread laissez faire in the economic arena. Though holding conservative views, Einaudi thus opened the way to the development of a reformist or socialist liberalism, like that of Piero Gobetti, Carlo and Nello Rosselli and the political movement ‘Justice and Freedom’ (Giustizia e liberta). As a student at the D’Azeglio Lyceum and a relative of the Rosselli brothers, Sraffa was involved in this cultural climate and, though oriented towards Gramsci’s Marxism, always had very good relations with many protagonists of the democratic streams of anti-fascism.
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The degree dissertation (Sraffa 1920) proposed some original ideas. In analysing inflation, it considered the diverse evolution of different price indexes, connected to the different viewpoints of the various social groups such as workers and entrepreneurs. Recourse to a general price index (as in the quantity theory of money, but more generally in all theories that conceive of money simply as a veil, with no influence on real variables) is misleading precisely in that it obscures the central role of social conflicts in economic life.[1] This point would underlie Keynes’s (1930) criticism of the quantity theory of money. Moreover, Sraffa distinguished between stabilising the internal and the external value of money, or in other words between stabilising the average level of domestic prices or the exchange rate. The two coincide, according to the traditional theory of the gold standard; however, the distinction becomes essential when considering either short-run problems or inconvertible paper money systems and was therefore relevant to the policy choices of the time. Keynes did not use it in Indian Currency and Finance (1913) but did bring it into his Tract on Monetary Reform (1923), having in the meantime (in August 1921) met Sraffa.[2]

  • [1] Sraffa (1932) developed one of his critiques of Hayek along similar lines. According to thetheory of forced savings utilised by Hayek, a period of inflation may correspond to a morerapid accumulation of capital than is justified by the basic parameters of the economy, butthe system then automatically goes back to its long-period equilibrium througha deflationary process. Sraffa (1932, p. 110) stressed that the re-establishment ofa situation of monetary equilibrium does not bring each individual economic agent backto the initial conditions.
  • [2] Sraffa’s early publications (1922a, 1922b) addressed monetary and banking issues andtestify to his personality as an all-round economist, in whom the dominant interest forpure theory was accompanied by a solid knowledge of the institutional details and byexemplary analyses of specific real-world issues.
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