The Debates in Capital Theory and the Sraffian Schools
The Sraffian revolution has thus been described in its constituent elements: method, critique of the marginalist approach, and reproposal in the new guise of the classical approach. How were the Sraffian ideas received?
Once again, we can try to answer this broad question by considering separate aspects. First, there have been a number of theoretical enquiries trying to reformulate Sraffas analysis in strict mathematical terms and developing some specific points within it. Second, there has been a series of debates on the solidity of Sraffas reinterpretation of Ricardo. In both streams, a series of important contributions have been made, but it is beyond our scope to consider them here.[1]
A third stream of discussion drew more attention worldwide, namely the two Cambridges debates on capital theory, running high in the 1960s and early 1970s but with few subsequent outbursts. In these debates, the so-called Anglo- Italian School (Pierangelo Garegnani, Luigi Pasinetti, Luigi Spaventa, and various others, including Nicholas Kaldor and Joan Robinson) confronted the Cambridge on the other side of the Atlantic (Paul Samuelson, Robert Solow, and others). The debates concerned the validity of Sraffas critiques; as it turned out, and as was recognized by Samuelson himself, such critiques held.[2] But their relevance, it was said, was limited to the ‘aggregate’ version of the marginalist approach and did not affect general equilibrium theorizing (GET) of the Arrow-Debreu variety. The point is still a topic for debate: Walras’s original theory was indeed affected, and rescuing the Arrow-Debreu variety of GET means interpreting it in such a restrictive sense as to render it utterly useless in interpreting the real world.[3] What is more, mainstream macroeconomics should have been abandoned: in fact, it was rescued as ‘lowbrow theory’ (the appellative is Samuelson’s, while Frank Hahn preferred to speak of ‘lowbrow theorists’). In short, the Sraffian critiques did not receive a theoretical rebuttal but simply a political one: In the cultural climate of the Reagan-Thatcher revival of the free market, they were ignored together with their conclusions on the fallibility of the invisible hand of the market, unable to automatically re-establish full employment.
Lastly, there came a series of contributions working on the reconstruction of classical political economy. Elsewhere I have proposed a distinction between three different lines of development, respectively, christened the Marxian, the Ricardian, and the Smithian Schools (see Roncaglia 1991, 2009: Chapter 8). Here I shall illustrate these reconstruction projects only briefly.
The first, the main exponent of which is Pierangelo Garegnani, interprets Sraffa’s analysis of production prices and their relationship with income distribution as ‘the core’ of the intended reconstruction of classical political economy. Garegnani (1990: 124-125) proposes ‘a distinction between two fields of analysis: a field where general quantitative relations of sufficiently definite form can be postulated’—‘the core’—‘and another field where relations in the economy are so complex and variable according to circumstances, as to allow not for general quantitative relations of sufficiently definite form’, namely the rest of economic theory: ‘The relations pertaining to this second field had accordingly to be studied in their multiplicity and diversity according to circumstances’. Moreover, according to Garegnani (1981: 112), Sraffa’s analysis of ‘the core’ of economic theory retains the central aspects of Marx’s thought: ‘[T]he contingent nature of capitalism is demonstrated by Marx on the basis of an analytical nucleus consisting in what he often calls “the internal nexus of bourgeois economic relations”, that is, basically, the antagonistic relation between wages and profits’.
The Ricardian line of reconstruction retains two main characteristics of Ricardo’s analysis: his deductive method, and the connection between growth and income distribution. Luigi Pasinetti’s 1981 model and its book-length discussion represent a synthesis of this line of research. Pasinetti (1981: 25) aims at ‘a theory which remains neutral with respect to the institutional organization of society’ and focuses on the ‘primary and natural’ features of the economy, namely ‘the conditions under which it may grow and take advantage of exploiting all its potential possibilities’. The evolution of technology is considered exogenous, as well as the evolution of consumption, for which the subjective element of preferences is discarded in favour of a sectoral articulation of Engel’s Law. The assumption of full employment gives the model a normative nature: the method proposed consists ‘of singling out first the fundamental structural dynamics which must take place and then of trying to facilitate them’ (ibid.: 243-244).
The Smithian reconstruction, developed in a number of writings by Paolo Sylos Labini (e.g. 1984), attributes a central role to the political-institutional setting and to market forms in their interaction with the division of labour and the process of accumulation. The main object of economic enquiry is thus located in the ‘wealth of nations’ and the factors determining its evolution over time and in different countries. While Sraffa’s contribution is decisive as a critique of the marginalist approach, as a reconstruction of the conceptual foundations of the classical approach and as the solution to a central problem which classical economists had been unable to solve, namely the determination of prices of production and their relationship with income distribution, this latter aspect cannot be considered exhaustive as economic theorizing, nor as constituting the basis of an all-encompassing model. There is an analytical separability of the different issues, to be tackled within ‘different analytical areas’ (Roncaglia 2009: 153), though within a common classical conceptual framework.
A testing ground for the three reconstruction projects is the relationship they establish between Sraffa’s and Keynes’s contributions. It is not inappropriate, therefore, to conclude this presentation by briefly recalling the relationship between the two main Cambridge economists of the twentieth century.
Sraffa was 15 years younger than Keynes, and they held quite different political views. This notwithstanding, their relationship in the economic field was very close, with what appears to have been a reciprocal influence. Let us briefly recall some elements in this respect (some of which have already been alluded to above).
The acute intelligence of the young Sraffa (23-years-old) must have impressed Keynes, already a well-known economist, at their first meeting in the summer of 1921. One of the ideas Sraffa had suggested in his degree dissertation (Sraffa 1920), namely the distinction between internal and external monetary stability, not to be found in Keynes’s early writings, found a place in his A Tract on Monetary Reform (Keynes 1923 [1971]), the Italian edition of which Keynes entrusted to Sraffa. Keynes also asked him for a contribution on the Italian banking system, to be published in the Manchester Guardian Reconstruction Supplements, and when the Italian economist produced it, longer than requested and focused on a single episode, the quite recent (December 1921) bankruptcy of the Banca Italiana di Sconto, Keynes found it so good that he chose to publish it in the Economic Journal (Sraffa 1922a) instead. Sraffa was thus obliged to then write a shorter piece (Sraffa 1922b), in which the weakness of Italy’s leading commercial banks was highlighted and serious doubts were cast both on the correctness of their official accounts and on the expedient adopted by the Bank of Italy to support them. Faced with Mussolini’s harsh reaction to this article,[4] Keynes invited Sraffa to Cambridge, but—as noted—the British authorities did not allow entry into the UK, so Sraffas move to Cambridge was postponed to 1927.
Subsequently, after Sraffa had published his 1925 Italian article, Keynes invited him to write another article in English on the same issues for the Economic Journal (Sraffa 1926). His support for the Italian economist after his move to Cambridge was also unfailing: it was Keynes who manoeuvred for the Royal Society to entrust Sraffa with the edition of Ricardo’s writings, and during the Second World War had Sraffa freed from the internment camp where the Italian economist had been confined as an enemy alien, notwithstanding his lifelong anti-Fascism. In 1938 the two Cambridge economists, both passionate bibliophiles, together produced a precious edition of an anonymous 1740 pamphlet on Hume’s A Treatise on Human Nature, providing compelling proof of Hume’s authorship. Sraffa was one of the members of the so- called Cambridge Circus, advising Keynes in his transition from A Treatise on Money (Keynes 1930a [1973]) to The General Theory (Keynes 1936 [1973]); here Sraffa played a mainly critical role, and his preference for an endogenous theory of money was not heeded. Meanwhile, it was once again at Keynes’s request that Sraffa intervene in the controversy with Hayek, producing a destructive criticism of Hayek’s 1931 Prices and Production (Sraffa 1932). Though money and finance are conspicuous by their absence in Production of Commodities by Means of Commodities (apart from a cryptic aside on the monetary determination of the rate of profits Sraffa 1960: 33), it is clear that Sraffa was by no means unfamiliar with the money and finance field of enquiry and Keynes’s related contributions; indeed, it was Keynes himself who stated, in a lapidary footnote to Hayek’s paper and with Hayek’s permission, that ‘Mr. Sraffa has understood my theory accurately’ (Keynes 1932: 249, fn. 2). Of course, there may have been differences on points of detail (and it is likely that Sraffa was not in favour of the short-period equilibrium framework upon which Keynes had cast his General Theory, possibly preferring the dynamic approach of the Treatise on Money), but it is sufficiently clear that there was quite a lot of common ground, especially on the critical point of the relevance of monetary and financial elements in the real economy.
Sraffas hint in his 1960 book at the monetary determination of the rate of profit can in fact be read as a statement in the direction of the non-neutrality of money and finance and on the compatibility of such a thesis, crucial for the Keynesian approach, with the Sraffian analysis of the relationship between prices and income distribution. Once again, this theme cannot be tackled here; however, it is clear that the compatibility—indeed, the merging —of Keynes’s and Sraffas contributions is essential to the construction of a classical-Keynesian approach alternative to the marginalist one.[5]
- [1] For brief accounts of these debates, the reader is referred, once again, to Roncaglia (1975, 2009), andthe bibliographies contained therein. For a reconstruction of the whole history of economic thought onthe lines suggested by Sraffa, see Roncaglia (2005).
- [2] For a survey of these debates, see Harcourt (1972).
- [3] Garegnani (1960) shows that Sraffa-type critiques apply to all the main exponents of the marginalisttradition, including Walras and Wicksell.
- [4] The story is told in Naldi (1998).
- [5] For an attempt in this direction, see Roncaglia and Tonveronachi (2014).
