« Markets in everything | Main | Robert Frank's teaching philosophy »
The contributions of Piero Sraffa
1. Sraffa (and more here and here) wrote the seminal paper on the size of the firm under perfect competition. If contracts are perfect, what does a firm mean anyway? He doesn't quite get to that point, but he did understand that if all the cost curves and demand curves are horizontal, we cannot say how small or how large an individual firm will be. For 1926 this article was amazing.
2. He wrote an excellent 1932 review of Hayek's business cycle theory. First he questioned the idea of a "natural rate of interest" as a base from which the market rate might deviate. He pointed out that there is an entire schedule of natural rates. His deeper point was that monetary policy-induced resource shifts were not necessarily unstable and due for costly reversal. The newly-favored sectors might simply keep the resources they had captured through seigniorage, "forced savings," and other non-neutral monetary effects. Oddly the economic pessimists, usually on the left, have forgotten these points in recent times.
3. He wrote a beautiful introduction to the collected works of David Ricardo.
4. In 1960 he published the neo-Ricardian cult tract The Production of Commodities by Means of Commodities. Sadly this book is almost entirely misleading. It tries to resurrect the Ricardian idea that costs alone determine price (or perhaps I should say it cryptically hints at that idea without actually defending any real propositions at all).
At first glance cost-based theories seem plausible. Draw a horizontal cost curve, as would arise from constant returns to scale, and demand will not matter for price. Are constant cost such an unreasonable assumption? Can we not in principle multiply every economic input and receive proportionate outputs? Not really. There are almost always fixed factors and the "pure multiplication" thought experiment is not very relevant for price in the real world. Both Marshallian scissors matter.
Now this was not Sraffa's argument, but Sraffa's argument was far more complicated and also worse. It relied on aggregation theorems which simply didn't stick, and Mark Blaug tore it apart.
Sraffa also had important relationships with Gramsci and Wittgenstein, but those are topics for other posts, not necessarily by me.
Overall the guy's output was quite sparse. He was brilliant before the War but his major book was headed in the wrong direction altogether and it should be taught as a mistake, not an alternative.
Posted by Tyler Cowen on June 1, 2007 at 05:36 AM in Economics | Permalink
Comments
An old Crooked Timber thread I recall about Sraffa. He bought Japanese Bonds in the middle of WWII. Made a fortune (entirely legally I hasten to add).
Posted by: Tim Worstall at Jun 1, 2007 8:13:39 AM
Tim_Worstall, I was about to ask about that. The Wikipedia entry and newschool profiles actually say the
bonds were purchased the day after one of the nuclear bombings, not the "middle of WWII", but never-
theless I can't seem to find corroboration for this, which I've been trying to find for the Wikipedia
article. All the links I found from Google searches were either:
1) Wikipedia
2) someone quoting or plagiarising Wikipedia
3) an uncited, non-authoritative source (like the newschool link)
I also can't corroborate the general claims that:
1) It was possible to purchase Japanese bonds the day after the nuclear bombings (I find it hard to believe
such a bond purchase was possible for someone in an Allied country, or that such bonds were even being traded
that day.)
2) The Japanese honored war debts. Germany still doesn't honor Nazi-era foreign-held bonds, though that's
mainly due to difficulty authenticating.
I strongly suspected what actually happened was that he just bought Japanese bonds early on in reconstruction
after the war, if indeed he got rich at all.
Btw, did Sraffa really think that interest rates were keeping down the poor? What were they in his time? 3%?
Posted by: Person at Jun 1, 2007 9:31:34 AM
Hm, the "collected works of Ricardo" document in the link doesn't mention Sraffa as writing anything in it.
Posted by: Person at Jun 1, 2007 9:35:33 AM
More on the Wittgenstein connection, please!
Posted by: Gabriel M. at Jun 1, 2007 9:53:42 AM
Prof.Cowen,
In the title of Sraffa's book,"Production of..." there is no such word as "Other".The title is "Production of Commodities by Means of Commodities".
I disagree.This book provided a strong alternative to neoclassical value theory and revived the classical tradition and is a basic reference in capital measurement,prices and distribution theories.It is a powerful critique of the marginal theory of value and distribution.
Posted by: GVV at Jun 1, 2007 10:18:36 AM
Thanks, I've corrected the title.
Posted by: Tyler Cowen at Jun 1, 2007 11:04:11 AM
Prof. Cowen,
Having told us at length what Sraffa'a argument wasn't,could you tell us what the argument was, why it is so wrong that it can be torn apart?
Posted by: Tom at Jun 1, 2007 12:09:51 PM
This is running on memory so may well be incomplete. The story as told at CT was I think that he bought Japanese bonds traded in London, which would have made them pre War ones, but which were then trading at very low levels. The bet was that Japan would lose but would still honour them.
It's certainly not unbelievable. The Soviets finally honoured some Tsarist (or perhaps they were very early Soviet ones) in the 80s in order to gain access to the Eurobond market. Redeemed them at par when they had been trading at 1-2 % or so I think (sorry, very hazy memory of this, I was still at uni when that happened).
Posted by: Tim Worstall at Jun 1, 2007 1:36:00 PM
Cowen is flat wrong about Sraffa's book Production of Commodities by means of
commodities (PCMC). The book is only 88 pages long and the sub-title of the book is
"A prelude to the critique of economic theory," which was the main aim of this book Sraffa
did start the book with the warning of the abstractness of his argument and the assumptions
he was making. His goal was to create an economy with which he could explain economic activities
without using marginal concepts like supply, demand and equilibrium and he did
succeed in doing that. He started with a subsistence economy and then carefully
builds up the economy with the most rigorous logic. The main problem of his economy
which most economists including Joan Robinson pointed out was the determination of
Wages. It is rather hard to explain his entire argument because of his abstractness.
However, he didn't succeed in his goal of creating a viable alternative to
marginal economics because there were several problems with his work like the one explained above
and with some of his assumptions (but not any of the one's that Cowen suggests!). Sraffa does not
even include such a thing as "costs" in his book in the marginal sense and explains everything in
terms of "values" by creating a standard commodity which both Ricardo and Marx tried. It is similar to what Marx did, but his logic is stringently correct and he is not hooked up on labor as Marx was and he does bypass the transformation problem. Whatever the shortcomings of his book, I will claim that this book is one of the main argument that has put Marxian economics to rest for good!
Even though he didn't succeed in his prelude, but the questions he raises about neoclassical economics are very valid and still very much in debate. The issue about the definition of "Capital" is not settled entirely, and this work did contribute its share to the cambridge controversies. Another main drawback of his work was lack of empirical research behind it.
Blaug's critique does point out these flaws, but in no way does it "tear it apart." Even Paul Samuelson said that Sraffa could have one two Nobel prizes, one for his work on Ricardo and the other for Production of Commodities by Means of Commodites which he called Masterpiece! (I believe Samuelson wrote this for Sraffa's obituary which was in Italian, I would be really grateful if anyone knows where to locate its english translation).
Another related point is that many serious economiists have noted that a lot of concepts in economic theory are far from settled and could start again. Bengt Holdstrom (the ex-chair of MIT econ department) himself said,"The one thing all the sciences have in common is that there are still no answers to the most basic questions. Physics, biology, economics -- they all wonder the same things they wondered 200 years ago."
The book is quite dense and a thorough challenge, but as Blaug himself said that not going through it is a sign of intellectual cowardice, which I think Cowen has commmitted on this occasion. Without being too critical at Cowen, I would bet all my money that Cowen hasn't gone through PCMC and doesnt have much of a clue about it!
Posted by: Jack sparrow at Jun 1, 2007 1:44:23 PM
Not to be misleading, Samuelson did say good things about Sraffa, but he was
also quite critical of PCMC.
Posted by: Jack sparrow at Jun 1, 2007 1:52:52 PM
IIRC, Blaug said that Sraffa was sort of a "Rip Van Winkle" who awakened 150 years after Ricardo posed a
problem--which might not even have had significance in Ricardo's day--and began trying to solve it.
Posted by: Patrick R. Sullivan at Jun 1, 2007 2:12:51 PM
At least the guy woke up, unlike the nonsense that gets published most of
the time.
As for the importance, well it was important enough for Marx to
pick it up and to create the bamboozle of Das Capital which lead to to
a century of marxism.
Posted by: Jack sparrow at Jun 1, 2007 2:45:19 PM
Blaug on Sraffa, courtesy of Google Books:
http://books.google.com/books?id=4nd6alor2goC&pg=PA134&lpg=PA134&dq=blaug+sraffa&source=web&ots=mFaSPMZK2u&sig=mD6M10HCXgcRTtCTuV9UB4zPWIw
A bit of the flavor of things, for those who are interested.
Posted by: Jim G at Jun 1, 2007 3:47:38 PM
Hm, the "collected works of Ricardo" document in the link doesn't mention Sraffa as writing anything in it
He was the editor of Ricardo's collected works, assisted by Maurice Dobb. Here's vol 1 with the introduction.
Posted by: Kieran at Jun 1, 2007 4:17:14 PM
For those who may be interested, Samuelson's latest (inimitable) thoughts on Sraffa can be found at
"Complete work-up of the one-sector scalar-capital theory of interest rate: Third installment auditing Sraffa's never-completed "Critique of Modern Economic Theory""
Japan and the World Economy, 2006, 18, (3), 331-356
Paul A. Samuelson and Erkko M. Etula
Posted by: Tom at Jun 1, 2007 4:18:23 PM
Kieran, Sraffa edited 7 volumes of Ricardo's work where he provided numerous notes so that they are comprehensible and readable. It took him around 20 years to do this: either the guy was a lazy bum or a meticulous genious.
George Stigler later commented in his review, "Ricardo was a fortunate man.. And now, 130 years after his death, he is as fortunate as ever : he has been befriended by Sraffa." (Stigler, 1953).
Posted by: Jack sparrow at Jun 1, 2007 5:52:37 PM
Kieran, Sraffa edited 7 volumes of Ricardo's work
Yeah, I know. That's what I was telling the other guy, and why I linked to the introduction to vol 1.
Posted by: Kieran at Jun 1, 2007 11:12:48 PM
Jack Sparrow,
No doubt, Sraffa was a genious.Less academic output does'nt mean laziness.
Posted by: GVV at Jun 2, 2007 4:46:22 AM
The paper that one commenter on the post on the CCC links to cites Blaug retracting part of his criticism of Sraffa.
“Kurz and Salvadori (1998: 144-5) criticize me, quite rightly, for suggesting that Sraffa’s standard commodity makes prices independent of distribution, which is logically impossible, since the standard commodity is only a particular numeraire.” (Blaug 1999)
M. Blaug (1999). “Misunderstanding Classical Economics: The Sraffian Interpretation of the Surplus Approach”, History of Political Economy, V. 31, N. 2: 213-226.
On a larger note, the subtitle of Sraffa's book--"Prelude to a Critique of Political Economy"--should not be lost, specifically the "Prelude" shouldn't be lost. It seems that many of the proponents couldn't get past the Prelude, and as a result lost many of the lefty economists that they sought to inspire back to the mainstream.
Posted by: Robin at Jun 2, 2007 12:55:52 PM
Wittgenstein's preface to the Philosophical Investigations:
"...I am indebted to that which a teacher of this university, Mr P. Sraffa, for many years unceasingly practised on my thoughts. I am indebted to this stimulus for the most consequential ideas of this book."
Posted by: chris at Jun 2, 2007 8:36:29 PM
Well, before commenting on Sraffa, I shall attempt to make Tyler culinarily jealous.
So, I was at this conference where the great Sraffian, Luigi Pasinetti was honored.
It was held at Pollenzo, south of Turin in a place in Barolo that used to be used
by the Savoys to manage their estates, but now it houses the Slow Food Institute in
the University of Gastronomic Science and the Bank of Wine of Italy. So, we were
prisoners without email, forced to eat and eat and eat slow, scientifically gastronomical
Italian food with barrages of Barolo wines. Torture, sheer exquisite torture....
Anyway, getting back to Sraffa. Arguably he was a perfectionist who took too long to
do things. So, he worked on PCMC:PCET for 35 years. Samuelson has argued that if
he had come out with it prior to 1936 he would have gotten, or at least shared, the
Nobel for input-output with Leontieff.
The other Nobel would have been for presenting the first published example of the
reswitching problem, which was in an appendix. Now, Joan Robinson always called it
the "Ruth Cohen curiosum," and I guess maybe it was identified originally by such a
person, although I have never heard anything at all about her and am not sure she is
not a madeup name by Joan Robinson for herself. Reportedly it was her efforts in
the 1950s, walking with Sraffa around and around in the courtyards of Cambridge U.
that finally got him to publish the book in 1960 after all those years. And still
just a prelude to a critique...
The argument that he assumes linearity and horizontal supply curves and all that is
another of those myths like that reswitching is just an index number problem. He
specifically looked at steady states so as to allow for the possibility of nonlinearity.
And, of course, the neoclassical theory of marginal productivity distribution only
works in linear systems where the Euler equation holds.
For those interested in the Sraffa, Wittgenstein, Gramsci links there are (at least)
two papers on this. Amartya Sen, "Sraffa, Wittgenstein, and Gramsci," Journal of
Economic Literature, 2003, 41(4), 1240-1255, and Ajit Sinha, "A Comment on Sen's
'Sraffa, Wittgenstein, and Gramsci,'" Journal of Economic Behavior and Organization,
2006, 61(3), 504-512. I think that John B. Davis has also written on this topic, or
at least on Sraffa and Wittgenstein.
Finally, I might mention that anyone attempting to evaluate Sraffa should be made
aware that there is a very large shoe still out there waiting to drop. A rather
large amount of Sraffa's papers have not yet been publicly revealed, and rumors
say that there is a tremendous amount of interesting material in them. Pierangelo
Garegnani is the executor of his papers, and has been sitting on them to the
increasing annoyance of pretty much all Sraffa scholars, to the point that this is
becoming almost a scandal.
In Italy, they say that Garegnani is the Pope of Sraffianism and Pasinetti is the
senior cardinal. However, I noticed that during the tribute to Pasinetti and his
remarks afterward, Garegnani's name was not mentioned once, although Sraffa, Keynes,
Kaldor, Kahn, Robinson, Goodwin, and some others were. The bottom line on Sraffa
is yet to be known.
Posted by: Barkley Rosser at Jun 5, 2007 12:24:45 AM
As I understand it, Ruth Cohen was some economist at Cambridge. Robinson wanted to acknowledge, in her 1950s paper on the aggregate production function, that Sraffa had discovered capital-reversing. Sraffa refused to let her, but she still wanted to say the idea wasn't original with her. Sraffa suggested she credit it to Ruth Cohen.
Hayek described reswitching, but he wasn't as clear as Sraffa. Nor did he do much with it.
Posted by: Robert at Jun 5, 2007 5:21:10 AM
Thanks, Robert. That sounds right.
Hayek's Pure Theory of Capital is definitely his book that is least
read and favored by most Austrian economists. Roger Garrison is one
of the few to really dig into it. Many view it as a sort of last gasp
of the traditional Austrian capital theory, driving a nail into its
coffin. After that Hayek tended focus on his dispersed information
and self-organization kinds of arguments.
Posted by: Barkley Rosser at Jun 5, 2007 1:01:35 PM
Regarding the basic criticism by Tyler that Sraffa sought to establish
a purely cost-based theory of price, I quote Sraffa from a letter he wrote
to Arun Bose in 1964, which is quoted in footnote 2 on p. 506 of the
2006 JEBO comment by Sinha.
"I am sorry to have kept your MS so long--and with so little result.
The fact is that your opening sentence is for me an obstacle which I am
unable to get over. You write: 'It is a basic proposition of the Sraffa
theory that prices are determined exclusively by the physical requirements
of production and the social wage-profit division with consumers demand
playing a merely passive role.' Never have I said this: certainly not in
the two place to which you refer in your note 2. Nothing, in my view,
could be more suicidal than to make such a statement. You are asking me
to put my head on the block so that the first fool who comes along can cut
it off neatly. Whatever you do, please [in italics] do not represent me
as saying such a thing."
Posted by: Barkley Rosser at Jun 5, 2007 2:09:59 PM
I come from asia, injoy 室內設計,work in a 搬家公司,other enjoy isecosway和科士威,good see U。
Thanks.
Posted by: jack at Jan 7, 2008 1:12:56 AM
