Revisiting Classical Economics

Heinz Kurz, Neri Salvadori

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317907961
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The financial crisis and the economic crisis that followed triggered a crisis in the subject of economics, as it is typically being taught today especially in macroeconomics and related fields. A renewed interest in earlier authors, especially the classical economists from Adam Smith to David Ricardo and John Maynard Keynes, developed. This book may also be seen as a response to this interest. What can we learn from the authors mentioned, what we could not learn from the mainstream?

This volume contains a selection of essays which deepens and widens the understanding of the classical approach to important problems, such as value and distribution, growth and technical progress, and exhaustible natural resources. It is the fourth collection in a row and reflects an on-going discussion of the fecundity of the classical approach.

A main topic of the essays is a comparison between the classical approaches with modern theory and thus an identification of what can be learned by elaborating on the ideas of Smith and Ricardo and Marx above and beyond and variously in contradiction to certain mainstream view. Since the work of Piero Sraffa spurred the revival of classical economic thought, his contributions are dealt with in some detail. The attention then focuses on economic growth and the treatment of exhaustible resources within a classical framework of the analysis.

1 Revisiting Classical economics

An introduction

Heinz D. Kurz and Neri Salvadori

This volume is the fourth in a series of collections of essays written by the two of us, by one of us alone, or by one or the two of us with some other author. The previously published collections of essays were

• Understanding ‘Classical’ Economics. Studies in Long-period Theory (1998);

• Classical Economics and Modern Theory. Studies in Long-period Analysis (2003) and

• Interpreting Classical Economics. Studies in Long-period Analysis (2007).

Each collection reflects the discussions we were and still are involved in regarding the characteristic features of the Classical economists’ approach to economic problems, and its resumption in modern times, which in important respects differs markedly from the later marginalist or neoclassical approach. In the course of time these discussions have both deepened and widened, which can be seen at a glance by comparing the contents of the four volumes. An important development concerns the growing reference to Piero Sraffa’s insights into Classical economic thought as they are contained in his hitherto unpublished papers and correspondence. This involves doctrinal questions such as to what extent Sraffa built upon, or deviated from the analyses of the physiocrats, David Ricardo or Karl Marx; the relationship of his approach in terms of simultaneous equations to the general equilibrium analyses of authors such as Vilfredo Pareto; the difference between Sraffa’s concept of ‘physical real cost’ and Alfred Marshall’s ‘real cost’; and so on. Then there is the problem of which kind of methodology Sraffa had endorsed and what view he held of the relationship between observer, reality and theory. Another question concerns the extension of the discussion to particular problems Sraffa dealt with in Production of Commodities by Means of Commodities (Sraffa 1960) only in passing, especially the problem of exhaustible resources and the problem of the pattern of utilisation of durable instruments of production. Both problems are discussed within the analytical framework of a choice of technique. Then there is the question of how Sraffa’s work relates to that of other economists who wrote broadly at around the same time in a partly similar vein, especially Ladislaus von Bortkiewicz and Wassily Leontief. Finally there is the problem of scrutinising critically alternative theories or economic models against the background of the Classical approach.

Several of the chapters in this collection have grown out of controversies we were involved in. On several occasions the late Mark Blaug had criticised our Sraffa-inspired interpretation of the nature and genuine significance of the Classical economists’ contributions, especially David Ricardo, and had put forward an alternative interpretation. Scrutinising carefully the latter we arrived at the conclusion that his alternative consisted essentially in a variant of the one we had endorsed and that therefore there was more heat than fire in his attacks on us. A second controversy deserves to be mentioned. In this collection we publish for the first time two papers one or the two of us had written several years ago in response to papers published by Giancarlo de Vivo and Giorgio Gilibert on the origins of Sraffa’s production equations in his 1960 book. The two authors had argued with different degrees of circumspection and firmness that the origin must have been Marx’s schemes of simple reproduction contained in volume II of Das Kapital. De Vivo presented his view at a conference organised by Massimo Pivetti in Rome in 1998; an Italian version of his paper was published in 2000 and an English one in 2003 (De Vivo 2000, 2003). One of us (Kurz) was a discussant of the paper at the conference and argued in some detail why he disagreed with de Vivo’s reconstruction. Both of us (Kurz and Salvadori) shared a serious concern about the tenability of De Vivo’s argument and took into consideration the possibility of writing a joint piece refuting it. Before we completed this paper, one of us (Kurz) was informed by Pierangelo Garegnani that Giorgio Gilibert had given a seminar in Rome on the origin of Sraffa’s equations and that he, Garegnani, felt that the new interpretation, which saw the roots of Sraffa’s equations to be Marx’s schemes of reproduction, looked rather convincing to him. Kurz expressed his astonishment and urged Garegnani to arrange for the paper to be shown to him. He was then sent a copy of the proofs of the piece, which had already been sent to the printer. Kurz checked the evidence put forward by Gilibert and concluded that it did not support the case under consideration. He told Garegnani about his findings on the phone and alerted him to the fact that the publication of interpretations of parts of Sraffa’s papers by members of the editorial team, which would be disputed by other members, might cause trouble for the editorial project. Such a concern had been expressed by Garegnani himself on various occasions and had made him ask members of the editorial team to try to sort out conflicting views of the material and at any rate hold back disputable interpretations till after the editorial project was completed. In the phone conversation Garegnani told Kurz that he might be right to some extent, but that Gilibert might have a point. Kurz then jotted down swiftly what he found wrong with Gilibert’s argument. After having read the notes sent to him in 2003, Garegnani got back to Kurz and told him that he was now convinced that Gilibert’s interpretation cannot be sustained: the evidence against it was overwhelming.¹

The question then was what to do. In late 2003 Kurz developed his notes into a paper entitled ‘Sraffa’s equations “unveiled”? A comment on Gilibert’. He sent it to Garegnani and confidentially also to a few other scholars. He was convinced that it would be necessary to quickly bring it out in order to make readers aware of what spoke against Gilibert’s interpretation. However, Garegnani asked Kurz not to publish his piece, but wait till after the edition was out, which would request only two to three more years. Kurz eventually agreed in the interest of avoiding tensions within the editorial team, which might have slowed down the project further. He now thinks that this was an error. As a consequence of the postponement of the publication of the paper by Kurz on Gilibert we stopped finalising our joint paper on De Vivo. We publish these papers here for the first time in order to document what we think contradicts De Vivo’s and Gilibert’s interpretations. Re-reading our old pieces on the occasion of preparing this collection of essays has convinced us that what we had written then still holds now.

The material in this volume is subdivided in five parts.

Part I is dedicated to ‘Classical Economics and Modern Theory’ and has two chapters.

Chapter 2 compares Wassily Leontief’s PhD thesis in Berlin, published in 1928, and Sraffa’s work in Cambridge in 1927–8 on his equations of production as reconstructed from his unpublished papers. Both authors were keen to move away from subjectivist explanations of relative prices and income distribution and explained them instead in terms of the observable amounts of commodities produced and used up during a year as means of production or means of subsistence in the support of workers. Given the system of production actually in use and the real wage rate, the rate of return on capital and relative prices are determined. The amount of capital in the system, a value magnitude, is determined at the same time as the rate of return and prices and cannot generally be taken as given as in long-period marginalist theory. Sraffa, as is well known, kept elaborating the Classical approach by dealing also with such intricate problems as fixed capital, scarce natural resources and joint production proper, whereas Leontief’s interest soon shifted towards applying the new tool of input-output analysis to practical problems. He thereby embraced ideas in the theory of value that were incompatible with his earlier views and are difficult to sustain.

Chapter 3 is the long version of a reply to Mark Blaug’s attack on what he called ‘Sraffian economics’. (The short version was published in History of Political Economy; see Kurz and Salvadori 2011.) It is argued that none of the criticisms levelled at Sraffa’s resumption of the Classical approach and the contributions of those adopting it stands up to close examination. Blaug also attributed views to us (and other authors) we (they) never advocated. And he contended that ‘Sraffian’ authors have not dealt with certain important problems, although the literature he refers to proves the opposite. He mistakes the mathematical form of an argument for its content. The use of simultaneous equations in Sraffa he misinterprets as reflecting a version of Walrasian general equilibrium theory. Surprisingly he no longer maintains that there is a fundamental difference between his own interpretation of the Classical economists and that of the ‘Sraffians’: it is only ‘a question of emphasis’, he opines. We argue that Blaug’s sharp counterposition of rigour and relevance of a theory is a red herring: a concern with rigour must not be misread as a lack of interest in the relevance of the analysis.

Part II is ‘On Sraffa’s Contribution’ and has four chapters.

Chapter 4 reflects upon Sraffa’s warning that ‘Caution is necessary … to avoid spurious “margins” for the genuine article’ (Sraffa 1960: v) against the background of certain propositions put forward by Christian Bidard. It is argued that the existence of what Bidard calls ‘marginal equalities’ does not provide any support for the marginalist explanation of wages or the rate of profits. The fact that the rate of profits equals the derivative of the relationship that can be built between the value of national income as function of the value of capital, both calculated at a given rate of profits, should not come as a surprise. Calling such a derivative ‘the marginal productivity of capital appropriately defined’ must not be mistaken to mean that the rate of profits is determined by some marginal productivity of capital. With the latter being ascertained in terms of a given and known rate of profits, there is no causal relation leading from the marginal productivity to the rate of profits. In fact the contrary direction would be more appropriate.

In Chapter 5 Neri Salvadori and Rodolfo Signorino develop a rational reconstruction of an important aspect of Sraffa’s methodology: his view of the relationship between the observer or theorist, economic reality and the economic theory designed to analyse this reality. They focus attention on Sraffa’s published work on pure economics and argue that while in his 1925 and 1926 papers Sraffa puts forward some observations about economic reality and apparently takes them as self-evident, in his 1960 book he takes care to first clearly identify the object of his inquiry and then decides the best way to analyse it.

Chapter 6 was published as a comment to Lippi (2008). Lippi delivered a paper at the Conference ‘Sraffa or an Alternative Economics’ (Rome, Italy, 2003) arguing, among other things, that the algorithm in section 37 of Sraffa’s book does not need to converge to the desired eigenvalue and eigenvector. Salvadori was surprised and looked for an example. When he found an example, it became clear that a further assumption was required and that Sraffa was not so wrong after all.

Chapter 7 deals with Sraffa’s relationship with Keynes, focusing attention on Sraffa’s reception of The General Theory. While Sraffa approved of Keynes’s critical intention with respect to the marginalist theory of output and employment, based on Say’s law, he was disenchanted with its execution. It was not only Keynes’s occasional sloppiness he had difficulties in coping with. In important respects he found that Keynes’s new theory exhibited several loose ends and contradictions. He was particularly critical of Keynes’s liquidity preference theory, as we can see from two manuscript fragments Sraffa had apparently composed shortly after the publication of Keynes’s magnum opus, but which he apparently never showed to Keynes. He also felt that Keynes had granted conventional theory too much and had not succeeded in fully ‘escaping habitual modes of thought’.

Part III deals with various aspects of the development of Sraffa’s thoughts that culminated in the publication of his 1960 book and has four chapters.

Chapter 8 deals with a further aspect of the collaboration between Abram S. Besicovitch, the Cambridge mathematician and one of Sraffa’s ‘mathematical friends’, and Sraffa. The latter consulted Besicovitch in the 1940s and 1950s whenever he had problems with proving some of the propositions that eventually entered his 1960 book. Up until now we have tackled in a series of papers a number of instances of Sraffa requesting the assistance of Frank Ramsey, Alister Watson and Besicovitch with intricate problems, when he was not sure, whether the argument he had forged was correct or whether it could be presented in a more effective way; see Kurz and Salvadori (2001, 2004). These papers have been reprinted in earlier collections of our essays and the reader is welcome to consult them. In Chapter 8 we deal with the mathematical property of the system relating to the dependence of relative prices in single-product systems on the general rate of profits. In his papers Sraffa discussed this problem under the heading ‘proof of the gradient’.

Chapter 9 reproduces a paper by Christian Gehrke and Heinz D. Kurz on Sraffa’s notes on three contributions by Ladislaus von Bortkiewicz, especially the latter’s ‘Wertrechnung und Preisrechnung im Marxschen System’ (Value and price calculation in the Marxian system) (Bortkiewicz 1906–7). Sraffa came across these papers only in 1943. One of his notebooks contains extensive excerpts from and critical comments on Bortkiewicz’s papers. The notes are of particular importance because they were written shortly after Sraffa had resumed his re-constructive work in 1942, after having abandoned it for more than a decade because of the Ricardo edition to which the Royal Economic Society had appointed him in 1930. By the time he came across Bortkiewicz’s notes he had already solved several problems in an attempt to explain profits, rents and the relative prices supporting a given distribution of income in terms of the concept of a social surplus. With a given real wage, conceived of as an ‘inventory’ of commodities, the costs of production were physical real costs. He approved of what he called ‘Bortkiewicz’s dictum’ and ‘dogma’, that is, the theory of value must be able to show the general cause of interest in conditions of a given system...

Table of contents

• Cover
• Half Title
• Routledge Studies in the History of Economics
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Notes on contributors
• Acknowledgements
• 1 Revisiting Classical economics: an introduction
• Part I Classical economics and modern theory
• Part II On Sraffa's contribution
• Part III Production of Commodities by Means of Commodities in its making
• Part IV Growth and distribution
• Part V Exhaustible resources
• Index