Keywords

1 Introduction

Piero Sraffa is not only one of the greatest economists of the twentieth century, but also a major protagonist in the history of philosophy and political science.Footnote 1 Born in Turin, the only son of Angelo Sraffa, a well-known Professor of Commercial Law (Bocconi University opens onto the Milanese piazza that bears his name), Piero attended elementary school in Parma, lower secondary school in Milan, and upper secondary school and university in Turin, where he graduated in law in 1920, with a dissertation (under the supervision of Luigi Einaudi) on Monetary Inflation in Italy During and After the War (privately published, Sraffa 1920).

The dissertation includes some ideas which Sraffa was later to discuss with Keynes when they first met in August 1921 and which, in my interpretation, was to exert some influence on the latter (see below). Subsequently, Keynes took the young Italian under his wing and commissioned from him an article on the Italian banking system for the Manchester Guardian Reconstruction Supplements, which he was editing. The resulting article was so good that Keynes decided to publish it in the Economic Journal (Sraffa 1922a), requesting a shorter piece for the Supplements (Sraffa 1922b). The two articles reveal a command of institutional and technical aspects of banking, awareness of the interests at stake, and a lively interest in economic policy (indeed, in politics in general).

The second article, which shed light on the weakness of Italy’s leading commercial banks and the doubtful legitimacy of some policy measures adopted by the Bank of Italy, irritated Mussolini, who demanded recantation, without obtaining it. Keynes invited Sraffa to Cambridge, but the British government refused admission to the UK, possibly under pressure from the Fascist authorities (as Keynes thought) or because of Sraffa’s leftist leanings (as Sraffa himself tended to believe).

In the meantime, Sraffa had begun an academic career as economics lecturer at the University of Perugia (from 1923), rising to a full Professorship at the University of Cagliari in 1926. This was thanks mainly to his long 1925 article in Italian analysing and criticizing Marshallian theory, followed by a shorter one published in English in the Economic Journal in 1926, in which a summary of the critique was accompanied by the proposal of a theory of imperfect competition, which he soon abandoned but which was taken on and developed by Joan Robinson (1933) [1969] and others.

Confronted with the increasing authoritarianism of the Fascist regime (his friend Antonio Gramsci had been arrested in November 1926) and with a renewed invitation from Keynes, Sraffa moved to Cambridge in 1927, first as Lecturer, then as Director of Research, and finally as Librarian at the Marshall Library, the position most congenial to him, which he would retain for decades. His connections with King’s College date back to the time of his arrival in Cambridge; however, in 1939 he became a Fellow of Trinity College, holding the position up to his death. In the last three decades of his life he resided in college rooms, in Nevile’s Court, a point of attraction—together with his office at the Marshall Library—for Italians (including the recent President of the Italian Republic, Giorgio Napolitano) and for economists from all over the world.

Sraffa’s research programme in economics, for which he provided most of the necessary theoretical material, was to accomplish nothing less than a revolution: a shift from the marginalist to a classical approach, modified in such a way as to take into account Keynes’s contribution. He also had a significant influence in other fields, in particular through his friendship with Gramsci and Ludwig Wittgenstein, two leading exponents of twentieth-century culture in the fields of political science and philosophy, respectively. In 1961, he received the Södeström Gold Medal from the Swedish Academy of Sciences, an honour shared with Keynes (who had been awarded the prize in 1939), and which constitutes the antecedent to the Nobel Prize in Economics.

Illustrating Sraffa’s contribution to economics without considering his broader programme could prove misleading. Notwithstanding the abstract and apparently self-contained nature of his main work, Production of Commodities by Means of Commodities (1960), it cannot be understood fully without a grasp of Sraffa’s world view and method,Footnote 2 in relation to which it will be worth considering what we know of his relationship with Gramsci and Wittgenstein. This aspect will be discussed in Section 2, together with Sraffa’s contribution to the history of economic thought through his magisterial edition of Ricardo’s Works and Correspondence (published in 11 volumes between 1951 and 1973) and his representation of the economy as a circular flow of production and consumption, rather than a one-way street leading from scarce resources to the satisfaction of economic agents’ wants and desires. In Section 3, Sraffa’s critique in the 1920s of the then mainstream Marshallian approach is presented as a preparatory step to Production of Commodities by Means of Commodities. Section 4 provides a brief outline of the fortunes of Sraffa’s thought. Section 5 concludes.

2 Gramsci, Wittgenstein, and Ricardo

Sraffa met Antonio Gramsci in 1919 while both were university students in Turin. Without ever becoming a registered member of the Socialist or the Italian Communist Party (founded in 1921), Sraffa developed a strong friendship and intellectual relationship with the Communist leader, with long discussions and collaboration on the journal founded by Gramsci, L’Ordine Nuovo. When Gramsci was imprisoned in 1926, Sraffa became his main point of reference in the outside world (after a short while, through Gramsci’s sister-in-law, Tatiana), getting him books and journals, searching for ways to obtain freedom without genuflecting to the Fascist regime, offering food for thought through Tatiana’s letters, and thus acting as a stimulus to the writing of the famous Quaderni del Carcere (Prison Notebooks, published posthumously, Gramsci 1975), which would exert a deep and wide influence on Western leftist thought in the post-Second World War period. Sraffa’s influence on Gramsci, and Gramsci’s influence on Sraffa (and, through him, on Wittgenstein), can still provoke heated debate; however, it would be beyond our scope to go into the issue here.Footnote 3

Something more can be said about Sraffa’s relationship with Ludwig Wittgenstein. The two met in Cambridge in 1929, where the Austrian philosopher had just moved, under the auspices of Bertrand Russell, who a few years earlier had taken care of the publication of Wittgenstein’s celebrated book, Tractatus Logico-Philosophicus (Wittgenstein 1921 [1922]), considered by many as the high point of logical neopositivism. Wittgenstein’s long and frequent discussions with Sraffa exerted a decisive influence on the Austrian philosopher and played an important part in his transition from the logical neopositivism of the Tractatus to the new position developed in Philosophical Investigations, published posthumously (Wittgenstein 1953).

Wittgenstein himself in the Preface to Philosophical Investigations stated: ‘I am indebted to [the criticism] 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’ (ibid.: viii; italics in original). Wittgenstein had abandoned the idea, developed in the Tractatus, of language as a biunivocal representation of the world, with a connection between ‘propositions’ (constituting language) and ‘facts’ (constituting the world). In the Philosophical Investigations he developed a new theory of language and the relations between it and the world it should describe: a theory based on the idea that there is not just one type of language, but ‘there are countless kinds: countless different types of use of what we call “symbols”, “words”, “sentences”. And this multiplicity is not something fixed, given once for all; but new types of language, new language-games, as we may say, come into existence and others become obsolete and get forgotten’ Wittgenstein (1953: 21; italics in original). This is the so-called theory of language games: theoretical models focusing attention on particular aspects of real language, presenting them as the general language of a group of people.

This methodological position can be generalized, as in opposition to the idea that reality can be represented through a general, all-encompassing model—such as, in economics, general equilibrium theory—and preference for the construction of specific theoretical bricks connected into a more general world view by the requirement of conceptual consistency. In the case of economics, this means consistency with a representation of the economy as a circular flow of production and consumption, as in classical political economy, rather than as a one-way street from scarce resources to the satisfaction of economic agents’ desires, as in the marginalist/neoclassical approach.

Many contemporary economists are convinced that there is only one correct way of looking at the economy, namely the scarcity view. This is a frequent source of misunderstanding in debates between mainstream and heterodox economists. So much was quite clear to Sraffa himself, since in the early stages of his research career he too considered equilibrium between supply and demand as the only rule of the game, to the extent that in his 1925 article, after demonstrating that within Marshall’s approach both increasing and decreasing returns are logically unacceptable, he concluded that constant returns must be assumed (Sraffa 1925). According to philological reconstructions based on Sraffa’s papers (preserved at Trinity College, Cambridge), it is now believed that the turning point came around 1930, when Sraffa reached the conclusion that no assumption whatever on returns is necessary, since the level of production may be assumed as given when analysing the central issue in value theory, namely determining the set of prices of production that guarantee reproduction of the circular flow and their relationship with income distribution. According to Sraffa’s own reconstruction of classical political economy, this—the idea that equilibrium between supply and demand is not the fundamental pillar in classical value theory—is a crucial divide between the classical and the marginalist approach. Hence, a study of the classical conceptualization of the economy, as distinct from the marginalist conceptualization based on supply and demand equilibrium (i.e. the balancing of scarce resources with economic agents’ preferences), is a prerequisite for a theoretical reconstruction of the classical approach.

Thus, Sraffa’s meticulous work on his magnificent edition of Ricardo’s Works and Correspondence is not solely the fruit of a passionate interest in the history of economic thought; it was also part of his effort to bring economics back from the marginalist to the classical path—and, as we shall see, in such a way as to make the latter compatible with his friend Keynes’s own contributions. In fact, it was at Keynes’s suggestion that the Royal Society entrust Sraffa with the task of editing Ricardo’s writing in 1930, and it was Keynes who repeatedly defended Sraffa when he delayed completion of the work year after year, and who helped him in the years-long fruitful treasure hunt for lost Ricardian manuscripts (which led to many minor and two major discoveries, such as a chest of letters received by Ricardo from his correspondents, discovered in 1930, and a number of important letters from Ricardo to James Mill and various manuscripts, including the essay on ‘Absolute Value and Exchangeable Value’ in 1943). But again, this is not the place to recount the story of this truly magnificent enterprise, the countless anecdotes about Sraffa’s meticulousness and hard work, and the eager expectation of economists such as Einaudi or Schumpeter for the completion of the work.Footnote 4

Let us summarize, from our post-1960 (i.e. with our knowledge of Sraffa’s 1960 book) vantage point, Sraffa’s interpretation of Ricardo. Sraffa stresses the importance of the notion of the surplus, or in other words the difference between the set of commodities produced and the set of the means of production and subsistence necessary to carry on production. In the circular flow of production and consumption, when the division of labour prevails, each productive unit at the end of the production process obtains a product (or, in joint production, a set of products) and, in order to start the production process again, needs to obtain from other sectors (other units of production) its means of production and the means of subsistence for its workers. Thus, there arises a web of exchanges between productive units and between sectors. In a market economy, these exchanges also constitute the way in which the surplus is distributed between productive units and sectors; Sraffa assumes, with implicit reference to a capitalist economy, that this happens on the basis of the simplifying assumption of a unique rate of profits (which corresponds to the assumption of free competition, that is, free movement of capital between the different sectors of activity in the economy).

When a wage rate equal to the subsistence wage is also assumed, such as to allow workers to acquire the means of subsistence necessary for their and their family’s survival, and once rents are determined thanks to the ‘Ricardian’ theory of differential rent (which, in fact, Ricardo drew from Malthus, West, and Torrens), profits correspond to the part of the surplus not accruing to rents. If, as does Ricardo, we assume that all rents are devoted to luxury consumption and profits are entirely devoted to investment, the rate of profits (equal to the ratio between profits and capital advances) corresponds to the rate of accumulation (equal to the ratio of investments to capital advanced).

There is a problem, however: since profits are obtained as the difference between the value of the surplus (consisting of a set of heterogeneous commodities) and the amount of rents, and since capital advanced is also a set of heterogeneous commodities, we need to express in value terms such aggregates of commodities in order to determine the rate of profits and the rate of accumulation (hence, the rate of growth of the economy). This is no easy task, however, and—as Sraffa shows—Ricardo persevered in it up to the end of his life without, however, coming to the definitive solution, but only to approximate ones.

According to Sraffa’s interpretation, a preliminary, approximate solution (to be found in Ricardo’s 1815 Essay on Corn, but possibly devised one year earlier) consists in determination of the rate of profits as a ratio of two physical quantities of corn. This solution relies on a strong simplifying assumption, namely that there are only two commodities in the economy: corn (agricultural produce), utilized as a means of production in both sectors of the economy and as the only means of subsistence for the workers, and a manufactured commodity, which is only utilized as a means of production in its own sector. Thus, we may focus attention on the corn sector: once we have circumvented the problem of rent by focusing on no-rent land, subtracting from the amount of corn produced on this kind of land the amount of corn used as a means of production and for subsistence, we obtain profits as an amount of corn, while also capital advances are expressed as an amount of corn; the ratio between profits and capital advances, both magnitudes expressed in physical terms as amounts of corn, thus determines the rate of profits.

Malthus immediately objected to this solution that in no sector does any such situation occur, with a single commodity representing both the whole product and the whole of the means of production and subsistence. Thus, in the short time span of a couple of years, Ricardo turned to a different solution. In his Principles of Political Economy and Taxation (1817) he adopted a labour-contained theory of value, expressing both aggregate product and aggregate means of production and subsistence in terms of the labour directly or indirectly required for their production. Once again, this allowed him to determine the rate of profits as a ratio between two quantities, surplus produce and capital advances, both expressed in terms of a single magnitude, labour. Once again, Ricardo himself knew that this solution was not perfect, and in the very first chapter of the Principles indicated the limits of the labour theory of value, including the existence of different ratios between labour and capital advances in different sectors of the economy, different lengths of production period, and different durations of the various capital goods (this latter being the object of a specific critique by Torrens). As a result, the problem of value remained open, nor could the answer to what Marx (1894) called the problem of transformation—of labour values into prices of production—suggested in the posthumous Book 3 of Capital half a century later amount to a definitive solution. Finally, after years of searching, a solution was offered by Sraffa in his 1960 book, Production of Commodities by Means of Commodities, as we shall see in more detail below.

3 The Sraffian Revolution: Critique and Reconstruction

The cultural project Sraffa pursued, gradually defined as he worked on its various aspects, was—as mentioned above—a revolutionary one: to substitute the dominant approach to economics, the marginalist/neoclassical one based on the pillars of scarcity and preferences and on the equilibrium between supply and demand, with a return to the classical (Ricardian) approach in such a way as to make it compatible with Keynes’s new findings on the active role played by money in modern capitalist economies and the possibility of persistent unemployment. To this project, Sraffa contributed a number of basic constitutive elements: first came a critique of the then dominant Marshallian stream of the neoclassical approach (born in Cambridge, but subsequently colonizing the rest of England and nearly the whole world); second, there was the edition of Ricardo’s writings discussed in the previous section, and with it a reconstruction of the classical conceptual framework; third, we had a critique of the traditional marginalist theory of value and distribution; and fourth, a solution was proposed to the problem of value which, as we saw in the previous section, Ricardo and the Classical economists—Marx included—had left open.

Before considering these two latter elements, we present a brief overview of Sraffa’s initial work on the critique of the Marshallian theory.

Sraffa’s main contribution in this respect was a long article published in 1925 in Italian when he was 27-years-old. As we saw, he had been appointed to a Lecturership at Perugia University in 1923, and had chosen Marshall’s Principles (1890) as his textbook, preferring it to Italian texts such as Pantaleoni’s Principii di Economia Pura (1889), although the latter was an author he greatly respected. Sraffa’s sharp, critical mind was thus brought to focus on that stream of marginalist economics—preferred as less abstract to the Walrasian stream of general equilibrium theory, well known in Italy through Pareto’s writings, and considered useless for interpreting the real world.

Sraffa’s ‘destructive’ criticisms—as Keynes (1930b: 79) considered them—concerned the two main aspects of Marshall’s theory: the method of partial equilibria, by which supply and demand equilibria were analysed for individual industries and firms, and the notion of laws of returns to scale, which allowed for the construction of U-shaped supply curves.

The assumption of perfect competition implies small but not infinitesimal individual firm size, and hence increasing returns (decreasing costs) at first, when the quantity produced grows starting from zero, followed by decreasing returns (increasing costs) for still higher levels of production, with an aggregation of supply curves for individual firms providing the supply curve for the industry, while competition ensures that the number of firms is such that each of them produces in equilibrium at the point of its minimum costs. The ceteris paribus assumption is also necessary to be able to focus on an individual industry or firm. However, Sraffa remarks, the reasons adduced for decreasing returns cannot in general be specific to individual firms. Nor, in fact, are they specific to individual industries: when there is a change in the total amount produced by the industry being considered, the reasons adduced to explain changes in its unit costs (such as the scarcity of a factor of production) in general also affect costs in other industries, and in general the effects will be of the same order of magnitude for various industries. As a result, the demand curve of the industry under consideration will shift, and the ceteris paribus condition will not hold, given changing prices in industries producing competing commodities.

Sraffa’s 1925 article concludes with a suggestion framed in the context of the analytical method of supply and demand equilibrium, namely that constant returns be assumed. However, this suggestion is soon abandoned (although many mainstream analyses of Sraffa’s 1960 book fail to recognize this point), reading it as half—the production side—of a general equilibrium model. Instead, in a subsequent article that Sraffa wrote at Keynes’s request for publication in the Economic Journal (Sraffa 1926), a summary of his argument is accompanied by the suggestion to move in the direction of a theory of imperfect competition, where the individual firm may be confronted by a downward-sloping demand curve, so that (slightly) increasing returns may be admitted.

Following on from this, in a famous 1930 Economic Journal Symposium on Increasing Returns and the Representative Firm, Dennis Robertson (1930) tried to answer Sraffa’s critique by distinguishing between the ‘simplified’ Marshall to whom Sraffa’s critiques applied, and the ‘real’ Marshall—an evolutionary theorist relying on the idea of a representative firm caught in the middle of its development, hence characterized by increasing returns to scale, while the growth and decay process of the individual firm ensures the equilibrium of the industry—who was immune to Sraffa’s criticism. Sraffa’s (1930) answer to Robertson consists in pointing out the inconsistency of such a position, based on the awkward assumption of a life cycle of firms. By then, Sraffa had developed such total opposition to the marginalist structure of Marshall’s thought that no mending was considered possible: both logical consistency and realism are required, and missing these we have to look for other avenues: ‘Marshall’s theory…cannot be interpreted in a way which makes it logically self-consistent and, at the same time, reconciles it with the facts it sets out to explain … I think…that [it] should be discarded’ (ibid.: 93).

The fact is that Sraffa had by then already taken the revolutionary road of total abandonment of the marginalist approach to return to the classical tradition. This is testified by the Sraffa Papers and is also hinted at by Sraffa himself in the Preface of his 1960 book, where he recalls having already shown a first draft of its main theoretical propositions to Keynes in 1928. We may also stress, in this context, that Keynes is the only economist whom Sraffa thanks in the Preface, attributing to him a crucial suggestion: ‘[H]e recommended that, if constant returns were not to be assumed, an emphatic warning to that effect should be given’ (Sraffa 1960: vi; italics in original).

Ironically, in a text celebrated for its conciseness, the point about constant returns is stressed three times, at the very beginning. The insistence is due to the fact that this point is decisive for interpretation of the book. It is in this context that Sraffa distinguishes between two kinds of readers, the marginalist- and the classical-leaning, and two aims simultaneously pursued in the book, a critique of the traditional marginalist approach and reconstruction of the classical one: ‘Anyone accustomed to think in terms of the equilibrium of demand and supply’, says Sraffa (ibid.: v), alluding to the marginalist readers—‘may be inclined, on reading these pages, to suppose that the argument rests on a tacit assumption of constant returns in all industries’. Such readers, embedded with the marginalist conceptualization of the economy and hence incapable of reasoning outside of the framework of the equilibrium between supply and demand, need first to be persuaded that there are crucial theoretical inconsistencies in their theory. Thus, let them assume constant returns so that by reading Sraffa’s price equations as part of a general equilibrium model they can discover the logical inconsistencies embedded in the traditional marginalist theory of value and distribution. Once such a theory—and the marginalist approach based on supply and demand equilibrium—is abandoned, the reader can usefully reread the book as a positive contribution, solving a problem which the classical approach had left open: in this reading, the assumption of constant returns can, indeed, must, be abandoned, since the framework of equilibrium between supply and demand is extraneous to the classical conceptual framework (more precisely, the classical economists refer to a role played by demand and supply in the determination of market prices, which are not considered as theoretical variables).

Let us briefly summarize Sraffa’s criticism of the traditional marginalist theory of value and distribution. We can focus on two chapters of Sraffa’s book: Chapter 6, providing a critique of the Austrian notion of the average period of production, and Chapter 12, on the choice of techniques. The analysis conducted in these two chapters shows that one of the main pillars of the marginalist construct, namely the direct relationship between the real wage rate and the capitalist intensity of production processes, does not hold.

As for the first aspect, let us recall that the notion of the average period of production had been used by the Austrian School, from Böhm-Bawerk to Hayek, as a measure of the capitalist intensity of production, with the rate of profits determined by the demand and supply of capital. Sraffa shows that the average period of production depends on the rate of profits and that there is no precise law for their relationship. Thus it cannot be utilized for measuring the quantity of the factor of production ‘capital’ in the framework of the determination of the rate of profits interpreted as the price of such a factor.

As for the second aspect, namely the choice among alternative techniques when income distribution changes, Sraffa shows the possibility of the ‘reswitching of techniques’, namely the possibility that a given technique, after turning out to be the most profitable one, is superseded by another technique when the rate of profits increases, but then turns out again to be the most profitable one at still higher profit rates. The implication of this fact is the following. However the capitalist intensity (i.e. the ratio between the quantities utilized of the two factors of production, capital and labour) of the different techniques is measured, it is not true that the quantity of capital utilized in the economy decreases (and the quantity of labour increases) when the rate of profits—that is, the ‘price’ of the factor of production capital—increases (and, conversely, the quantity of labour employed increases when the wage rate, the price of the factor of production labour, decreases). In other words, the traditional marginalist theory of value and distribution falls apart as soon as it is recognized that there is more than one single commodity in the economy. Traditional macroeconomics, based on the idea that when there is unemployment a fall in the wage rate suffices to boost employment up to the full employment level, also falls apart, together with its pillar, the inverse relationship between the real wage rate and employment.

Let us now turn to the positive contribution made by the classical approach. The classical problem is that when commodities are at the same time products and means of production, within the conceptualization of the economy as a revolving circuit of production and consumption the price of any commodity cannot be determined independently of the others nor the complex of relative prices independently of the distribution of income between wages and profits. It is therefore necessary to consider simultaneously the interrelations running on the production side between the various sectors of activity while also tackling income distribution and the determination of relative prices.

As a first step, Sraffa (1960: 3) shows that in a system of production with no surplus product, and where ‘commodities are produced by separate industries and are exchanged for one another’, at the end of the production period ‘there is a unique set of exchange values which if adopted by the market restores the original distribution of the product and makes it possible for the process to be repeated’. The situation is more complex when the system under consideration is able to produce a surplus. In this case, ‘the distribution of the surplus must be determined through the same mechanism and at the same time as are the prices of commodities’ (ibid.: 6). Sraffa shows that, if the wage rate can exceed the subsistence level, the relative prices and one of the two distributive variables—wage rate or rate of profits—are jointly determined, once the technology and the other distributive variable are taken as given. This basic result is then extended to the case of joint production and, as a specific instance of this category, to the case in which fixed capital, and a scarce resource such as land, are utilized.

Attention is also devoted to the construction of an analytical tool, the ‘standard commodity’, and to proving the uniqueness of the underlying ‘standard system’. The standard commodity has the property that the aggregate of its means of production does not change in value relative to the product when income distribution changes. Sraffa shows that this obtains when both product and means of production are but different quantities of the same composite commodity, constructed by adding up in different proportions the different sectors of the economy. Thus in the standard system the rate of profits can be determined, as in Ricardo’s ‘corn model’, as a physical ratio.

The way in which Sraffa solves the classical problem implies its specification in various respects. First, prices of production are those prices which allow for the reproduction of the economy, given the technology, and for a given value of one of the distributive variables; as a result, prices of production change when income distribution changes, or when technology changes. Second, since constant returns are not assumed, the technology assumed as given corresponds to a given set of activity levels in the various sectors of the economy: in other words, what is considered in Sraffa’s analysis is a sort of ‘photograph’ of the economy at a given moment in time. As such, the determination of prices of production and their relationship with income distribution is kept separate from the determination of technology and technological evolution, and indeed from the determination of income distribution and its changes over time as well as the determination of activity levels and employment, and again their changes over time. Such ‘separation of issues’ is a characteristic of Sraffa’s method, and as we saw above it also emerged in his discussions with Wittgenstein, leading the Austrian philosopher to develop a theory of language games.Footnote 5

4 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 Sraffa’s analysis in strict mathematical terms and developing some specific points within it. Second, there has been a series of debates on the solidity of Sraffa’s reinterpretation of Ricardo. In both streams, a series of important contributions have been made, but it is beyond our scope to consider them here.Footnote 6

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 Sraffa’s critiques; as it turned out, and as was recognized by Samuelson himself, such critiques held.Footnote 7 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.Footnote 8 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,Footnote 9 Keynes invited Sraffa to Cambridge, but—as noted—the British authorities did not allow entry into the UK, so Sraffa’s 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.

Sraffa’s 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 Sraffa’s contributions is essential to the construction of a classical-Keynesian approach alternative to the marginalist one.Footnote 10

5 Conclusion

If we consider the whole of his contributions, we may be entitled to affirm that Sraffa provided all the necessary ingredients for a revolution in economics: the rediscovery of the conceptual foundations of the classical (Ricardo’s) approach and the clarification of its opposition to the marginalist–neoclassical approach; the solution to the problem concerning the determination of prices and their relationship with income distribution that classical economists had left open; and the critique of the analytical foundations of the mainstreams of the marginalist tradition from the Austrian theory based on the notion of the average period of production and the Marshallian theory of the firm to the whole of modern macroeconomics founded as it is on an aggregate notion of capital and the inverse relationship between real wages and employment and to any theory of income distribution that considers the wage and the profit rate as scarcity-determined prices of the factors of production, labour, and capital. Sraffa’s analysis is also compatible with Keynes’s ideas, so that we might speak of a Keynes–Sraffa Cambridge tradition in economics.