by There is a trade-off in economics (and elsewhere) between rigor and relevance: the more we achieve deductive certainty in our arguments, the less likely it is that we will achieve socially and politically relevant conclusions. This trade-off, as we shall see, is not logically inevitable but, nevertheless, it is rarely avoided in economic theorizing. Sraffian economics, or so-called neo-Ricardian economics, is a striking example of this tradeoff. From the outset in the pages of Piero Sraffa’s Production of Commodities by Means of Commodities (1960) every departure from the framework of simultaneous linear equations is carefully avoided with the aim of producing a determinate theory of relative prices, conceived as a snapshot of an economy at one moment of time. I shall argue
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There is a trade-off in economics (and elsewhere) between rigor and relevance: the more we achieve deductive certainty in our arguments, the less likely it is that we will achieve socially and politically relevant conclusions. This trade-off, as we shall see, is not logically inevitable but, nevertheless, it is rarely avoided in economic theorizing. Sraffian economics, or so-called neo-Ricardian economics, is a striking example of this tradeoff. From the outset in the pages of Piero Sraffa’s Production of Commodities by Means of Commodities (1960) every departure from the framework of simultaneous linear equations is carefully avoided with the aim of producing a determinate theory of relative prices, conceived as a snapshot of an economy at one moment of time. I shall argue that it condemns itself to irrelevancy by its obsessive concern with rigor, cutting away every wrinkle in its arguments, even if those wrinkles raise fundamental questions about the economy that require resolution.
Just as post-war mainstream macroeconomics has been criticized for being founded on an axiomatic-deductive mathematical methodology, I think Blaug is fair in his criticism of Sraffa — the core of neo-Ricardianism is based on the same methodology.
To solve the problem of finding a measure of value that is not affected by changes in income distribution, Sraffa — in Production of Commodities by Means of Commodities — constructs his ‘standard commodity.’ Expressed in terms of this specific ‘commodity,’ the relationship between the profit rate and wages becomes linear. In the standard system, the profit rate is determined as a ratio of commodity quantities independent of their prices. Sraffa’s standard commodity plays the same role as corn in the ‘corn model.’ However, if we compare his solution to Ricardo’s problem in Principles, Sraffa only solves a part of it. Ricardo sought a measure that would be invariant to both changes in production and changes in distribution. Due to its static nature, the standard commodity is only invariant to the latter.
Now, some of Sraffa’s neo-Ricardian followers have claimed that by using the standard commodity, we could treat income distribution independently of prices and that whatever shortcomings there may be in the labour theory of value, it leaves — as Pasinetti puts it — “the possibility of treating income distribution independently of prices completely intact.” This claim must be strongly questioned. From an informational standpoint, the standard system adds nothing. In this system, the wage and profit shares are not clearly and simply related to the ‘real’ shares, as the ‘real’ income is not ‘invariant’ with respect to changes in the profit rate. Our conclusion must be that the analysis of income distribution, contrary to what has been claimed, is worsened by using the standard commodity as the numeraire.
In doctrinal-historical contexts, it is sometimes claimed that the standard commodity would be a modern variant of Ricardo’s ‘corn’. However, this is hardly accurate, as ‘corn’ in Ricardo’s theory is a consumption good, whereas there is no reason to assume that the standard commodity represents the workers’ wage basket in Sraffa’s analysis.
Furthermore, the standard commodity is a poor approximation. As soon as we have technology choices and joint production, it is not possible to treat income distribution independently of prices. And if we follow Ricardo and Marx and calculate profits on the entire advanced capital, price equations must be written in a form that causes the relationship between distribution variables to cease being linear and instead assume a hyperbolic form.
Sraffa perceives his standard commodity not only as a means to treat distribution independently of prices but also as a means to determine the source of relative price changes when distribution changes. Just like Ricardo, Sraffa fails in the second objective, as price changes depend on both technology and distribution. In Sraffa’s standard system, it is also impossible to separate the direct price effect of a change in the production conditions of the wage basket from the indirect price effects caused by changes in the profit rate accompanying altered production conditions. The redundancy of the standard system is also evident in the fact that the inverse relationship between wages and the profit rate, which the standard commodity is supposed to demonstrate, can be shown independently of it.
Regarding the issue of economies of scale, it turns out that even with respect to the standard commodity, Sraffa must actually assume constant returns to scale (unless he wants to make the unrealistic assumption that workers and capitalists have the same composition of their demand). Otherwise, the standard commodity can only be constructed for a given combination of wages and profits.
This would mean that the cherished idea of a linear relationship between wages and the profit rate advocated by Sraffa would become meaningless. For prices, this would imply that they only hold at a specific point in time without possessing the ‘gravitational force’ that the ‘natural’ prices of classical economists possessed.
Sraffa’s work certainly undermined a significant portion of neoclassical economics claims, especially in its Marshallian formulation. However, contrary to Sraffa’s own belief, his work does not show that income distribution is independent of supply and demand. These forces can only operate in a world where consumption and production can vary, which is excluded in Sraffa’s model. While the model is consistent, the question is how much it can tell us about a changing world where dynamics, money, and expectations play a crucial role.
Sraffa’s critique of the neoclassical productivity theory based on aggregated production factors is a severe blow to this theoretical framework. However, it doesn’t have much impact on general equilibrium theory because it does not rely on the ability to measure capital independently of the profit rate.
Sraffa’s doctrinal-historical work demonstrates great intellectual acuity and interpretive power. However, by projecting his own research efforts onto his predecessors, the sustainability of his interpretations becomes dubious.
On the political front, one could argue that since Sraffa does not address production relations — on the contrary, he overlooks them to focus on distributional relations — his message implies a call for a more equitable income distribution rather than demanding the abolition of wage labour. From a Marxist standpoint, it has been argued that his analysis, therefore, ultimately results in an apology for capitalism itself.