by The completeness of the Ricardian victory is something of a curiosity and a mystery. It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it
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The completeness of the Ricardian victory is something of a curiosity and a mystery. It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it beauty.
That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority.
But although the doctrine itself has remained unquestioned by orthodox economists up to a late date, its signal failure for purposes of scientific prediction has greatly impaired, in the course of time, the prestige of its practitioners. For professional economists … were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation;— a discrepancy which the ordinary man has not failed to observe, with the result of his growing unwillingness to accord to economists that measure of respect which he gives to other groups of scientists whose theoretical results are confirmed by observation when they are applied to the facts.
Just as post-war mainstream economics has been criticized for being founded on an axiomatic-deductive mathematical methodology, I think it is fair to the spirit of Keynes’ critique of the Ricardian vice to also question Ricardo’s most well-known modern follower, Sraffa, since the core of his neo-Ricardianism is based on the same kind of 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. 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 for 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.