Academic journal article World Review of Political Economy

Whither Sraffa's Theory of Price?

Academic journal article World Review of Political Economy

Whither Sraffa's Theory of Price?

Article excerpt

Introduction

Although the writings of the great Italian economist, Piero Sraffa, are hardly ever to be found on the reading lists of most university economics courses, there can be no doubting the contribution his work has made, and continues to make, to economic theory. According to Sraffa's adherents, his major contributions to economic theory have been, on the one hand, to undermine standard mainstream textbook explanations of price and distribution based on marginal productivity theory, and, on the other, to provide an alternate analytically rigorous theory of price (see Kurz 2012).1 It is the latter that is the concern of what follows.

The particular importance of Sraffa's theory of price is that it purports to provide an explanation of price without recourse to either "subjective preference" or "labour time." this is not to say that Sraffa's theory of price is located somewhere in the ether, outside of either the Neoclassical or classical orbits. Far from it. Even a cursory reading of Sraffa's Production of Commodities by Means of Commodities (PCMC) suggests his work is squarely located in the sphere of classical political economy, and in particular that of david ricardo, whose work he painstakingly edited over some considerable period of time, and also Karl marx. Indeed, for many of his followers, Sraffa's great contribution in price theory was to complete the theories of price of ricardo and marx without recourse to "the unnecessary baggage" of the labor theory of value (see roncaglia 1977; Steedman 1977).

My purpose in this article is to critically review Sraffa's theory of price, with particular attention to his PCMC. I propose to locate this review in the context of the now long-standing debate between marxists and Sraffians over the relative merits and relation of marx's and Sraffa's theories of price. I will argue that although Sraffa's PCMC has made a positive contribution to the theory of price by shifting the focus back to physical or real cost explanations of price, the path it maps out represents something of a theoretical dead end. I will further argue that the source of the problem in Sraffa's PCMC is his focus on the magnitude of price and resulting failure to pay adequate heed to how prices come to be formed. I begin by outlining in the following section what I take to be the key elements of his theory of price in PCMC. I then consider how marxists have viewed this theory through both positive and negative lenses, locating my own critical comments in the context of the latter. I thereafter indicate why, and how, I see the source of the perceived defects in Sraffa's theory of price to be his failure to see how prices come to be formed, and end with some concluding remarks which include my assessment of Sraffa's legacy with respect to the theory of price.

Key elements in sraffa's theory of Price?

The prices Sraffa seeks to explain are prices which facilitate the reproduction of the economic system. referred to as exchange values or prices of production, they are the prices which permit producers to acquire the necessary inputs to reproduce outputs. As such, they are what may also be referred to as long-period, relative prices. Sraffa offers no explanation for why he begins with these prices, as opposed to, say, short-period, money prices (in the manner of post-Keynesians), or how the latter might relate to the former.

Sraffa begins his analysis of prices of production by considering the determination of their magnitudes in a subsistence economy setting. He takes a subsistence economy to be one in which no physical surplus is produced. He argues that in this setting, the magnitudes of prices can be explained by the methods of producing the commodities by means of commodities. to quote a much quoted passage in PCMC,

There is a unique set of exchange-values which if adopted by the market restores the original distribution of the products and makes it possible for the process to be repeated; such values spring directly from the methods of production. …

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