Tuesday, December 23, 2008

Minsky Versus Sraffa

Kevin "Angus" Grier reminisces about Hyman Minsky's dislike for Piero Sraffa. But he doesn't recall points at issue. Minsky expressed his views in print:
"Given my interpretation of Keynes (Minsky, 1975, 1986) and my views of the problems that economists need to address as the twentieth century draws to a close, the substance of the papers in Eatwell and Milgate (1983) and the neoclassical synthesis are (1) equally irrelevant to the understanding of modern capitalist economies and (2) equally foreign to essential facets of Keynes's thought. It is more important for an economic theory to be relevant for an understanding of economies than for it to be true to the thought of Keynes, Sraffa, Ricardo, or Marx. The only significance Keynes's thought has in this context is that it contains the beginning of an economic theory that is especially relevant to understanding capitalist economies. This relevance is due to the monetary nature of Keynes's theory.

Modern capitalist economies are intensely financial. Money in these economies is endogenously determined as activity and asset holdings are financed and commitments of prior contracts are fulfilled. In truth, every economic unit can create money - this property is not restricted to banks. The main problem a 'money creator' faces is getting his money accepted...

...The title of this session, 'Sraffa and Keynes: Effective Demand in the Long Run', puzzles me. Sraffa says little or nothing about effective demand and Keynes's General Theory can be viewed as holding that the long run is not a fit subject for study. At the arid level of Sraffa, the Keynesian view that effective demand reflects financial and monetary variables has no meaning, for there is no monetary or financial system in Sraffa. At the concrete level of Keynes, the technical conditions of production, which are the essential constructs of Sraffa, are dominated by profit expectations and financing conditions." -- Hyman Minsky "Sraffa and Keynes: Effective Demand in the Long Run", in Essays of Piero Sraffa: Critical Perspectives on the Revival of Classical Theory (edited by Krishna Bharadwaj and Bertram Schefold), Unwin-Hyman (1990)
I gather, from second or third-hand accounts, that debates along these lines became quite acrimonious at the annual summer school in Trieste during the 1980s. I've always imagined Paul Davidson and Pierangelo Garegnani would be the most vocal advocates of the extremes in these debates. And I think of Jan Kregel, Edward Nell, and Luigi Pasinetti as being somewhere in the middle, going off in different directions. I don't know much about monetary circuit theory, but such theory may provide an approach to integrating money into Sraffianism.

Of course, Minsky's theories and Davidson's proposals for national and international reforms are of great contemporary relevance.

5 comments:

BruceMcF said...

Yes, I am confident that Davidson would be less than sympathetic to Sraffa-inspired Post Classical economic theory, especially work along the lines that the neo-Ricardians actually pursued.

However, Minsky's critique is overdrawn. While the neoclassical system is a closed system, the Sraffian system is an open one, and so is not limited to elements contained within it.

IOW, the limitations of neo-Ricardian work that fail to incorporate the monetary system in a satisfactory way cannot be laid at the feet of the Sraffian system, just as the focus in Cambridge UK in the 50's on a purported Growth Theory based on increasingly meaningless extension of the General Theory aggregates over time cannot be laid at the feet of the Keynes' General Theory.

Patch said...

Well, maybe Davidson and Minsky would have been on the same side on this issue - but there seems to be a lot of disagreement as well. In the latest issue of "Intervention" (http://www.journal-intervention.org/seiten/deutsch/aktuelles_heft.shtml), Davidson replies to an article about his book on Keynes. He states that Minsky was not a post keynesian and that Minksy's theory was about cyclical behaviour while Keynes' theory mainly dealt with long-run underemployment equilibrium.

Seems to me that the debate about "what Keynes really meant" is almost as active as the debate about "what Marx really meant".

Robert Vienneau said...

Merry christmas and thanks for the comments.

Of course I agree with Bruce that Sraffa's system is open. I'm not sure, however, that it can incorporate Keynes' chapter 17 analysis, which Minsky stresses. Is a common rate of profit compatible with different commodities having different liquidity premiums?

I do not know of the article Patch cites. Minsky argues that the existence of money has something to do with uncertainty. Presumably Davidson would agree with that. Minsky does specify, as I recall, that Keynes' theory is set in an economy in which business fluctuates.

Patch said...

http://econ.bus.utk.edu/faculty/davidson/whatis%20post%20keynesianism.pdf

In this article Davidson writes about the differences between his kind of economic analysis and that of Kalecki, Minsky and Sraffa.

Neverfox said...

For useful coverage of monetary circuit theory, Steve Keen has some good papers (e.g. here), that include easily programmable ODE models. I have some R code of the model if you are interested.