In his book1, Piero Sraffa presented the elements of an economic theory that takes into consideration the empirical fact stated in my post title.
Suppose capitalists make decisions on what and how much to produce. They base these decisions partly on what they can expect to sell. As a consequence of these decisions, they have created a stock of capital goods, a set of interindustry flows, and a production of the surplus of commodities.
Suppose one takes the share of labor in this surplus as a datum2, at least for the purposes of a theory of value. Questions could then arise: for what set of prices would these decisions of the capitalists be justified3? For what prices would capitalists be willing to hold the produced capital goods? Sraffa provides an answer. The solution of his price equations4 are the desired prices of production.
In giving this answer, one is not claiming that these prices will prevail in an economy. The question of whether or not they will prevail is known as the realization problem5. An analysis of consumer demand enters in in addressing this problem.
I do not consider myself to be original in anything above6, other than, perhaps, in exposition. And this theory has widespread empirical application, both in the form of Leontief's Input-Output analysis and through Keynesian economics.Footnotes
- Production of Commodities by Means of Commodities: Prelude to a Critique of Economic Theory, (1960).
- One could make other decisions on the givens. One might take expectations about the decisions of the monetary authority as a given. Or one could append the Cambridge equation to this model.
- Keynes examines a closely related issue on pages 48-50 of The General Theory of Employment, Interest, and Money. Anyway, Sraffa and Keynes's theories share, at least, a family resemblance in that decisions on quantities temporally precede the determination of prices.
- Since Sraffa presents a system of simultaneous equations, one cannot competently describe his theory as one of uni-directional causation.
- The realization problem is addressed by Keynes' theory of effective demand.
- See, for example, Alessandro Roncaglia's Sraffa and the Theory of Prices (1978).