Sunday, August 03, 2008

Eatwell Exposition of a Sraffian Research Program

"The revival of the analytical principles of classical political economy that has gathered pace since the mid-1960s has been based on the firm foundation of a logically coherent theory of value and distribution. It was the failure to provide this foundation which for many years confined the classical approach to being, at best, a repository of useful ideas on growth and technological progress (Smith's discussion of the division of labour and Marx's dissection of the labour process being good examples), or, at worst, identified with simple-minded devotion of the labour theory of value as the 'qualitative' expression of capitalist exploitation - the position to which Hilferding retreated in the face of Bohm-Bawerk's critique of Marx, so depriving the surplus approach of any quantitative significance as a theory of value and distribution. The publication of Piero Sraffa's Production of Commodities by Means of Commodities changed all that. Sraffa not only generalized the mathematical solutions to the surplus approach which had been advanced by Dmitriev and Bortkeiwicz, but also presented the analytical structure of the surplus approach with stark clarity. Moreover, Sraffa produced a critique of the neo-classical theory of the rate of profit and so of the entire neo-classical explanation of value, distribution, and output - hence clearing the ground for the redevelopment of classical theory.

With the analytical core now secure, attention can be turned to the development of other facets of classical and Marxian theory and to the empirical insights which this theory provides. In stark contrast to the neo-classical approach, which reduces all economic activity to a single principle - the competitive resolution of individual attempts to maximize utility subject to the constraints of technology and endowment - classical theory is constructed from a number of analytically separable components. The core of the theory, the surplus approach to value and distribution, takes as data the size and composition of output, the technology in use (the conditions of reproduction) and the real wage (or, in some cases, the rate of profit). These data do not, however, lie outside the realm of economics (as,for example, the neo-classical economists' utility functions do). We need to provide theoretical explanations of their determination. Hence Smith, Ricardo and Marx advanced theories of the real wage and of the level of output (Say's law in the case of Ricardo), and Smith and Marx presented detailed analyses of technological change. Assembled around the core, these theories are the building-blocks of a general theory of the operations of the capitalist economy. There is in all this a clear danger of constructing a disjointed ad hoc collage of theories and empirical generalisations. This is avoided by enveloping the entire edifice in a general characterisation of the economic system, the clear specification, that is, of the capitalist mode of production. This serves both to cement the elements of the theory together and to eliminate propositions that do not fit.

Broadly, there are two jobs to be done in developing and extending the classical framework.

First, the classical theory itself must be developed and generalised. All the elements surrounding the core analysis of value and distribution - theories of output and employment, of accumulation, of technology, of the wage, of competition and so on - require restatement and 'modernisation' in the light both of Sraffa's results and of the many changing facets of the modern capitalist system. This will involve both theoretical development and empirical analysis, for one of the important characteristics of classical theorising is the manner in which theory is grounded in the socio-economic data of the system under consideration - the institutional environment is an essential part of the theory.

Second, the rejection of the now discredited neoclassical theory throws open a wide range of problems in international trade, development economics, fiscal and monetary policy and so forth, into which the classical approach can provide new insights. In part these will lead to the refreshing task of debunking the policy prescriptions of orthodox theory which revolve primarily around the fundamental theorem of welfare economics and the supposed 'efficiency' of competitive markets. But there is also a positive job to be done. The reconstruction of economic theory will inevitably precipitate a reinterpretation of economic policy and problems." -- John Eatwell (1987). "Foreword", in The Economics of François Quesnay, by Gianni Vaggi, Duke University Press

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