Friday, December 30, 2016

On Ajit Sinha On Sraffa

Over at the Institute for New Economic Theory (INET), Ajit Sinha discusses the Sraffian revolution. Scott Carter cautions that, in interpreting Sraffa's thought, his archives have barely been touched.

Sinha's article has this blurb, with which I entirely agree:

"The prominence of the debate over 'reswitching' has obscured the importance of Piero Sraffa's profound contribution to economics. It's time to revisit and build on that body of work."

One can agree with the above without following Sinha very far. In analyzing the choice of technique, I often point out more than reswitching. I try to find effects in other markets than the capital markets and go in other directions. Since my motivation for working through these examples is frequently an internal criticism of neoclassical economics, I am frequently willing to assume Constant Returns to Scale and perfect competition, in the sense that firms take prices as given. One might argue that this misses Sraffa's point. Besides one can use 'reswitching' as a synecdoche for such analyses of the choice of technique.

How do I know that Production of Commodities by Means of Commodities: Prelude to a Critique of Economic Theory was about more than Sraffa effects, as seen in the analysis of the choice of technique? Only the last chapter in the book deals with the choice of technique. (Maybe, earlier chapters on joint production, rent, and fixed capital might have been clearer if they came after this chapter.) Sraffa doesn't present this one-chapter, final part of his book as a climax that all before is leading up to. In fact, he explicitly says, in the first paragraph, that the status of that chapter is somewhat different from the rest of the book:

"Anyone accustomed to think in terms of the equilibrium of demand and supply may be inclined, on reading these pages, to suppose that the argument rests on a tacit assumption of constant returns in all industries. If such a supposition is found helpful, there is no harm in the reader's adopting it as a temporary working hypothesis. In fact, however, no such assumption is made. No changes in output and (at any rate in Parts I and II [Part III presents switches in methods of production - RLV]) no changes in the proportions in which different means of production are used by an industry are considered, so that no question arises as to the variation or constancy of returns. The investigation is concerned exclusively with such properties of an economic system as do not depend on changes in the scale of production or in the proportions of 'factors'."

The analysis of the choice of technique shows that much neoclassical teaching and "practical" applications is humbug. But that does not exhaust Sraffa's point. Turning to the first sentence of the next paragraph in the preface can help:

"This standpoint, which is that of the old classical economists from Adam Smith to Ricardo, has been submerged and forgotten since the advent of the 'marginal' method."

A second major emphasis of Sraffa's scholarship, including his 1960 book, is the rediscovery of the logic of the classical theory of value and distribution. Sraffians can claim to have a theory that can serve as an alternative to neoclassical theory and that is empirically applicable (for example, by Leontief and those aware of the National Income and Product Accounts (NIPA).) This rediscovery provides an external critique of neoclassical theory.

By the way, the development of this external critique provides, for example, Pierangelo Garegnani for a defense of the claim that the analysis of the attraction of market prices to prices of production is building on Sraffa's work. Sraffa's book does not discuss market processes or the classical theory of competition:

"A less one-sided description than cost of production seems therefore required. Such classical terms as 'necessary price', 'natural price' or 'price of production' would meet the case, but value and price have been preferred as being shorter and in the present context (which contains no reference to market prices) no more ambiguous." (PoCbMoC, p. 9)

One could read Sraffa as being able to take many aspects of classical political economy as given, including analyses of market prices. How should ideas that Sraffa explicitly choose to include in his archives, but not publish in his lifetime, influence our interpretation?

None of this gets to Sinha's point. He thinks, as I understand it, that Sraffa offers more than a rediscovery of classical political economy. Sraffa offers innovations in our understanding of prices and distribution, and these innovations can help us better understand actually existing capitalist economies. (Some of these innovations might be Wittgenstein-like in that they allow us to improve by discarding lots of rubbish.) I daresay Scott Carter agrees with that claim, even though he might disagree with details of Sinha's understanding of the Standard Commodity.


Blissex said...

Read that article a few days ago and wondered what you would say, interesting as the Sinha article.

Uhmmmm, but I disagree that Sraffa's work was a return to classical models, I think that it is the peak of neoclassical models; my impression is that P Sraffa wrote his little book as a polemic against neoclassical models. My explanation:

* Neoclassical models lack entirely a theory of capital and production, they have just handwaving: one hand waves "homogenous capital" the other hand waves "production function". All they have is commodities markets on the consumption side; the production side is hand waved away.

* So P Sraffa wondered "what would happen if neoclassical models had a theory of capital and production", built a (towards a) neoclassical model of production of commodities by means of commodities, and he demonstrated that even in trivial neoclassical production models the 3 fables of JB Clark can't hold, and therefore the whole was inconsistent, capital and production theory can't be just hand waved away.

Consider the debate with Samuelson: it was all about the impact of P Sraffa's work on the lack of a theory of capital and production in neoclassical models. The major conclusion by Samuelson was that any production theory with two or more capital commodities is incompatible with a general neoclassical model. That too was soon hand-waved away by neoclassical Economists.

I think that neoclassical Economics at the time were regarded as the continuation of classical political economy, and JM Keynes used "classical" to refer to Marshall etc. too. It was not thought that what we today call neoclassicals models were a different approach (despite JB Clark's work) from the classical one. The marginalist approach was considered just a more formal approach to classical political economy. Mainly a degree of emphasis: classicals focused on the production side, marginalists on the consumption side.

My impression is that when P Sraffa writes that his model is not even marginalist, that's not because he wants to distinguish it from marginalist models, but to point that it is so simple that it does not even need to be marginalist, and yet the 3 fables don't hold.

The major contribution of P Sraffa to the classical tradition was that he managed to define in his model a "numeraire" that does not depend on the distribution of income, an "objective" metric of value, something that the classicals thought was a big open question, and the marginalists, having waved away capital and production, considered irrelevant.

But while that is quite big in the history of political economy thought, in hindsight it was regarded as a curiosity (but it could yet become relevant if political economy research takes a turn for the better).

Blissex said...

«my impression is that P Sraffa wrote his little book as a polemic against neoclassical models.»
«built a (towards a) neoclassical model of production of commodities by means of commodities,»

I read "POCBMOC: Prelude to a critique of economic theory" so long ago (and several times since), but not recently, but I am pleased on double checking with its "Preface" to read:

«In a system in which, day after day, production continued unchanged in those respects, the marginal product of a factor (or alternatively the marginal cost of a product) would not merely be hard to find --- it would not be there to be found.»
«It is, however, a peculiar feature of the set of propositions now published that, although they do not enter into any discussion of the marginal theory of value and distribution, the have have nevertheless been designed to serve as the basis for a critique of that theory.»

And that's the whole big deal, for which his work has been vehemently ignored, at least on the other side of the Pond :-).

Robert Vienneau said...

I think one can find elements of a critique of neoclassical economics in Parts I and II of Sraffa's book, before he gets to his analysis of the choice of technique. This observation agrees with Sinha's point that there is more to the CCC than reswitching. But Sinha wants to go further.

Blissex said...

«one can find elements of a critique of neoclassical economics in Parts I and II of Sraffa's book, before he gets to his analysis of the choice of technique»
Indeed, but that's a bit reductionist: the book is not meant to be that critique, it is meant as a «basis for a critique»; that is my impression is that in Sraffa's aim it was important for what it implied rather than what it literally said, as a stepping stone, as a forward base from which to start the attack.

And I think that the implication is demonstrating that the neoclassical "theory" of production is pure handwaving, and that even a trivial theory of production is not compatible with the "political" aims of the neoclassical approach (that «theory of value and distribution»).

It is quite good that as preparatory work it was also constructive, it is disheartening that it was so vehemently ignored that the «critique» never took hold.