The stability problem in Sraffian economic

17 Mar, 2021 at 15:34 | Posted in Economics | Comments Off on The stability problem in Sraffian economic

There is little doubt that the structure of the Sraffian system is identical to GET [General Equilibrium Theory] in its commitment to the algebra of simultaneous equations but with this difference: the equations in GET are demand and supply equations, whereas the equations in Sraffian economics are physical input-output relations, which are supposed to determine prices independently of demand. The existence problem in GET has its counterpart in Sraffian theory: the question now is, are the Leontief technology matrices “invertible,” so as to lead to a unique vector of commodity prices at every rate of profit?

So much, then, for the existence problem. What about the stability problem in Sraffian economics? Here, Sraffa adopted Adam Smith’s “gravity model,” according to which the long-run “natural price” of a commodity is “the attractor” of the short-run “market price,” the latter following and adjusting to the former … The stability problem in Sraffian economics is the question: will an excess rate of profit in an industry automatically result in a self-correcting adjustment, driving the excess rate of profit in that industry down to the uniform rate in the economy? No, not necessarily, argues Ian Steedman (1984), a writer deeply sympathetic to the Sraffian enterprise, in part because the rate of profit varies, as Adam Smith was at pains to argue, with “the certainty and uncertainty of the returns” and not always in proportion to the riskiness of the investment. In short, there is no guarantee that the market price will follow rather than lead the natural price, that the “cross-dual dynamics” as Sraffians call it will be stable, just as there is no guarantee in GET that an increase in demand will always lead to an increase in price.

Mark Blaug

Blaug raises an important issue here. Yours truly remembers having lively discussions on it back in the 80’s with one of the leading Sraffians, Pierangelo Garegnani, at the the Post–Keynesian Summer Schools in Trieste. Asking for a justification of this assumption of a ‘gravity center’, I wasn’t particularly impressed by Piero’s answer, which more or less amounted to “either you believe in a long-run equilibrium, or you’re not a Sraffian.” Not much of an argument or justification. To me it sounded more like a defence of a religious dogma.