Abstract
L’Inflazione Monetaria in Italia durante e dopo la guerra was the first major publication by Sraffa on economic matters. This was written in 1920, when Sraffa was barely twenty two years old, as his dissertation for the law degree he obtained from the University of Turin. It was written in Italian and was 64 pages long in typed scripts. A highly noteworthy feature of this dissertation is the author’s style of writing. It is written with such authority as befits the world masters of the subject—a feature that remains constant in all his subsequent writings. This is even more remarkable given the fact that Sraffa, by all accounts, was never an outstanding student and that economics was not his major area of study. The dissertation, however, was well appreciated and was awarded the distinction of appearing as an official publication of the University of Turin. Marcello de Cecco, in his ‘Introduction’ to the English translation of the dissertation, reports that the ‘oral tradition has it that Sraffa succeeded in convincing him [Sraffa’s thesis director, the legendary Luigi Einaudi] that bringing the lira back to pre-war gold parity was wrong’ (1993, p. 1).
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
An English translation of it by Wendy Harcourt and Claudio Sardoni titled ‘Monetary inflation in Italy during and after the war’ was published in Cambridge Journal of Economics, 1993, pp. 7–26.
- 2.
Sraffa was born on August 5, 1898 in Turin.
- 3.
See Naldi (2001) for a detailed account of Sraffa’s early life and student career. Luigi Pasinetti (1998) recalls: ‘One may well ask how, and where, Sraffa received his education as an economist. To those who were asking him questions on this topic, Sraffa always used to answer in a dismissive way, especially with reference to the time spent at the university. He never gave any impression of valuing in any way his university years’ (p. 368).
- 4.
Sraffa took Thomas Tooke’s evidence before a meeting of the Parliamentary Committee of Inquiry on removing the privilege of the Bank of England on 10 July 1832, as support for his opinion and went on to conclude that ‘I think nobody argues that it is right for governments to follow a policy of this kind, that is withdrawing at once, through a loan, all notes issued during the war. At least, I never heard this policy suggested; the damage it causes is too evident. Why, then, should we follow the method of a gradual withdrawal of the issued notes, which would produce even more serious damage?’ (Sraffa [1920] 1993, pp. 22–23). It should also be noted that the resolution of Brussels International Finance Conference, which was published in 1920, had also recommended a gradual deflation, ‘if and when undertaken’ (see Cecco 1993).
- 5.
‘The strongest arguments in favour of the method of restoring payments in metal to the parity before the depreciation of notes are of a moral rather than an economic nature’ (Sraffa [1920] 1993, p. 21).
- 6.
Sraffa cites Fisher’s (1920, Stabilizing the Dollar, New York, Macmillan) estimates, according to which ‘if, in the United States, money were returned to its pre war value, those who had underwritten Liberty Loans, would receive almost twice the value they paid.’ Using the same hypothesis, Sraffa estimated that the bearers of Italian Public Debt securities would gain ‘more than five times they paid’ (Sraffa [1920] 1993, p. 23).
- 7.
‘Thus, already before the war, the limit to the issue of notes deriving from the competition among different banks of issue in the same country had been removed. Afterwards, during the war, the convertibility of notes into gold was virtually suspended in all belligerent countries. As a consequence, with any external restraint now removed, producing money was left totally to arbitrary decisions of banks and the governments controlling them, a position which they did not fail to take advantage [of]’ (Sraffa [1920] 1993, p. 14).
- 8.
Actually Keynes had invited Sraffa to write an account of the financial crisis in Italy for the Manchester Guardian Commercial Supplement, which Keynes was editing. The paper, however, turned out to be too long for a newspaper and therefore it was published in The Economic Journal. An abridged version of this paper was published a few months later in the Manchester Guardian Commercial Supplement, which came to the notice of Mussolini and caused Sraffa some considerable political problems.
- 9.
It is not clear what prompted Sraffa to switch his interest. Sraffa had recently been appointed to a teaching position at the University of Perugia and the preparation for his lectures might have something to do with it. Alternatively, his attendance of Cannan’s lectures at the London School of Economics on the history of political economy during 1921–22 might have influenced his interest in such matters. The third possibility is that his interest in fundamental theoretical matters could have been aroused by his friendship with Antonio Gramsci and others of his circle. (see Naldi 2000, for more details on this matter.)
- 10.
Could classical economists take wages given from outside and at the same time maintain a general equilibrium of supplies and effectual demands for all the commodities? If yes, then how could it be denied that if the labor market is not in equilibrium at the given wages then it might affect the wages that could lead to substitution of techniques in use? Even if we argue that classical economists assumed that wages were at the ‘subsistence’ level (a difficult argument to maintain in the face of contrary evidence), the possibility of a rise in wages due to excess demand for labor cannot be denied. Hollander (1973, 1979, 1992) has made such arguments consistently to argue that classical economists did not take wages given from outside. See Sinha (2010a) for my alternative position on this issue.
- 11.
In his ‘Lecture Notes of 1928–31’ Sraffa acknowledges Turgot’s (1768) ‘Observation on the memoir by Monsieur de Saint-Péravy in favour of the indirect tax’ for this idea.
- 12.
It should be noted that Sraffa later realized that the order of fertility of land cannot be arranged independently of the rate of profits or wages. For example, if two plots of lands, not of the same size, are so chosen that they produce identical products in equal quantities but use different techniques, that is, a different combination of capital-goods, then a change in the rate of profits (r) would change the relative prices of the capital-goods used on the two plots of land in such a complicated manner that within certain ranges of r one set of capital-goods may be the cheaper one while for some other ranges of r the other set of capital-goods may become the cheaper one. In this case, since fertility of land can be determined only on the basis of the values of the output against the values of the total capital invested per unit of land, the relative fertilities of the two lands may switch with changes in the rate of profits (see D3/12/25: 1–2, dated 13 November 1942).
- 13.
It should be noted that a large increase in output by any industry would always destroy the ceteris paribus condition. Thus Marshallian supply curves can only be contemplated for small changes in supply in the neighborhood of the equilibrium point.
- 14.
Sraffa’s paper was also an intervention in the controversy between Clapham (1922) and Pigou (1922), in which Clapham argues that in reality it is hard to characterize any industry as a ‘decreasing’, ‘constant’ or ‘increasing’ returns industry. Pigou’s defence is that this is due to a lack of adequate statistical research work rather than the weakness of the theoretical criteria of classifying industries. Sraffa’s intervention clearly sides with Clapham. In this context, he goes on to add that the theoretical criteria for classifying industries in one of three boxes are rather arbitrary. For example, if one defines an industry very broadly as ‘agricultural’ then there is a good chance that some factors could be found to be fixed for this industry and therefore it will be classified as a ‘diminishing returns’ industry. However, if an industry is narrowly defined as ‘tomato’ then there is a good chance that no factor could be found to be fixed for this industry and therefore it will be classified as an ‘increasing returns’ industry. Similarly, an industry could be characterized as a ‘diminishing returns’ industry if one takes a short-run point of view, but the same industry could be characterized as an ‘increasing returns’ industry if one takes a long-run point of view.
- 15.
Sraffa, however, acknowledges that a general rise in price may affect the demand and supply conditions of a firm in such a way that it could be advantageous for a firm to cut its price rather than raise it. But he discounts this possibility on the grounds that ‘it involves great elasticity in the demand for the products of an individual business and rapidly diminishing costs for it—that is to say, a state of things the almost inevitable and speedy result of which is complete monopolisation, and which, therefore, is not likely to be found in a trade operated normally by a number of independent firms’ (pp. 547–8). Secondly, when there are possibilities of increasing profits by either raising or lowering the price, the forces (including psychological and sociological ones) operating on the side of raising prices are usually stronger than the forces operating on lowering prices.
- 16.
Sraffa does not contemplates the entrance of new firms in the market mainly on the grounds of high entrance cost and low profit margin in such monopolistic markets.
- 17.
In his fellowship dissertation written between October 1928 and December 1929, Richard Kahn—a student and friend of Sraffa—criticizes Sraffa’s conclusion. He argues that under ‘polypoly’ or oligopoly conditions the equilibrium price must be below the monopoly price solution (see Marcuzzo 2001 for details). Dardi (2001) has argued that Sraffa’s conclusion was not necessarily wrong, although it needed explicit assumptions regarding the players’ strategies in an infinitely repeated game.
- 18.
Commenting on Sraffa’s 1926 paper, Schumpeter (1954, p. 1047, fn. 54) goes on to add, ‘But the main ideas, critical and constructive, had appeared a year before: “Sulle relazioni fracosto e quantita prodotta,” Annali di Economia, 1925, which shows Sraffa’s starting points and the nature of his brilliantly original performance much better than does the English article.’
- 19.
It should be noted that Sraffa’s position on Marshallian demand has also significantly changed since the publication of the 1925–26 papers. In this piece he favors the idea of demand curves as empirical curves and attacks the explanation of demand curves as caused by ‘utility’ behind it. Soon after (see D3/12/7: 68) he also comes to the conclusion that the idea of constancy of marginal utility of money in the Marshallian framework implies that all demand curves are shaped like rectangular hyperbolas, that is, they have unit elasticity throughout.
- 20.
At this stage, Sraffa seems to think that the General Equilibrium explanation of the theory of distribution is essentially correct but too complicated for practical use: ‘We know that the ultimate forces which regulate the division of product of industry between factors are the same that regulate the price of hats (drawback: we are apt but forget them: use of Pareto’s general equilibrium): but we also recognise that the frictions, the obstacles through which those forces have to work is {sic} so great, that their effect, when they reach what we may call the capillary blood-vessels of the economic body their action is so much different in degree as almost to be a difference in kind from what their action is in the main streams. The hypothesis {sic} the explanation of demand price on which the analysis of price fixing is based are fundamentally different from those of distribution. Certain subtle features which are essential act upon the first, may be neglected when considering the broad lines of the general equilibrium: while the dominating elements of the latter may be regarded as not affected by (and therefore not reacting) the microscopic changes of the latter’ (D3/12/3: 20).
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2016 The Author(s)
About this chapter
Cite this chapter
Sinha, A. (2016). Before a New Beginning. In: A Revolution in Economic Theory. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-30616-2_2
Download citation
DOI: https://doi.org/10.1007/978-3-319-30616-2_2
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-319-30615-5
Online ISBN: 978-3-319-30616-2
eBook Packages: Economics and FinanceEconomics and Finance (R0)