18. An Outline of a Keynesian-Sraffian Macroeconomics

The chapter explores similarities between Keynes and Sraffa, suggesting a fruitful symbiosis of the two approaches. Both challenged neoclassical price theories. Keynes formulated a ‘monetary theory of production’ that led to a liquidity preference theory of financial asset prices; Sraffa a theory of prices of production. Keynes rejected the idea of a natural rate of interest determined by conditions of production, instead arguing that it is endogenously determined by asset preferences subject to policy decisions of the central bank, while Sraffa rejected the productivity determination of the rate of profits, hinting to a monetary determination of the rate of interest influencing income distribution. As for the analytical method, both isolated for analysis a specific objective and identified the most important elements relevant for the problem under consideration. The authors sketch the Classical ‘circular-flow’ vision, the ‘photograph’ interpretation of Sraffa’s analysis and the structure of Keynes’s theory, and then draw their conclusions.