A Revolution in Economic Theory

Why do certain things have value or price and are not free as air? The classical economists thought it prudent to distinguish between two kinds of goods that are not free: one is fixed in supply and the other can be increased or reproduced. They thought that the goods that are fixed in supply do not play any significant role in the economic life of society. Therefore, they can be left out of consideration of a theory that seeks to explain the phenomenon of price as an aspect of our economic life. As early as 1776, Adam Smith introduced the problem in terms of a rule of exchange between two hunters in ‘the early and rude state of society’:

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).

In the Notes titled ‘Winter 1927–28’, Sraffa begins to work out his ‘equations’. It was quite easy for him to see that in a subsistence economy or the economy with ‘no surplus’, the relative prices of commodities could be directly determined by the given physical input–output data:

On Keynes’s initiative, Sraffa was appointed the editor of the Royal Economic Society’s project of publishing the works and correspondence of David Ricardo in 1930, and in September 1931 Sraffa’s three-year teaching contract at Cambridge University ended. After this, Sraffa stopped lecturing and apparently turned all his attention to the Ricardo project. Strangely enough, at this juncture, there is almost a complete break in Sraffa’s notes for a full decade. Apart from several drafts of his review of Hayek’s Prices and Production, his reply to Hayek’s response and one small note on language (perhaps written in early 1932), we have almost nothing in his files until 1942, and not much on Ricardo either. Is it plausible that Sraffa, who was at the verge of a significant theoretical breakthrough at this time, could have simply shelved the whole project for a decade in such a way that he did not even allow himself to have any thoughts about it? Interestingly, in the ‘Preface’ to his book, Sraffa reports: ‘While the central propositions had taken shape in the late 1920’s, particular points, such as the Standard commodity, joint products and fixed capital, were worked out in the ’thirties and early ’forties’ (Sraffa 1960, p. vi). So, where are the notes from the 1930s? The matter becomes more mysterious when we find a re-occurrence of the same phenomenon after 1944, soon after the Mill–Ricardo papers were found and Sraffa had to redirect his attention to the Ricardo project once again. More interestingly, this time we do not find even a draft of his famous ‘Introduction’ to Ricardo’s Principles in his files—all we have is the galley proof of the ‘Introduction’, although we have an earlier proof of the ‘Acknowledgement’, where one can see a couple of names deleted. Thus there is no doubt that important papers are missing from the Sraffa files at the Wren Library. Could it be possible that Sraffa put most of his intellectual notes from the two decades of work mainly on Ricardo in separate files, which somehow got lost or purposely destroyed by Sraffa? The suspicion of intentional destruction becomes stronger when we find that many files relating to the Ricardo project that contain mostly non-intellectual materials such as Sraffa’s correspondence with others regarding Ricardo’s papers or his life and so on are preserved. Be that as it may. We have to work with what we have.

At one point in 1928 Sraffa thought that the main purpose of his work was to develop a critique of the theory of marginal productivity of capital, as in a note titled ‘Preface’, he wrote:

In Chap. 4, I mentioned that there are two decade-long breaks in Staffa’s notes. The second break came soon after 1944 and continued until 1955 (although in this case, a few notes written from 1945 to 1948 have survived). In the interim period, however, a major event happened. In 1951 the long awaited Works and Correspondence of David Ricardo in eleven volumes started to come out of the Cambridge University Press. Leaving aside the quality of Sraffa’s editing work, which was universally hailed as the work that set the standard for such future works and brought Sraffa the great honor of being awarded the Söderström gold medal of the Royal Swedish Academy of Science,^, a notable feature of this publication was the ‘Introduction’ to volume one written in collaboration with Maurice Dobb. This ‘Introduction’ brought about a change in the interpretation of Ricardo’s Principles in a subtle but substantial way. As we have already noted in Chap. 4, there are no preparatory notes for this ‘Introduction’ available in Sraffa’s files, only the final galley-proof. Given that, in Sraffa’s own words, ‘by the summer 1940, six volumes of the present edition had been set up in page-proof, while the volume of Speeches and Evidence had reached the stage of galley-proofs’ (Sraffa 1951, p. ix), one would expect that Sraffa must have had at least a rough draft of the ‘Introduction’ ready by then. Moreover, given that Sraffa had a habit of writing several drafts of any piece he readied for publication, there is no doubt in my mind that there must have been several drafts of the ‘Introduction’ written over a number of years. As a matter of fact, in a response to Keynes’s letter of 26 March 1943, in which Keynes showed his extreme frustration with the whole project dragging on for so long, Sraffa reported that ‘of the Introductions, all those which must go in the middle of a volume are ready: the others (three of them) go at the beginning of volumes and can be printed later, on pages with roman numerals. On these I have done much work, and drafted parts over and over again: all the materials is collected, but it is the drafting of the Introductions that has been holding up the whole thing.’ (D3/11/65: 26, dated 31 March 1943). No sign of these ‘drafts’ are available in Sraffa’s files. Had any been available to us it could have given us a direct glimpse of how Sraffa’s interpretation of Ricardo evolved or changed over the two decades of the 1930s and 1940s. In any case, below I try to develop a sketch of the evolution of Sraffa’s interpretation of Ricardo over time.

Sraffa’s book was finally published in 1960—it was indeed a long time coming! It is definitely among the shortest books, if not the shortest book, published in economics in modern era—it is less than 100 pages long in large typed scripts including four appendixes and an index. In Sinha (2010), I described it as a piece of minimalist art in economic prose and have compared it with the music of Beethoven, which is known for its meaningful silences. To this description of the aesthetic of the book, I might here add some of its literary qualities. It seems to be consciously designed as a ‘detective short-story’. With its abrupt beginning and equally abrupt ending, the book fits the genre of ‘short-stories’, but the story is of a detective nature. The ‘crime’ has been announced in the ‘Preface’ of the book and several clues to the solution of the puzzle are scattered throughout the book. However, unlike a detective story but more like a short story, no final solution is provided. The reader is left to figure it out for himself or herself.