14. Sraffa’s Monetary Writings, Objectivism and the Cambridge Tradition

See Pasinetti (1979, 1985), Roncaglia (1983, 1984), Ginzburg (1986), Eatwell and Panico (1987), Potier (1987), Panico (1988a), De Cecco (1993, 1994), Davis (1998).

See Roncaglia (1983, 1984, 1999), Ginzburg (1986), Eatwell and Panico (1987), Panico (1988a), De Cecco (1993, 1994), Ciocca and Rinaldi (1997), Davis (1998) and Bellofiore and Potier (1998). A different position is held by Skidelsky (1986), who describes the relation between Sraffa and Keynes as a case of non-communication. For a critique of Skidelsky’s arguments, see Panico (1988a).

The attention to the application of historical materialism to the analysis of the production and circulation of commodities led Sraffa to concentrate on ‘the twin concepts of physical real cost and social surplus within the framework of an analysis that conceived of production as a circular flow’ (Kurz and Salvadori 2005, p. 414) and to criticise the view ‘that a measure of labour can be elaborated that allows one to portray in a reliable way the material process of production and which therefore can be used in the theory of value, as Ricardo and Marx were inclined to think’ (Kurz and Salvadori 2005, p. 418).

For a comparison of Sraffa’s (1920) and Keynes’ (1923) analyses on this point, see Panico (2001, p. 286).

Angelo Tasca was at the time a member of the Italian Communist Party.

The upsurge of speculative activity produced negative effects on the growth of the British economy. These effects induced Lavington and Keynes to deepen the analysis of the speculative demand for money and to introduce this new element in the theory of interest and money.

De Cecco (2005) claims that this part of Sraffa’s Lectures is as an anticipation of the analysis he presented in the debate with Hayek, where he introduced the concept of “own interest rate”, subsequently adopted by Keynes in chapter 17 of the General Theory. De Cecco points out that Sraffa had been working on these problems for a long time, providing Keynes with data on the Lira forward rates soon after they first met in August 1921 and that ‘Keynes used these data in his exposition of the theory of forward rates in his famous Manchester Guardian Supplement article’.

Among these elements, Sraffa mentioned that the characteristics of the credit contracts and of the commodities used for speculative investment influence the perception of financial operators. Lenders, for instance, consider a credit given to a customer less liquid than a bond that can be sold in a secondary market. He also mentioned that that ‘raw materials (e.g. raw cotton) are more liquid than manufactured products (e.g. cotton cloth of a given quality) since they have a wider market, since the number of people who buy products made out of raw cotton is greater than those who buy products made out of that particular quality of cloth. (Thus barley is more liquid than beer from the point of view of bankers)’ (SP, D2/5/14). Moreover, he stated that the size of the funds demanded by a credit institution and the solvability pressures leading this entity to ask for them is considered relevant by the operators when they evaluate the degrees of liquidity of the assets (see SP, D2/5/14).

As document (SP, D2/5/14) clarifies, the same applies to commodity markets. Gold and some raw materials, for instance, had a high degree of liquidity on account of the way their markets were organised.

De Cecco (2005, pp. 356–58) points out that after WW1 the Reichsbank could not operate as before, owing to the distress of the German economy, the burden imposed by the Treaty of Versailles, the hyperinflation, and the restrictions on the working of the central bank set by the Dawes Plan.

White (2009, p. 36) too recognises that the origin of the recent financial crisis can be found in the change of the approach used in financial regulation in USA since the 1970s.

For a description of the events that occurred between the publication of the article in the Manchester Guardian Commercial in December 1922 and the start of his teaching activity at the University of Perugia in November 1923, see Pasinetti (1979, 1985), Roncaglia (1984), Naldi (1998) and Panico (1988a, 2001).

Cunningham was Marshall’s major opponent over the Chair and the establishment of this approach in Cambridge. He tried to stand out against it several times, presenting arguments similar to those of some exponents of German historical school, whom Menger (1883) criticised (see Cunningham 1892; Marshall 1892; Hodgson 2005, p. 124; Groenewegen 2007, p. 116).

In the Introduction to the Cambridge Economic Handbook Series, Keynes stated that this approach characterised the “Cambridge School of Economics”, whose members, according to him, did not hold unanimity of theoretical views (see Groenewegen 2007, p. 198).

In the Introduction to the Cambridge Economic Handbook Series, Keynes presented this approach as ‘an apparatus of mind’ that does not furnish any ‘settled conclusions immediately applicable to policy’. Sraffa (1926, p. 535) quoted this part of Keynes’ Introduction.

According to Sraffa (1926, p. 541), Marshall’s wanted to avoid having to rely only on the analysis of ‘the conditions of simultaneous equilibrium in numerous industries: a well-known conception, whose complexity, however, prevents it from bearing fruit, at least in the present state of our knowledge, which does not permit of even much simpler schemata being applied to the study of real conditions’. Sinha (2016, p. 39) underlines that Sraffa (1926) used this argument to focus on the analysis of imperfect competition.

Viner too signified the relevance of establishing a criterion for the acceptance of Marshall’s theory. He proposed to refer to the fact that the errors of the partial equilibrium version are quantitative, rather than qualitative: ‘All partial equilibrium analysis … rests on assumptions of the ceteris paribus order which posit independence where in fact there is some degree of dependence. For such logically invalid assumptions, there is the pragmatic defence that they permit of more detailed analysis of certain phases of economic interdependence than would be possible in their absence, and that … it is reasonable to believe that the errors in the results obtained will be almost invariably quantitative rather than qualitative in character, and will generally be even quantitatively of minor importance’ (Viner 1931, pp. 199–200).

See Talamo (1976), Roncaglia (1978), Maneschi (1986), Schefold (1989), Garegnani (2005).

Kurz and Salvadori (2005, pp. 427–28) point out that, among Sraffa’s reading of the literature on objectivism, a relevant one was Whitehead’s book Science and the Modern World, read in April 1928. One theme that attracted Sraffa’s attention was whether “the whole is constitutive of the part”. He supported this view when he dealt with the interactions between the behaviour of the individual and that of society, submitting that individual behaviours depend on the legal and social frameworks. Kurz and Salvadori recall that Labriola (1922), which Sraffa read and annotated, and Keynes’ 1933 essay on Edgeworth, held a similar position. Chapters 8 and 9 of the General Theory also appear to propose a theory of consumption where the individual behaviour depends on the legal and social framework.

Panico (1988b, pp. 109–21) provides primary and secondary evidence on this interpretation of A Treatise.

Until then, the literature had focussed on speculation on inventories, rather than on financial assets.

Lambert (1963, pp. 28~2, 1969, pp. 257–58) and Harrod (1951, pp. 413–23) also noticed the occurrence of this change of emphasis in Keynes’ position.

The reference to the costs and profits of the banking industry plays a central role in Keynes (1931, 1932) and was recalled in the General Theory (Keynes 1936, pp. 145–46 and 207–08). For an analysis of the role of the costs and profits of the banking industry in Keynes’ thought, see Epstein (1995) and Panico (2008).

Sinha (2016, p. ix) points out that Keynes asked Sraffa to write the review.

The version of the quantity theory that Sraffa presented was similar to that of A Treatise (Sraffa 1932a, pp. 42 and 46–49). Moreover, like Keynes, he acknowledged the difficulty of the authorities to identify the natural interest rate and to keep the market rate in line (see Sraffa 1932a, pp. 49–51, b, p. 251).

For an analysis of this evidence, see Panico (2001, p. 300).

For an analysis of this evidence, see Panico (2001, pp. 300–02).