Piero Sraffa - Free

32 Piero Sraffamonetary factors on real variables cannot be a matter of ‘static analysis’:it only concerns ‘fluctuations of production’, ‘to build on the foundationsgiven by the concept of a tendency towards an equilibrium’(1931a: 31). In other words, Hayek elaborates an analysis of the ‘dynamicsof disequilibrium’ with particular reference to situations where the‘monetary’ rate of interest diverges from the ‘natural’ rate (as understoodby Wicksell 1898), focusing on the effects of monetary perturbationson the relative prices of consumption goods and producer goods(cf. also Hayek 1932: 238).Hayek’s analysis, with its theory of real economic equilibrium, restson the concept of ‘average period of production’, as developed byBöhm-Bawerk (1889), and on his proposition that the capital intensityof production processes is a decreasing function of the interest rate.This thesis is but a variety of the marginalist tenet of an inverse relationbetween the ‘quantity of capital’, however measured, and its price. Aswe shall see later (§ 6.2), the concept of the average period of productioncomes in for destructive criticism from Sraffa in Chapters 6 and 12of his 1960 book; in the 1932 article his attention focuses, instead, onHayek’s monetary analysis.By characterising monetary phenomena as disequilibrating elementsin the system, Hayek draws attention to bear on the ‘forced saving’brought about by the deviation of the market interest rate from the‘natural’ interest rate. Thus he purports to demonstrate how undersufficiently general hypotheses the capital accumulated through forcedsaving in the ascending phase of the cycle is economically destroyedin the descending phase, restoring the economy to its originalequilibrium.In short, the mechanism described by Hayek runs as follows: whenthe natural rate of interest is higher than the money rate, entrepreneursare induced to apply for bank loans in order to cope with investmentexpenditures aiming at lengthening the period of production. Thisimplies, at some stage, a decrease in the production of consumptiongoods, and hence an increase in their price, which provokes ‘an involuntaryreduction in consumption’ (Hayek 1931a: 75). These elementsconstitute the ascending stage of the trade cycle. However, the increasedincomes of the productive factors are transformed into greater demandfor consumption goods; hence, ‘a new and reversed change of the proportionbetween the demand for consumers’ goods and the demandfor producers’ goods, in favour of the former’ (ibid.). The relative pricesof consumption goods increase. Thus it becomes more advantageousto shorten the average period of production, and the capital goodsAn Italian in Cambridge 33characterised by higher duration lose value. Hence the descendingphase of the trade cycle.Given the sequence of cause and effect linkages determining thelatter stage, a policy in support of demand for consumption goods asproposed in under-consumption theories (which Hayek took to includeKeynes’s theory) proves counterproductive. Indeed, according to Hayek,the capital accumulated in the ascending stage of the trade cycle (correspondingto forced saving) is economically destroyed in the descendingstage, so that the economic system returns to its original equilibrium.The only consequence of active anti-cyclical intervention is to postponeadjustment to full employment equilibrium. 17In his review Sraffa points out that Hayek’s argument fails to takeinto account certain features typical of a monetary economy, wheremoney is not only a means of payment but also a unit of measurementin contracts and a store of value, so that inflation (and monetarypolicy) affects income distribution (Sraffa 1932: 42–3 and 48). It cantherefore by no means be taken for granted that – in the presence ofdebts and money contracts, wage agreements and rigid prices – capitalaccumulated with forced saving will be economically destroyed throughthe play of actions and reactions of market automatisms; in general thenew capital will imply bringing about a new state of equilibrium in theeconomic system.Here Sraffa adds a further critical observation. When relative pricesas a whole are not constant in time, there is no single ‘natural’ interestrate to be compared with the money rate of interest: each commodityhas its ‘own interest rate’, defined as the interest paid on the moneynecessary to buy spot a unit of the commodity added to the (positiveor negative) difference between spot and forward prices of the commodity,in per cent. This happens even in barter economies, in phasesof transition from one equilibrium to another, since relative priceschange over time due, for instance, to differential technical progress17‘If the proportion [between the demand for consumers’ goods and the demandfor producers’ goods] as determined by the voluntary decisions of individualsis distorted by the creation of artificial demand, it must mean that part of theavailable resources is again led into a wrong direction and a definite and lastingadjustment is again postponed. […] The only way permanently to “mobilise”all available resources is, therefore, not to use artificial stimulants […] but toleave it to time to effect a permanent cure by the slow process of adapting thestructure of production to the means available for capital purposes’. (Hayek1931a: 87).