Piero Sraffa - Free

48 Piero SraffaLet us recall at this point that the theory of labour-values that Ricardofinally adopts in his Principles is not so much the result of any particularbelief about the prices of commodities being precisely proportional tothe quantity of labour directly or indirectly required for their production12 as, rather, instrumental in providing a basis for his criticism ofthe theory of prices which he attributes to Smith. Labour-value is thusused by Ricardo as an instrument to demonstrate more forcefully thatthe distributive variables are not independent from each other. By fixingthe wage at its subsistence level, the rate of profits can be shown todepend solely on the conditions of production of the industries directlyor indirectly involved in the production of wage goods. Once rent hasbeen disposed of with the ‘Ricardian’ theory of differential rent, profitscan be directly identified with the surplus produce of the economic system.With the problem of income distribution thus solved, the groundis ready for the issue of relative prices to be tackled.As already mentioned above, the ‘adding-up-of-components’ pricetheory requires the cost of production of each commodity to be fullyreducible to wages, profits and rents. Smith (1776: 68–71) seems tobelieve that this supposition can be proved by simply noting that theprices of the means of production are also composed of wages, profits,rent and the prices of the remaining means of production, which couldalso be so divided, and so on, in a sequence that he seems to considerfinite. Ricardo does not concern himself with this particular aspect ofSmith’s theory, limiting his criticism to Smith’s implicit considerationof wages and profits as independent. 13 Later Marx, and then Sraffa, wereto demonstrate that Smith’s belief in such total ‘decomposition’ of theprice of each commodity is also erroneous.The explanation for this error resides in a well-known deficiency inSmith’s analysis, namely underestimation of the importance of whatMarx calls ‘constant capital’, that is, the produced and reproducible commoditiesused in the process of production. In fact, whenever there is atleast one commodity directly or indirectly necessary for the productionof all the other commodities in the economy (a basic product, in Sraffa’sterminology), total decomposition is impossible. If the costs of productionof a commodity are reduced to wages, profits, rents and the price of12Ricardo himself is fully conscious of the error implicit in this statement, andexplicitly points it out from the very first pages of the Principles. See sections IVand v of Chapter 1, Ricardo (1817: 30–43). In fact Ricardo frets over the problemin innumerable places throughout his written work.13‘The whole price still resolves itself either immediately or ultimately into thesame three parts of rent, of labour and profit’ (Smith 1776: 68).Production of Commodities by Means of Commodities 49the means of production, then again these latter means of productionare decomposed into wages, profits, rents, and the price of their means ofproduction, and so on, we never arrive at a commodity residuum whosecost of production consists solely of wages, profits and rents because, bydefinition, there exists no commodity which does not require at leastone basic commodity for its production. There will always be a residuecomposed of the basic commodities of the system under consideration,even if the value of this ‘commodity residue’ is made as small as we wishthrough a sufficient number of stages of reduction.One additional consequence of the impossibility of total decompositionof price into profits, wages and rents (except as a limit to a reductionprocess taken to infinity) is that there is a finite limit to the maximumvalue of the rate of profits, corresponding to a zero rate of wages. If totaldecomposition were possible, the rate of profits corresponding to a zerowage rate would be infinite, for the rate of profits would be obtainedfrom the division of a finite quantity (total profit, which would be equalto total output) by a zero quantity (capital advanced, which would becomposed entirely of wages, taken equal to zero). 14After pointing out that his theory of prices is radically different fromthe ‘adding-up of components’ theories, Sraffa (1960: 8) also pointsout that it would be misleading to say, in the context of his analysis,that price ‘depends as much on the demand side as on the supply side’,and goes on to stress that his analysis ‘contains no reference to marketprices’. The terminology that Sraffa proposes, and in particular his useof ‘prices of production’, is precisely that used by classical economists todistinguish the prices considered as theoretical variables in their analysesfrom ‘market prices’, or the prices that are encountered from day today in the markets. 15The fact that Sraffa never talks of an ‘economic equilibrium’ or of‘equilibrium prices’ in relation to his system is also worth stressing. Inthe absence of any consideration whatsoever of the factors that determinethe quantities supplied or demanded of the various commodities,there is no reason to suppose that prices of production should be such14Marx goes to great length on this point: cf. for example Marx (1905–10, vol. 1:78–125); or Marx (1894: 815–30). For Sraffa’s view see Sraffa (1960: 35).15This point is discussed in Roncaglia (1990b, 2009a), and with reference toSmith, in Roncaglia (2001: 139–45). The point is also stressed in the Sraffa Papers(D3/12/11, quoted by Garegnani 2004: 182): ‘When A. Smith etc., said “natural”he did not in the least mean the “normal” or the “average” nor the “long run”value. He meant that physical, truly natural relation between commodities, thatis determined by the equations’.