Piero Sraffa - Free

126 Piero Sraffaprocess of production as ‘a one-way avenue that leads from “factors ofproduction” to “consumption goods”’.The interpretation of Sraffa’s system thus far outlined not onlyrequires the assumption of constant returns but rather implies thatno assumption on returns be made. The assumption of given levels ofproduction is also important in that it allows for the compatibility ofSraffa’s system with Keynesian underemployment equilibriums (underfullcapacity utilisation of plant, equipment and labour). There isnothing in Sraffa’s analysis requiring that the number of labourers correspondingto the given levels of production be equal to the number oflabourers seeking employment in the economic system considered. Thisrelationship with Keynes’s analysis, already referred to earlier (§ 2.3),will be taken up again below (§ 7.6).7.5 Sraffa and Wittgenstein: The problem of methodin economicsAs we have seen, in his book Sraffa delimits with close rigour the objectof his analysis, and thus the data necessary to work it out. The firstgiven datum is technology; in the absence of hypotheses on returns toscale, this means that the technology (which can be represented by amatrix of technological coefficients) corresponds to given productionlevels (which can be represented by a vector) of the various industries.20 Where a surplus is obtained, the manner of distribution must bespecified: Sraffa does it by taking as given one of the two distributivevariables – real wage or rate of profits – and by embracing the competitiveprinciple of a uniform rate of profits as the rule for the division ofprofits among the various sectors. On this basis, without any referenceto demand, let alone to functions linking the quantities demanded ofeach commodity to their prices (and, in general economic equilibriummodels, to the prices of other commodities, including the services of20In the general case, where fixed capital goods are present, the technologyadopted as given for the determination of prices corresponds to what is considereda normal degree of utilisation of plants; it is in fact to this specificationof technology that firms make reference for decisions on prices. A point worthstressing is that in Sraffa’s analysis it is technology that is taken as directlygiven, while the production levels of the various sectors are taken as indirectlygiven, being – in the absence of hypotheses on returns to scale – implicit in thetechnology, so that, referring as they do to a normal degree of capacity utilisation,they do not have as direct empirical correlate the levels of productionactually prevailing at a given time.Interpreting Production of Commodities 127factors of production), Sraffa shows how to determine production pricesand the residual distributive variable, and analyses the movements ofthese variables when the exogenous distributive variable changes.Although there is no need for direct reference to demand, indirectreference is implicit in the assumption of given levels of production. Itis in fact obvious that the quantities to be produced are determined bythe decisions of the entrepreneurs, who take into account the foreseeablemarket absorption. In practice, what is ruled out is any reference toa demand–supply mechanism for the determination of prices: demandcan only have a significant but indirect effect on ‘natural’ prices, since,over a period of time, it affects entrepreneurs’ decisions concerningproductive capacity and the normal degree of plant utilisation, and thusthe technology and the relative bargaining power of wage-earners andprofit-earners. 21The method Sraffa follows has a certain affinity with Marshall’s (andKeynes’s) principle of focusing on short causal chains. The reason isthat each link between cause and effect is an abstraction; as such, itdisregards a great many secondary elements; thus it seems likely thatthe distortions due to disregarded elements can add up in a long chainof causal links, leaving any connection between the initial and finalterms extremely unreliable. We might say that Sraffa’s method consistsin focusing on one link in the chain. Of course, while in this respectthere is some analogy in method between Marshall and Sraffa, there areconsiderable differences in their conceptions of the way the economyfunctions: let us recall that Marshall employs the concept of equilibriumbetween demand and supply, and conceives of partial equilibriumanalysis (of the firm or the industry) as a segment of general equilibriumanalysis – a view that Sraffa vigorously criticised.This procedure – that is, the rigorous delimitation of the problem,reduced to the interplay of relationships between a limited number ofvariables – stands in contrast to the approach dominant in general economicequilibrium theory. Within this latter framework, all economicvariables – prices, quantities, distributive variables (considered as pricesof factor of production services) – are simultaneously determined ina single great analytic scheme. From this standpoint, the criticisms21This is the dynamic evolutionary view that, for example, includes Smith’stheorem according to which the division of labour (and thus the technology)is limited by the extent of the market (i.e., by demand, but in the broad senseand not as a functional relationship linking quantities in demand with pricesand incomes).