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A theory of price is fundamental to economic theory, as the real products an economy produces and consumes are heterogeneous in nature and so cannot be added or subtracted. Therefore, economic analysis needs to homogenize these heterogeneous physical things and can do so by multiplying them by their prices. But all of the dominant theories of prices economic science has developed require some notion of equilibrium, even though we know that empirically economies are almost never in equilibrium.

[My] research focus is that since empirical economies are almost never in equilibrium, an analysis of the empirical system must have a theory of price for the state in which it exists (i.e., of disequilibrium) and not for the ideal situation in which it could exist. Sraffa developed a theory of price that was applicable to empirical systems, as it functions even without the assumption of equilibrium. Unfortunately, even Sraffa’s theory was understood as an “equilibrium” theory of prices for the least 50 years. It was not well understood that, in Sraffa’s theory, prices do not carry any information regarding demand and supply but rather perform a function of accounting distribution of income, which is determined from outside the market. Clearly, going “back to Sraffa” has the potential to revolutionize economic theory. It shifts the foundation of economic analysis from the subjective notion of human behavior to the objective fact of income distribution. It will make economics relevant to empirical economic systems and challenge the mythical importance of the market and equilibrium theories of price. 

Ajit Sinha, “A Revolution in Economic Theory" (INET grant proposal)

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psiconomics:

Of course, the family is much bigger than that… Isn’t that right, Mr. Schumpeter?

psiconomics:

Of course, the family is much bigger than that… Isn’t that right, Mr. Schumpeter?

"One of the objects of this enquiry is to serve as a preliminary to an investigation of the theory of distribution. […] The way in which we are proceeding is to see how far we can go in assuming that the distribution is indeterminate with respect to the internal conditions of the system; and at what point, if any, do we find it necessary to acknowledge that the technical conditions of production determine the distribution."

Sraffa papers (D3/12/42, 78; dated 23 March 1957), preparatory draft of the introduction to POC, quoted in Panico, Pinto & Ayul (2010: 4, fn. 3)

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Thus every economist tends to frame his theories in such a way that certain elements acquire in them importance which is entirely out of proportion of the part they play in real life, but reflects the necessity ofᴵᴺ which the economist has been of opposing oppositeᵒᵇˢᵒˡᵉᵗᵉ theories or popular prejudices. And when the theory has crystallized and we have forgotten the way in which it has grown, we are often inclined to over-estimate the importance of certain elements simply because for long forgotten historical reasons they play a very large part in accepted economic theory.

A further disturbing element is that in the background of every theory of value there is a theory of distribution. The real problem to be solved by a theory of value, that is: «Why is a commodity exchanged with another in a given ratio?» is constantly transformed into the entirely different one: «How is the price received for the product distributed between the factors of production?». […] There is a continuous attempt at visualizing in the microcosm of any one particular commodity a process which takes place only in all commodities as a whole, considered simultaneously, that is in society as a whole.

And often theories of distribution in their turn are meant not so much as a means to analyzing the actual process through which the product is distributed between different classes, as for showing either that the present system is wrong and should be changed, or that it is right and it should be preserved. Thus it becomes an analysis of what is it ᵗʰᵉ ᵗʰᵉᵒʳʸ becomes a form of propaganda for what ought to be.

Sraffa papers (D2/4.3.3-4), quoted in Panico, Pinto & Ayul - “Income Distribution and the Size of the Financial Sector: A Sraffian Analysis,” 4

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econlolcats:

Ah yes, the old leisure-work-tradeoff chestnut. From Rob.

Cute.

econlolcats:

Ah yes, the old leisure-work-tradeoff chestnut. From Rob.

Cute.

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"It is ‘a fatal mistake’ of some economists that they believe that, by introducing complicated dynamic assumptions, they get nearer to the true reality; in fact they get further removed for two reasons: a) that the system is much more statical than we believe, and its ‘short periods’ are very long, b) that the assumptions being too complicated it becomes impossible for the mind to grasp and dominate them—and thus it fails to realise the absurdity of the conclusions."

Sraffa’s papers (D3/12/11: 33), dated 25 March 1946, in Kurz & Salvadori - “Classical Economics and the Problem of Exhaustible Resources,” 292

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The difference between the ‘Physical real costs’ and the Ricardo—Marxian theory of ‘labour costs’ is that the first does, and the latter does not, include in them the natural resources that are used up in the course of production (such as coal, iron, exhaustion of land) — [Air, water etc. are not used up: as there is an unlimited supply, no subtraction can be made from ∞]. This is fundamental because it does away with ‘human energy’ and such metaphysical things.

[…] But how are we going to replace these natural things? There are 3 cases: a) they can be reproduced by labour (land properties, with manures etc.); b) they can be substituted by labour (coal by hydroelectric plant: or by spending in research and discovery of new sources and new methods of economising); c) they cannot be either reproduced nor substituted [sic]—and in this case they cannot find a place in a theory of continuous production and consumption: they are dynamical facts, i.e. a stock that is being gradually exhausted and cannot be renewed, and must ultimately lead to destruction of the society. But this case does not satisfy our conditions of a society that just manages to keep continuously alive.

— Sraffa papers (D3/12/42: 33), dated 25 March 1946, quoted in Kurz, H. & Salvadori, N. (2001). “Classical Economics and the Problem of Exhaustible Resources.” Metroeconomica 52(3), 292

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"The only way is to go through history in reverse, i.e.: from the present state of economics; how that came to be reached, showing the difference and superiority of the old theories. Then expound the theory. If a chronological order if followed—Petty, the Physiocrats, Ricardo, Marx, Jevons, Marshall—then it is necessary to give as a premise a statement of my own theory in order to explain what we are driving at; which means first expounding all of the theory. And then there is the danger of ending up like Marx, who started publishing his Capital and later was unable to complete the History of Doctrines. And what is worse he was unable to make himself understood without the historical explanation. My plan is: first, treat the history, which is what is really essential; second, make myself understood, which requires me to proceed from the known to the unknown, from Marshall to Marx, from disutility to material cost."

Sraffa (D3/12/11), November 1927, quoted in Porta - “Piero Sraffa’s early views on classical political economy,” p. 1368. Porta comments:

Sraffa’s ambitions are very clear. The lectures that he has been appointed to deliver at Cambridge are to be made the occasion for a book in which the historico-analytic method is adopted for an eminently theoretical purpose. Marx—not, however, Marx-in-general but Marx-the-historian-of-analysis-manqué (manqué is the point!)—must provide guidance in both method and contents—as also the list of past authors indicates. Marshall, of course (i.e. the present) is, as Sraffa writes, the proper starting point.

I was reminded of this quote by Mike Konczal’s article about teaching economics ‘backwards’, though what he has in mind is much different.

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Werner Horvath - The economist John Maynard Keynes (2012)

Werner Horvath - The economist John Maynard Keynes (2012)