Lord Eatwell Celebrates Sraffa

"...But Sraffa's most dramatic scholarly achievement went further than mere correction of perspective. His reconstruction of Ricardo's surplus theory, presented in but a few pages of the introduction to his edition of Ricardo's Principles, penetrated a hundred years of misunderstanding and distortion to create a vivid rationale for the structure and content of surplus theory, for the analytical role of the labor theory of value, and hence for the foundations of Marx's critical analysis of capitalist production...

...But the greater achievement was yet to come. Neoclassical orthodoxy survived the attacks on Marshall by retreating to the less persuasive but apparently secure general equilibrium theory. By the late fifties the neoclassical resurgence was well under way, overwhelming the Keynesian critique, armed, as it was, with seemingly invincible algebraic weapons. Sraffa punctured the balloon. He demonstrated in Production of Commodities that the foundations of neoclassical theory are logically unsound, and, remarkably, demonstrated simultaneously that the old surplus approach to problems of value and distribution, which had been cast aside with ascent of neoclassical theory, was logically sound and, indeed, was the ideal basis on which to develop a satisfactory analysis of market economies.

At first sight, these precise logical exercises, dramatic though their influence may have been in theoretical circles, might seem to be the very stuff of arid academic debate. But on the contrary, they represent the very nucleus of the interpretation and evaluation of the operation of capitalism. Sraffa's demonstration that price formation and the distribution of income cannot be the outcome of the forces of supply and demand, as believed by the orthodox theorists, eliminates the case for the market system as a mechanism which brings about an efficient allocation of scarce resources. Thus the theoretical arguments which are commonly claimed to support so many of today's economic policies, including those of the monetarists, are revealed to be the utterly unfounded claims of sectional interests...

...The objective analysis which Sraffa sought he found in the surplus theories of Ricardo and Marx. The classical theory of value and distribution takes as its starting point quantities which are all, in principle, objectively measurable, and behind those quantities lie the objective characteristics of social institutions. There is no place for utility or disutility. For example, labor requires a given quantity of commodities as wages, and this must be replaced from the product. The wage is a set of physical magnitudes, its determination rooted in the character of contemporary society. It is not a measure of how the worker subjectively feels about working. Orthodox theory asks us to believe that real cost is the sum not only of the disutility of labor, but also of the subjective pain suffered by the capitalists, who must be induced to sacrifice their wealth to engage in the acquisition of profit." -- John Eatwell (1984). "Piero Sraffa: Seminal Economic Theorist", Science and Society, V. 48, N. 2 (Summer): 211-216.