[OPE-L:6516] Re: RE: * poll: who has advanced political economy since Marx? *

From: Gil Skillman (gskillman@MAIL.WESLEYAN.EDU)
Date: Wed Feb 06 2002 - 13:26:08 EST

Who has advanced our understanding of capitalism since Marx?  I think it is
impossible to answer this question briefly.  When I try, I start with a
short list of "the usual suspects" (though my list might differ from that
of others on OPE-L, perhaps.....), and then find myself immediately
branching out to recognize the related efforts of many others who have
contributed small but important insights. Like Gary, I put Sraffa
relatively high up on my list, but not exactly for the reasons he gives.
Here's why:

Gary writes:

>I would have to say Sraffa (surprise!), mainly for showing that the classical 
>P.E. tradition running through Ricardo to Marx is robust: i.e. its
>insights regarding value and distribution hold up when the problematic labor 
>value analysis is discarded.  He also pointed the way to a critique of the 
>marginalist theory that displaced classical and Marxian P.E.

To me, the validity of the latter statement depends strongly on what one
means by "marginalist" theory.
Speaking broadly, I would say that Sraffa's "critique" of marginalist
theory is only achieved by arbitrarily dismissing or obscuring realistic
conditions under which "marginal" considerations *might* plausibly arise.
Three examples:

1)  Capitalism universally features markets for financial capital and labor
power in addition to markets for commercially produced commodities, but the
former are not incorporated into formal Sraffian analysis.  Thus the
"un-marginalist" Sraffian "result" about the relation between wage and
profit rates arises in part from begging the question of how these prices
(and they are indeed prices, in addition to representing claims on total
product) are determined in their respective markets. 

2)  The standard Sraffian model presumes that Leontief (fixed-coefficient,
constant returns to scale) production conditions obtain universally.
Whether this condition reasonably describes actual capitalist economies is
a matter of debate, but in analytical terms it is extremely restrictive.
In particular, Leontief can be understood as the limiting case of a more
general constant elasticity of substitution production function, and in
every instance of this function *except* the limit as the elasticity
parameter approaches infinity, factors are substitutable at the margin, and
thus "marginalist" considerations would presumptively apply.   

3)  The standard Sraffian model also imposes rather stringent market
conditions, without providing any formal grounds for understanding when and
why they might obtain.  In particular, it is assumed that the "law of one
price" holds throughout, even in the (otherwise unanalyzed!) markets for
capital and labor power.  If you were to ask what sort of economic behavior
would make this strong condition tenable, the only answer I know of would
be arbitrage: market participants taking advantage of non-cost-based price
differentials by shifting their choices of quantities demanded and
supplied.  But arbitrage is a form of optimizing behavior, and what's more
it  necessarily involves optimizing *at the margin*--otherwise price
differentials would not be driven to zero, as the Sraffian model presumes.
So if the model implicitly presumes marginalist optimizing behavior here,
on what legitimate grounds does it categorically rule this behavior out in
other plausible contexts?

[Related thought experiment:  Marx's analytical "base case," employed
subsequent to V. I Ch. 5 of Capital, presumes that commodity prices are
proportional to their respective values.  Sraffian analysis replaces this
basic scenario with one in which the law of one price obtains universally,
but commodities typically do not exchange at their respective values.  As
Marx notes in the last footnote of Ch. 5, neither representation describes
actual capitalist market outcomes. On what grounds *intrinsic to the
theory* could one justify invoking the Sraffian in preference to the
Marxian base case? ]

Moreover, and more importantly, "marginalist" analysis, in the sense of
taking derivatives of production, cost, or utility functions, is not the
essence of *neoclassical* theory as it has developed in the 20th century.
Which leads me to the next point:

>The contribution was both positive and critical: he gave us a reason to stick 
>with classical P.E. (the theory holds up) and a reason to ditch neoclassical 
>theory (it DOESN'T hold up). 

I don't see this claim at all, since by the second welfare theorem, any
market outcome generated by the Sraffian model could be supported as a
solution of a neoclassical general equilibrium market model, and moreover
one with Leontief production for which no derivatives are taken anywhere
(so no "marginalist" conditions arise, in that limited sense).  Thus any
valid *positive* outcome emerging from the Sraffian model (as opposed to
the "results" that emerge from simply failing to incorporate certain
real-world markets or implicit behavioral assumptions) can also be
demonstrated with the appropriately specified neoclassical general
equilibrium model, with the important difference that in the latter the
grounds for restrictive conditions such as the "law of one price" emerge
from explicitly stated underlying conditions (conditions, by the way, that
are never ruled out by Marx or Sraffa). For example, as Mas-Colell has
demonstrated, one can readily generate "reswitching" phenomena in a
standard neoclassical GE model.  

In light of this, I wonder how Sraffian analysis can be used to demonstrate
that neoclassical theory "doesn't hold up," or for that matter that
classical theory "holds up" any better.


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