Sraffa: An Alternative to the Modern Orthodox Economics

Nov 15, 2018

10:00

Kartepe, Kocaeli, Turkey

Prerequisites

None.

The Classical or the Ricardian (1821) theory of price determination had two aspects: one objective and the other subjective. The objective aspect of the theory sought to determine the ‘natural’ or the ‘equilibrium’ prices exclusively on the basis of the data of the methods of production used to produce the commodities; and the subjective aspect determined the equilibrium of demand and supply through a market mechanism based on agents’ subjectivities. The idea was to establish that the objective aspect of production provides the centre of gravitation for prices such that the subjective behaviour of the agents would bring the empirical or the ‘market prices’ in the long run to rest at the centre. I argue that these two aspects of the Classical theory turned out to be contradictory or at least incongruent as the objective aspect of the theory alone could not satisfactorily explain the ‘equilibrium prices’, which led to the downfall of the theory. The Modern economics of Jevons (1871) and Walras (1874) simply cut-off the objective aspect of the Classical theory and built on their demand and supply market mechanics as a standalone theory of prices by adding the ‘marginal method’ to it. In this context, all the prices and rates of wages and profits are simultaneously determined by the interactions of demand and supply functions. Sraffa (1960), on the other hand, rehabilitates the objective aspect of the Classical price theory by cutting-off the demand and supply market mechanism and the notion of equilibrium associated with it from their theory. This, I argue, establishes the independence of the rates of wages and profits from the market mechanism and prices and opens up the economic theory to the socio-historical context in which the economy is situated.

  • Ajit Sinha
    Ajit Sinha

    Professor

    Azim Premji University

    BIO

    Ajit Sinha is professor of economics at Azim Premji University. He has a long and varied experience of teaching and research in economics. Ajit started his career as lecturer of economics at University of Delhi in 1982 and went on to teach economics at State University of New York at Buffalo, York University, Canada and

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