Tag: Piero Sraffa

Cheryl Misak’s Ramsey: Notes on his association with Harrod, Dobb, and Sraffa

Frank Ramsey was in Cambridge at the same time as John Maynard Keynes, Arthur Pigou, and Piero Sraffa, some of the most influential economists of the twentieth century. Ramsey died on 19th’January 1930, six years before The General Theory of Employment, Interest and Money’(1936), ten years after The Economics of Welfare(1920), and around the same time as the central propositions in Production of Commodities by Means of Commodities’(PCMC) was worked out. While an earlier blog post had examined Ramsey’s views on the rate of interest, the present one narrates his intellectual association with Maurice Dobb, Roy Harrod, and Sraffa, and a forthcoming one will focus on his intellectual association with Pigou and Keynes. The present and future posts are primarily based on Cheryl Misak’s new biography of Ramsey (2020, Oxford University Press). This post supplements the observations found in Misak’s Ramseywith those found in the books on Harrod and Sraffa published as part of the Palgrave Macmillan ‘Great Thinkers in Economics’ series by Esteban P’rez Caldentey (2019) and Alessandro Roncaglia (2009) respectively and the book on Dobb by Timothy Shenk (2013) published as part of the ‘Palgrave Studies in the History of Economic Thought’ series.

HARROD

While Harrod today is probably most well-known for his contributions to growth theory, he made important contributions to the fields of trade cycle theory, imperfect competition, and international economics. While there are 14 references to Harrod in Misak’s Ramsey, there are only eight references to Ramsey in Caldentey’s Harrod’(2019). [If there are two or more mentions of Harrod in a single page, I treat that as one reference.]

Ramsey and Harrod were friends (p. xxxi). Ramsey had known him ‘since 1922, when Harrod spent part of the year at King’s. Frank had taken Harrod under his wing then, introducing him to [G. E.] Moore and others’ (p. 195). After Ramsey was elected a fellow of King’s College, Cambridge in 1924, he renewed his friendship with Harrod, ‘a young left-leaning economics don at Oxford ‘ and they travelled between Oxford and Cambridge for intellectually rich weekends’ (p. 195). Caldentey mentions Harrod experiencing ”tremendous stimuli” after meeting Ramsey in Cambridge as opposed to his ‘frustrating Oxford experience’ (p. 10).

Although Harrod’s paper on the concept of marginal revenue curve was eventually published in the Economic Journal’as ‘Notes on Supply‘ (1930), on Ramsey’s advice, its editor, Keynes, had initially rejected the article in 1928 and had asked for revisions on the treatment of cartels (p. 305). In the meantime, according to Harrod, others had ‘discovered’ his concept and therefore he failed to receive credit for inventing it. Caldentey informs us that Harrod’s initial paper submitted in 1928 was titled ‘Notes on Monopoly and Quasi-competition’ wherein ‘he derived the increment of aggregate demand curve which was later re-baptized, the marginal revenue curve by Joan Robinson’ (p. 18). Moreover, Caldentey notes that in the foreword to the first edition ofThe Economics of Imperfect Competition’(1933), Robinson acknowledges the following individuals for teaching her about the marginal revenue curve: C. H. P. Gifford, P. S. Sloan, and T. O. Yntema (p. 101, n. 30). Also see Caldentey (pp. 18-19, 100-1) for a recounting of the refereeing episode between Ramsey and Harrod, which also makes reference to the three-volume work, The Collected Interwar Papers and Correspondence of Roy Harrod’published by Edward Elgar in 2003 under the editorship of Daniele Besomi.

DOBB

Dobb’s contributions to Marxist economics are well established. I was introduced to his work during my Master’s in Economics at the University of Hyderabad where we read selected parts from Theories of Value and Distribution Since Adam Smith: Ideology and Economic Theory’(1973). His collaboration with Sraffa in editing and producing The Works and Correspondence of David Ricardo’has also been noteworthy. In Shenk’s Dobb, surprisingly, there is not even a single reference to Ramsey while there are 21 references to Dobb in Misak’s Ramsey.

Dobb was Ramsey’s friend from their undergraduate days (1920-3) at Cambridge (p. 94). They had started their degrees at the same time (p. 79); Ramsey enrolled for mathematics at Trinity College and Dobb for economics at Pembroke College. And during this time, ‘Dobb had considerable influence on Ramsey, both by engaging with him about the kind of socialism that would be best, and by introducing him to workers’ meetings’ (p. 299). While Ramsey was finishing his secondary education at Winchester in 1920, in addition to reading the economics books by Alfred Marshall and Keynes, he also read works by Karl Marx and V. I. Lenin (p. 47). However, according to Misak, it isn’t clear how much they associated with each other after completing their undergraduate studies (p. 87).

In his 1925 doctoral thesis, Dobb tried to bring Marx and Marshall together (p. 300). Shenk points out that Dobb had been trying to synthesize Marx and Marshall even before he started his PhD at the London School of Economics (LSE): ‘Dobb, too, sought to integrate marginalism with classical political economy, but with Marx substituting for Ricardo as the standard-bearer for political economy. ‘ In Dobb’s vision, Marx appears as a theorist of the social, Marshall of the economic’ (p. 36). Dobb’s PhD thesis was published in 1925 as Capitalist Enterprise and Social Progress, and Shenk provides us with its outline: ‘Dobb dedicated the first section to economic theory, the second to economic history, and the third to evaluating contemporary economic practices from the perspective developed over the course of the book’ (p. 38). Since Ramsey ‘was considered (and considered himself) a socialist’ (p. 301), Misak argues that Ramsey’s use of utility theory in his paper on optimal saving needs to be seen in the light of the synthesis Dobb had attempted between Marxism and marginalism (p. 302).

Ramsey’s view of the use of mathematics in economics was similar in spirit to that of Dobb (and Keynes): ‘Like Dobb, he thought that one ignores mathematics at one’s peril, for the mathematics has to be right in order for progress in the real world to be made. And some real-world issues are going to be solvable by doing the maths’witness Ramsey’s response to the Douglas Proposals. But he did not think that the mathematician could step in and solve all problems. He agreed with Keynes that we mustn’t be so taken with the precision of mathematics that we erase the outlines of the very thing we are examining. As Ramsey so often put it, one mustn’t be woolly, but one mustn’t be scholastic either’ (p. 326).

SRAFFA

Sraffa has made significant contributions to price theory and capital theory and deserves high praise for his editorship of the collected works and correspondence of Ricardo. I have written on Sraffa earlier.’ While there are only two references to Ramsey in Roncaglia’s Sraffa, there are 18 references to Sraffa in Misak’s Ramsey. Given this scant attention to Ramsey in Roncaglia’s Sraffa, I make use of Heinz Kurz and Neri Salvadori’s essay ‘Sraffa and the Mathematicians: Frank Ramsey and Alister Watson’ first published in 2000 in Piero Sraffa’s Political Economy: A Centenary Estimate, a volume edited by Terenzio Cozzi and Roberto Marchionatti (as republished in Classical Economics and Modern Theory: Studies in Long-Period Analysis, an edited volume by Kurz and Salvadori in 2003).

As Sraffa writes in the preface to his 1960 classic, ‘the central propositions had taken shape in the late 1920’s’ (p. vi). In the following paragraphs, he expresses his gratitude to Ramsey (along with Alister Watson) for ‘invaluable mathematical help’at different periods’, and his greatest debt is reserved for A. S. Besicovitch. Kurz and Salvadori examine Sraffa’s diaries to identify the number of his meetings with Ramsey; according to the dairy entries, they met twice in 1928 (28 June and 11 November) and thrice in 1929 (10 May, 30 May, and 29 November) (p. 190).

The main outcome of their first meeting is capably captured by the following excerpt from Kurz and Salvadori: ‘At first Sraffa appears not to have explicitly distinguished between the quantity and the price or value of a commodity, a fact to which Ramsey immediately seems to have objected. Sraffa then appears to have introduced the distinction during the conversation with Ramsey’. Ramsey then reformulated the system first by putting the system of homogeneous linear equations in its canonical form, then by setting the determinant of coefficients equal to zero in order to get a non-trivial solution’ (p. 197). The key aspects of this meeting are not as ably captured in Misak and it is also incorrectly stated that Sraffa’s famous work related to ‘the determination of prices and’outputs’ (p. 305; emphasis added) whereas the size and composition of output is a given in PCMC.

Ramsey died in the middle of writing his book on truth and probability. Misak draws attention to the fact that after his death the philosopher R. B. Braithwaite published some of Ramsey’s essays in 1931 under the title The Foundations of Mathematics and Other Logical Essays’(p. 273). According to Misak, John von Neumann and Oskar Morgenstern had reached very similar conclusions in their 1944 Theory of Games and Economic Behaviour’(p. 274). And Misak further notes that, the similarity was so striking that John Hicks went to the extent of writing to Sraffa on 3rd’September 1960 asking if Ramsey’s ideas were transmitted to von Neumann through him (and his ‘mathematical friends’) but Sraffa didn’t reply (p. 274; although a draft of Sraffa’s response is available, it is not clear whether he actually sent it to Hicks). However, after consulting the letter (available here), it is clear that Hicks is actually asking Sraffa how von Neumann arrived at a similar theoretical outlook as Sraffa; and it is not about the similarities between Ramsey and von Neumann as Misak claims.

ON VALUE THEORY

This blog post ends with some critical observations on Ramsey’s engagement with value theory. According to Misak, Ramsey ‘blended neo-classical economics and socialism’ (p. 303). Despite his ‘scepticism about the utility theory of value’, as Misak notes, ‘his two famous papers were written in the neo-classical framework of individuals maximizing utility’ (p. 302). The two important pieces of evidence Misak provides for the former are given in the following excerpt: ‘In his 1924 Apostles paper, he castigated Mill for putting all his eggs in the utilitarian basket. During 1927’28, when his two important papers in economics were written, he was also working on a book in which he hoped to carve out a subtle, naturalist theory of value’ (p. 302). Since this book was not completed, it is difficult to state whether Ramsey would have stood closer to the neoclassical or the classical theory of value. However, Sraffa’s position on the marginalist (or neoclassical) value theory is clear: it is futile. Therefore, unlike Misak, who writes that ‘It’s clear that Ramsey,’like’Dobb and Sraffa, had a complex, pluralistic, view of value’ (p. 302; emphasis added), I would be very reluctant to conjecture a similarity between Ramsey and Sraffa on the question of value theory.

 

A Foreword to Sraffa’s Production of Commodities by Means of Commodities

Piero Sraffa’s classic Production of Commodities by Means of Commodities (PCMC) was published in 1960. It runs into 87 pages of main text (inclusive of the content list), 6 pages of appendices, less than 3 pages of Preface and a 3-page index. As we pointed out in A Foreword to Keynes’s General Theory, by foreword, we mean the following: ‘The introduction to a literary work, usually stating its subject, purpose, scope, method, etc.’ (Oxford English Dictionary).

The book is subtitled ‘Prelude to a Critique of Political Economy’. This slim book is divided into 3 parts: (1) ‘single-product industries and circulating capital’; (2) ‘multi-product industries and fixed capital’; and an untitled third part containing a single chapter titled ‘Switch in Methods of Production’. In the Preface, Sraffa acknowledges Keynes, A. S. Besicovitch (‘for invaluable mathematical help’), Frank Ramsey and Alister Watson. Sraffa was friends with Gramsci and Wittgenstein. [Ramsey, a friend of Keynes, supervised the 40-year old Wittgenstein’s PhD thesis at the age of 26 (source).] Appendix D contains the ‘references to the literature’ wherein works by Quesnay, Smith, Ricardo, Torrens, Malthus and Marx are mentioned. As Sraffa writes in the appendix, ‘[t]he connection of this work with the theories of the old classical economists have been alluded to in the Preface. A few references to special points, the source of which may not be obvious, are added here’ (p. 93). The orthodox economists mentioned by Sraffa are Marshall and Wicksteed.

With respect to method, Sraffa adopts the standpoint of the old classical economists ‘ the surplus approach to value and distribution. This is contrast to the orthodox marginalist scarcity approach to value and distribution. In the surplus approach, one distributive variable is exogenously determined. This is in fact a realistic assumption because the rate of interest is set by monetary authorities and the rate of profit can be conceptualised as a sum of the riskless rate of interest (on government securities) and a pure rate of return on capital.

The conception of the ‘system of production and consumption as a circular process’, Sraffa notes in Appendix D, is to be found in Quesnay which ‘stands in striking contrast to the view presented by modern theory [marginalist], of a one-way avenue that leads from ‘Factors of production’ to ‘Consumption goods” (p. 93) [cf. Kurz & Salvadori 2005]. The subject matter of PCMC is the theory of value and distribution ‘ how are relative prices and distributive variables determined’ More specifically, in an economy where the production of commodities is undertaken by means of commodities, how are prices and distributive variables determined’ Sraffa’s correct solution is that ‘the distribution of the surplus must be determined through the same mechanism and at the same time as are the prices of commodities’ (p. 6). What are the data or givens’ (1) size and composition of output; (2) methods of production; and (3) one distributive variable (either the wage rate or profit rate). The first two givens are mentioned in the Preface when Sraffa writes that his ‘investigation is concerned exclusively with such properties of an economic system as do not depend on changes in the scale of production or in the proportions of ‘factors” (p. v). The rationale for the third given is as follows: ”the practice, followed from outset, of treating the wage rather than the rate of profits as the independent variable or ‘given’ quantity’ has been reversed because the ‘rate of profits, as a ratio, has a significance which is independent of any prices, and can well be ‘given’ before the prices are fixed ‘ in particular by the level of the money rates of interest’ (p. 33).

While the scope of PCMC is limited to the subject matter, its implications on general economic theory are far reaching; for instance, his work has implications for the theory of value and distribution (capital theory forms an important part of this). Therefore, his work has positively contributed to the theorising of economic growth and environmental economics. Also, Sraffa’s work is to be a ‘basis for a critique of’ ‘the marginal theory of value and distribution’ (p. vi). Sraffa’s work is a coherent articulation of the theory of value and distribution the classical economists attempted to solve. At the same time, it also forms the basis for a critique of the marginalist theory of value and distribution by underscoring the logical fallacy in treating capital as a quantity independent of prices.

In a sense, the purpose of Sraffa’s work depends on the use that is made of it and there is a growing body of literature emanating from PCMC (a useful survey is Aspromourgos’s 2004 paper titled ‘Sraffian Research Programmes and Unorthodox Economics’). The classical approach to economics has been made more articulate and coherent. By marrying the classical or ‘surplus’ approach to value and distribution with the principle of effective demand, an alternative explanation for the determination of activity levels and economic growth has been developed. Work is also going on in the areas of environmental economics, public debt, monetary economics and history of economic thought, all of which draws upon and/or are inspired by Sraffa’s work.

The Indian readers would be interested to know that an Indian edition of PCMC was published by Vora & Co. Publishers, Bombay (available online). ‘However, PCMC is out of print since 1996 according to Cambridge University Press.

Those of us who are dissatisfied with mainstream neoclassical economics will find valuable insights and an economically superior but modest basis in Sraffa’s work to develop a coherent alternative to the mainstream approach to economic thinking. Particularly fruitful is this research programme when combined with the rich insights of the classical economists and Marx as well as the principle of effective demand of Kalecki and Keynes.

Pierangelo Garegnani (1930 – 2011)

On October 14, 2011, heterodox economics (in particular, classical economics) lost one of its warriors. This post attempts to summarise some of his key contributions towards economic theory. First and foremost, he was an economic theorist par excellence. He contributed to the famous (now, almost forgotten) capital theory debates in 1960s along with Piero Sraffa and Joan Robinson on his side and Paul Samuelson and Robert Solow on the other. Alongside others, he pointed out logical flaws in the marginalist conception of capital and its devastating effects on equilibrium. Basically, marginalist theory of value and distribution (in modern parlance, microeconomic theory) was shown to be logically inconsistent. Today, these debates hardly ever appear in economics textbooks because marginalist or neoclassical economics invented inter-temporal equilibrium to take care of capital-theoretic issues. Moreover, history of economic thought has been sidelined ‘ through famous graduate economic programs and by preaching that history of economic thought is of no use to a ‘practical’ economist, both in academia and in business.

Garegnani made significant contributions to the revival of classical economics on the foundations laid down by Piero Sraffa. In particular, Garegnani, through various journal articles (in Italian and English) resurrected the works of old classical economists ‘ mainly Smith, Ricardo and Marx. More than Sraffa, perhaps, it is Garegnani who has aided the revival and resurrection of classical economics. His command over the history of economic thought with a special focus on old classical economists and ‘old’ and ‘new’ neoclassical economists (Walras, Wicksell, Hicks, etc) is evident from his clear exposition of their analytical structure.

Like ‘old’ classical economists, Garegnani’s interest has been to explain growth dynamics of an economy. This, he believed and also demonstrated that it is possible by drawing insights from Keynes and working on a classical (Sraffian) foundation. In this regard, Garegnani and his friends-colleagues-students have been quite successful in their analysis of capacity utilization, supermultiplier, role of wages, profits being a monetary phenomenon and so on.

Given the massive contributions made by Garegnani, it has been an honour for me to have been introduced to his work during my Masters in Economics at University of Hyderabad. It is one of the few Universities, in India and possibly, in the world, which still teaches classical economics as a distinct approach to understanding contemporary economies. I hope that more Universities begin to recognise the benefits of a pluralist education and start teaching classical economics as a distinct subject.

Others

Robert Vienneau”Susan Pashkoff”Francesco Saraceno”Tyler Cowen”David Ruccio”Matias Vernengo

Krishna Bharadwaj: The Ideal Economist

Krishna Bharadwaj is an economist who made lasting contributions to economic theory. She is especially known for her understanding of the classical theories of value and distribution. In particular, she has successfully traced out the history of classical as well as neoclassical economics. This kind of conceptual history writing is important, especially for the economist who wants to apply these theories in understanding the socio-economic reality. And because of her firm grasp of various theoretical approaches in economics, she was able to judiciously analyse problems of the Indian economy. She was, in fact, the first economist to point out the exploitative nature of inter-linked markets which are prevalent in Indian agriculture. She also placed emphasis on the power relations which dominated the production structure of agriculture in India.

Apart from struggling to show the distinct and superior nature of classical economics over neoclassical economics, Bharadwaj also relentlessly worked on Indian economic issues. In particular, Bharadwaj analysed the structural linkages between agriculture and industry in India and also examined the production conditions which characterise Indian agriculture. In her latter study, she pointed out the inadequacies of neoclassical economics in understanding Indian agriculture. She particularly criticised the application of production functions. In addition, Bharadwaj explained the origin of neoclassical economics and how it suffers from various logical as well as other methodological issues.

For Bharadwaj, theory was only a tool to understand the questions and problems which arose from the social reality. This is why, she promoted the teaching of different economic approaches in Centre for Economic Studies and Planning (CESP) at Jawaharlal Nehru University (JNU), such as classical, Marxian, Keynesian as well as Walrasian. As Prabhat Patnaik writes in a foreword of The Krishna Bharadwaj Memorial Lecture, ‘according to her [Bharadwaj]…we had to evolve a research-cum-teaching agenda of our own. No centre in India could flourish, by international standrads, merely by mimicking what was happening abroad, merely by showing proficiency in solving problems which were posed abroad. The problems has to be rooted in the social reality of our own country, and the effort to grapple with them had to be, very consciously, located within the intellectual endeavour of our country…[However] Her emphasis on taking up problems rooted in the Indian social reality was not a plea for turning one’s back upon theory or theoretical struggles. On the contrary, her plea for investigating our real problems, was simultaneously a plea for a richer theory, a theory with a body to it, one which is all the more powerful because it has been used for investigating real problems facing economies like ours.’

From her work on economic theory and its applications to the Indian economy, what becomes clear is her philosophy that economic theory should be based on concepts which can be observed and be amenable to measurement in reality. This is one of the reasons why she criticised the demand and supply theories; for, values were determined by subjective utilities. Another quality worth mentioning is her firm belief that economic theories are not mere intellectual constructs; rather, they arise out of a particular socio-historical situation, often to promote a certain ideology. In her R C Dutt Lecture, which was later published as a book in 1986, she makes it clear that the emergence of demand and supply theories were primarily a reaction against Ricardo and Marx. For, in both Ricardo and Marx, a conflict of interest is visible between social classes. In order to promote the ‘idea’ of a just and harmonius system, the theories (especially the labour theory of value) of Ricardo and Marx were criticised as being limited, and an alternative was proposed. This new theory completely did away with social classes. Individuals were chosen as the primary unit of analysis. Social classes, actually was modified into ‘factors of production’. A very interesting and important methodological shift, with powerful political implications! All the factors of production were assigned equal importance, and it was also shown how both labour and capital recieved incomes according to their contribution to the production process. That is, a capitalist system, with free mobility of labour and capital and with clear property rights (contracts), is essentially a just and stable system.

To conclude, the following are the reasons why Krishna Bharadwaj is an ideal economist. (1) She had an in-depth understanding of the various theoretical approaches in economics, be it, Marxian, Classical, Neoclassical, Austrian or Keynesian. (2) She did not blindly apply these theories (mainly Classical and Marxian) to understand the Indian economy; instead, her inquiry was based on extensive empirical observations, which made the theory richer. (3) She considered it very necessary to understand the history of economic theory, especially because of the historical specificity of all theories. Also because, most theories are responses to certain socio-political events or interests. (4) Lastly, she applied all her experience in setting up a new centre, which paid close attention to both economic theory and its application to the Indian economy, in close connection with other disciplines.

References

Bhaduri, Amit (1992), Krishna Bharadwaj, Economic and Political Weekly, Vol. 27, No. 10/11 (Mar. 7-14, 1992), p. 490.

Bharadwaj, Krishna (1963), ‘Value Through Exogenous Distribution’, The Economic Weekly, August 1964.

Bharadwaj, Krishna (1986), Classical Political Economy and the Rise to Dominance of Supply and Demand Theories, Calcutta: Universities Press.

Harcourt, G C (1993-94), ‘Krishna Bharadwaj, August 21, 1935 – March 8, 1992: A Memoir’, Journal of Post Keynesian Economics, Vol. 16, No. 2 (Winter, 1993-1994), pp. 299-311.

Patnaik, Utsa (1991), ‘Krishna Bharadwaj: 21 August 1935 – 8 March 1992,’ Social Scientist, Vol. 19, No. 12. (Dec., 1991), pp. 63-67.

Patnaik, Prabhat (1996), Foreword, in Time as a Metaphor of History: Early India, by Romila Thapar, The Krishna Bharadwaj Memorial Lecture, New Delhi: Oxford University Press.

Roncaglia, Alessandro (1993), ‘Krishna Bharadwaj, 1935-1992. In Memoriam’, Metroeconomica, Vol. 44, No. 3, pp. 187-194.