Monthly Archives: May 2012

Piero Sraffa’s Non-Economics: An Introduction

In its break from political economy, economics as a discipline was able to make use of the most sophisticated mathematical techniques of its time. However, in adopting this form (doubtless to achieve the status of a science), it has come under fire for its tactic of applying an effectively closed system of mathematical relations to a set of market phenomena which, as contemporary microeconomists show, is growing ever more comprehensive. This in itself would not be a problem if this did not run the risk of distorting its objects: economics is lambasted for many of its heuristic presuppositions (and ‘metaphysical’ concepts such as utility) which appear blatantly untrue in practice, but nonetheless work well in making sense of empirical data. Milton Friedman famously declared that as long as a methodology works, it does not matter whether its presuppositions are correct, but to those who remain unsatisfied by this claim, the question arises of why the theorems of economics, despite their deficiencies, work as well as they do—whether it may be possible, by means of a new perspective, to gain an almost meta-economic view by way of starting from the phenomena themselves and only from there building a theoretical edifice.

The first steps toward an answer may be found in the economic theories of a man who not only convinced Ludwig Wittgenstein to change the views propounded in his Tractatus Logico-Philosophicus but who also provided the pens and paper (not to mention much of the reading material) with which Antonio Gramsci wrote his Prison Notebooks—namely, an economic methodology which does not require marginalist concepts of supply, demand, equilibrium, or capital. The initial part of this essay aims to outline in brief the life and work of Piero Sraffa (1898-1983), to unravel some of the theoretical implications of his work for the research programme of marginalist economics, and to portray in a new manner the import of his research programme: as a Non-Economics.

 1.    Sraffa

“Mr. Piero Sraffa, from whom nothing is hid…” ~John Maynard Keynes[1]

Sraffa was born in Turin in 1898, his father an influential Professor of commercial law and his mother a highly cultured woman from a distinguished family. He was given a liberal education, being taught French, English, and German by his mother, in addition to his first language of Italian. He was characterized, in a polemical paper by his friend Gramsci, as having a “democratic-liberal intellectual background, that is to say, normative and Kantian, non-Marxist and non-dialectical” (Potier, 3-4), though this account cannot be accepted without reservations; the intellectual milieu of his day was “dominated by ‘neo-idealism’ or neo-Hegelianism, represented by the thinking of Benedetto Croce (1866-1952) and Giovanni Gentile (1875-1944)” (ibid, 3). He went on to study Law at Turin University, near the latter portion in his studies (1919) striking a friendship with Antonio Gramsci, who studied linguistics at the same university, which would continue until the latter’s death (ibid, 5). Shortly after this meeting, Sraffa joined the editorial team of the journal L’Ordine Nuovo and had friendly relations with the main journalists.

During the same period, Sraffa worked on his doctoral thesis on inflation in Italy since the first World War, a text which “reveals a profound knowledge of the literature on monetary and banking problems; not only the Italian…but also the English and American…and Swedish literature” (ibid, 6). The research for Sraffa’s thesis eventually led to a polemic against the banking practices of his time, then under the fascist policies of Mussolini. This rather “salty” essay (as described by the Italian committee which later awarded Sraffa the status of professor) enraged Mussolini, who demanded a retraction, which was not given because, Sraffa told his father, the paper was based on verifiable facts. Sraffa is also known to have debated via an exchange of letters with Gramsci at that time in matters of politics, one exchange being published in L’Ordine Nuovo. Sraffa’s trenchant criticism was not only directed at the fascist government of his day, however, but also at the methodological orthodoxy beginning to pervade economics departments throughout Italian universities; this culminated in an essay entitled “On The Relation Between Cost and Quantity Produced,” revealing several flaws in the work of Alfred Marshall, at that time the paragon of mainstream economics.

Jean-Pierre Potier (13-14) provides a summary of this essay[2] (which was to earn Sraffa a full professorship at the University of Cagliari in Sardinia) that is fairly lucid even to the layperson in economics:

Between 1924 and spring 1925, Sraffa worked on a major essay that attacked the foundations of the orthodox analysis of the great English neo-classical theorist, Alfred Marshall…. Sraffa examined the law of non-proportional returns in Marshall’s model of static partial equilibrium, which established a symmetry between relations of demand and supply as regards the value of commodities. Previously, classical economists had given prominence to two separate laws of returns. The law of increasing returns was created by Adam Smith and associated with the process of the division of labour in industry―a problem of dynamics, in the category of ‘production’. The law of diminishing returns, on the contrary, set forth by Turgot, then by David Ricardo in connection with the problem of agricultural rent, is also a problem of dynamics, but in the category of ‘distribution’. Marshall tried to combine these two orientations in a single law of non-proportional returns, to set up his theory of prices. This law can be represented by a U-shaped curve, connecting average cost and output. The situation of a firm is studied, independently of that of other firms, in a framework of free competition. In this model, the normal case is that of diminishing returns (or increasing costs).

Sraffa foregrounded how Marshall’s explanation concerning the exceptional existence of increasing returns (diminishing costs) evolved ‘internal economies’ followed by ‘external economies’ of the firm. He nevertheless developed his attack to focus criticism on the problem of diminishing returns. In Marshall’s theory, the supply curve of a firm is independent of the supply curve of other firms and moving from the firm to the industry, the aggregate means a simple transposition. According to Sraffa, this analysis is unacceptable, because it does not take the interdependences into account: the conditions of production of a firm necessarily have an effect on those of its competitors. After having shown the incompatibility between the case of diminishing returns and the conditions of particular equilibrium, Sraffa concludes by considering, for the particular industry, ‘the case of constant costs as being normal, rather than that of increasing or diminishing costs’, in keeping with the opinion of Ricardo. This situation is, to his mind, the only one compatible with the equilibrium of free competition, or at least a ‘first approximation of reality’.

Sraffa was later invited by Keynes to write a summary of this essay in the Economic Journal―a prestigious opportunity granted due to the quality of an English version of his paper on the Italian banking crisis published several years before―which he entitled “The Law of Returns Under Competitive Conditions.” It is worth noting that Arthur Pigou was willing to reconsider his whole position in the light of this paper (Potier, 17). In addition to his summary, Sraffa attempts in his paper to “reformulate and rehabilitate” the concept of ‘surplus’—first developed by William Petty in the 17th century—and the notion of the economy as a circular process, first introduced by the physiocrat François Quesnay in the 18th century (Roncaglia, 31-2).

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Lyotard on the Merchantilism of the Gold Standard

[Lyotard initially quotes the following letter from Colbert to Louis XIVwhich he takes as representative of the ‘merchantilism’ of the gold standard (Libidinal Economy, pp. 188-9). Paragraph breaks have been added.]

…The good state of Your Majesty’s finances and the augmentation of his revenues consists in increasing by all available means the amount of silver converted into money which is continually circulating in the realm, and in keeping in the provinces the exact proportion of this money that they require…augmenting the silver in public commerce by drawing it from the countries from whence it comes, retaining it within the realm by preventing it from leaving, and by giving men the means to draw a profit from it.

Since the greatness and strength of the State and the Magnificence of the King are composed from these three points, the expenditures for which great revenues provide the opportunity render State and King all the greater, because they deplete the revenues of all neighbouring States at the same time. In view of the fact of having just one constant quantity of silver circulating in all Europe, augmented from time to time by that which comes from the West Indies, it is certain and demonstrable that if there are only 150 million pounds of silver in public circulation, one can only succeed in augmenting it by 20, 30, and 50 millions at the same time as one removes the same quantity from neighbouring States….

I entreat Your Majesty to permit me to tell him that since he took on the administration of finances, he has undertaken a war of silver against all the States of Europe. He has already conquered Spain, Germany, Italy, and England, which he has thrown into very great poverty and destitution, and has grown rich from their spoils, which have given him the means to perform such great things as he has done in the past and still does every day. Only Holland still remains fighting with great forces: her northern trade…and that in the East Indies…that in the Levant…that in the West Indies…her factories, her trade in Cadiz, Guinea and an infinity of others in which all her strength consists and resides. Your Majesty has formed companies which, like armies, attack them on all fronts….

The factories, the canal for the transnavigation of seas and so many other new developments as Your Majesty has created, are so many reserve corps which Your Majesty created and drew out of nothing in order better to perform their duty in this war…. The sensible fruit of the success of all these things would be that by drawing, by means of trade, a very great quantity of silver into his realm, not only would he soon manage to reestablish those proportions which must exist between the silver in currency in trade, and the taxations which are paid by the people, but he could even augment each of them, in such a way that his revenues would increase and he would put his peoples in a powerful position to assist him more considerably in the event of war or some other necessity….

[Lyotard later comments (pp. 191-2):]

“[T]he quantity of metallic money which is ‘circulating in all Europe’ being constant, and this gold being wealth itself, in order that the king grow richer he must seize the maximum of this gold. This is to condemn the partner to die, in the long or short term. It is to count the time of trade not up to infinity, but by limiting it to the moment when all the gold in Europe is in Versailles. And it is to identify gold with the traditional form of wealth, which the earth. To draw gold into the frontiers of the realm is the same thing as to extend the frontiers up to the sources of gold. The earth being round, the conquest must in principle close up on itself, the armies progressing eastward establishing the empire of the world. Locking gold up within the limits of the realm is for Colbert the same operation relativized: it is the earth-gold or the golden earth which must come to complete its movement in the king’s coffers. In the first case, the realm is displaced over the earth, envelops it and becomes its coffer, in the second the gold which was displaced will become incarcerated in the realm.”

 [Later (p. 196) Lyotard also quotes Keynes’ General Theory (Ch. 23, §3):]

‘Never in history’, writes Keynes, ‘was there a method devised of such efficacy for setting each country’s advantage at variance with its neighbours’ as the international gold standard.’

[The moral of the story? The gold standard structures the process of acquiring wealth into a zero-sum game, where one nation’s gain is another nation’s loss. To endorse the gold standard, therefore, is to endorse imperialism, returning to merchantilism. I find it odd that these implications of the gold standard are not talked about (i.e. denounced) by the mainstream, despite the unanimity among orthodox economists that the gold standard is an awful idea.]

New Translation of Living Currency Is Now Available

To my great excitement, Jordan Levinson has just posted an independent translation of Pierre Klossowski’s Living Currency (La Monnaie Vivante) on his website, available for perusal and download.

To those who have not read my recent (p)review of the text, Living Currency has been praised by Foucault as “the greatest book of our times” and is purported to provide the missing link from Bataille to Baudrillard and from Lacan to Foucault and Deleuze. It also played a key rôle in Lyotard’s Libidinal Economy, and doubtless (though less explicitly) in Deleuze & Guattari’s Anti-Oedipus.

If anyone is interested but finds Klossowski’s style of writing too abstruse, I intend to engage in a close reading of the text, delineating Klossowski’s thought in more accessible language, in addition to tying it in with other theoretical accounts of political economy (such as those of the authors mentioned above, plus the more contemporary For a New Critique of Political Economy by Bernard Stiegler). Optimally, I hope to figure out the text’s implications for the way we think about the economy & economics in general, and to incorporate these into my honors thesis on the work of Piero Sraffa (which you’ll hear more about in the near future).

(For the record, Levinson’s translation is unaffiliated with the translation by Reena Spaulings which I mention in my review.)