sabato 24 marzo 2012

Un importante dibattito fra economisti eterodossi

Domattina (25) volo di ritorno. Una esperienza molto importante qui in Argentina. Tre fatti molto positivi: 1) un governo progressista che è arrivato al punto di approvare una legge per cui la Banca Centrale annovera ora fr gli obiettivi quello della occupazione e dello svuluppo. Approfondiremo. Abbiamo cenato con la Governatrice, una donna stupenda e intelligentissima: sembrava di parlare con uno di noi (si è solo distanziato Lance Taylor che si crede un dio, ma lasciamo stare). Approfondiremo nei prossimi giorni, magari con l'aiuto di qualcuno di voi (vedi intanto qui). 2) gli studenti nelle università, col supporto di alcuni docenti, si battono per la riforma dei corsi di economia in direzione non ortodossa. Particolarmente bella è stata l'iniziativa venerdì mattina alla facoltà di economia dell'Università di BA (circa 7 mila iscritti). Una grande aula strapiena (non c'è solo Barnard e l'MMT!) e motivata, molte domande specie sull'Europa. 3) devo dire che non tutti i 9 "papi" invitati erano secondo me all'altezza (ma ho avuto l'occasione di discussione serrate con alcuni di loro, in particolare con Shaikh e Lavoie, i più interessanti). Per ciò che mi riguarda il momento culminate del convegno dei giorni precedenti è stato il dibattitocon Lavoie (il primo con la giacca davanti nella foto con gli studenti della UBA), un importante e intelligente collega dell'Università di Ottawa. Più sotto trovate il resoconto di Matias Vernengo, noto economista post-keyensiano (fondamentalmente Sraffiano) che, grande Cristina Kirchener!, è ora a capo della ricerca alla Banca Centrale. Credo che la discussione sia un notevole passo in avanti nella economia eterodossa.
Ora a Plaza de Majo con las abuelas, y las madres y los hichos de los desaparecidos! (oggi è l'anniversario del colpo di stato del 1976, una dittatura che qui mi dicono è stata più sanguinosa di quella di Pinochet, seguita poi dal peggior neo-liberismo).

Sraffian economics vs. Post Keynesian methodology

di Matias Vernengo
A very nice debate on the nature of heterodox economics took place yesterday in a heterodox conference in Buenos Aires. Sergio Cesaratto and Marc Lavoie (depicted above during the interval) presented alternative views which, in spite of some important differences, agreed that Sraffian economics is part of the broadly defined heterodox Keynesian camp (or Post Keynesian if one prefers the term). The question of the relation of Sraffians, and more broadly all of those that believe in the importance of the old classical political economy school (from Petty to Marx, including Quesnay, Smith and Ricardo), with non neoclassical Keynesians, that is, those that believe that unemployment does not result from some rigidity or imperfection (be that of the price, wage or interest rate), has been difficult to say the least.

Marc presented first. A version of the paper is here. Taking aside obvious confusions, and sloppy scholarship of the type that suggests that Sraffians accept Say’s Law, because in the determination of normal prices quantities are taken as given (the fact that those quantities are determined by demand in accumulation theory is, apparently, not understood by these critics), the main line of critique of Sraffians comes from what Marc refers to as Post Keynesian methodologists. For him, “the influence of methodologists ... felt through the study group around Tony Lawson at Cambridge ... that [argues that] proper economics should be based on critical or transcendental realism and ‘open’ systems” and that has led to an “‘open systems’ criterion to judge whether a model can be given a post-Keynesian stamp of approval” (Lavoie, pp. 6-7).

Marc correctly dismisses this supposition that from a methodological point of view the Sraffian approach is limited to closed models. As he clearly notes the Sraffian price equations require that one distributive variable (real wages or rate of profits) are determined exogenously outside of the system by historical and institutional circumstances, which by definition makes it an open system, that is, one in which there is an exchange with its environment. Marc, in fact, suggests that the strong case for a Sraffian-Keynesian interaction is based on the fact that the determination of the rate of profit by the exogenous short term rate of interest set by the central bank provides an obvious link to Post Keynesian endogenous money literature (Pivetti and Panico’s work in that area, among others, shows that Sraffians do have a lot to say about money too, by the way).

Marc notes that the main reason, however, why Post Keynesians reject the Sraffian approach is there is “little enthusiasm for any notion of long-period ‘prices of production’ as centers of gravity towards which short-period or market prices are supposed to tend” (p. 14). However, as Marc suggests there is little difference between prices of production and full cost pricing. Full cost pricing, in my view, should be connected to the Oxford Economists Research Group (particularly P.W.S. Andrews, a tradition that through Andrews’s disciple Wynne Godley influenced Cambridge Keynesians). In other words, I see full cost pricing as equivalent to the normal prices in Sraffa, both being determined by a mark up, which represents the social conflicts that allow one class to subtract surplus from another, over costs, which are determined by the technical conditions of production.

My main disagreement with Marc’s exposition, then, is related to his argument that “if one wishes to connect Sraffian economics with the other strands of post-Keynesian economics, one needs to examine production prices in a different light, not as long-run or long-period centers of gravity to which market prices tend” (p. 15). This is also complicated by the incorrect notion that gravitation requires the use of marginalist principles in order to obtain that market prices converge to normal long term prices, which is not the case [I’ll leave the details of that for another post though]. It seems to me that Marc believes somehow that full cost prices are somehow not fully adjusted prices, and that firms do not use their normal costs rather than their short run costs when computing prices.

Sergio counter presentation (not available, but you can check some of his extensive publications here), was narrower in scope, and dealt with the difference between certain Post Keynesian growth models (in particular the so-called Neo Kaleckian school) and Sraffians (he also distinguished among certain Sraffian groups). I should note that Cesaratto agreed with Marc in his rejection of the critique of the so-called Post Keynesian methodologists, and suggested that their lack of understanding of the capital debates and its consequences, reduces the significance of their views. He correctly points out that the capital debates produced the only occasion that forced neoclassical economics to openly recognize its flaws, and, I would add, led to a significant change in the way they do economics, forcing the change in the notion of equilibrium and the development of disaggregated intertemporal short term models (i.e. without a uniform rate of profit, something first noted by Piero Garegnani).

Sergio notes that when dealing with models of accumulation there are three features that most heterodox groups would want to incorporate in their models, namely: (A) the Classical (or in general exogenously given) income distribution, (B) the Keynesian Hypothesis of an investment rate independent from an exogenously given rate of savings, and (C) normal accumulation paths, with the traditional corollary of a long run normal degree of capacity utilisation. Between these three features one obtains what Sergio refers to as the Magical Accumulation triangle.

Neo Kaleckian (NK) models (some of Marc’s models, particularly in his Foundations of Post Keynesian Economic Analysis are of this type, but not the ones in his book with Wynne Godley) tend to assume A and B, but not C. The absence of the notion of normal (or fully adjusted) positions, as we saw above with regards to prices, is the main difference between the NKs and what Sergio calls the supermultiplier Sraffians (which have A, B and C). The supermultiplier models (which are in a sense Kaldorian, on Kaldor and Sraffa see this paper) implies that long term capacity output (not optimal in the sense of full employment) is determined by the exogenous components of demand, and investment is derived demand (as noted by Sergio the key contribution here is Franklin Serrano’s PhD thesis).

Here it is important to note why long term normal positions are important. It has little to do with a belief that economic systems are stable and tend to optimal levels, since the normal positions are tendencies, and are, generally, below full capacity, and crisis are the norm. Normal positions are important because they show that the regular functioning of capitalist economies does not produce efficient allocation of resources. Without suggesting that those that deny the relevance of long term positions are imperfectionists in the same sense that neoclassical authors that believe that an accumulation path below full employment is due to price, wage or interest rate rigidities, the argument still relies on an inability of capacity to adjust fully to the exogenous growth of the autonomous components of demand. The question then is why would a business not invest enough to keep its capacity growing in line with the growth of its demand? Here, I believe, lies the fundamental difference between classical-Keynesians (or supermultiplier Sraffians) and Neo Kaleckians.

By the way, as I noted before in the blog, the use of the term Kaleckians for the NKs is a bit of a misnomer, since the models derive really from Joan Robinson (and as noted by Sergio, Harrod and Steindl too). In part, I think, for her role in the rejection of normal positions and her views on history versus equilibrium, Sergio suggested that Robinson played a negative role in these debates.

There are several other things to discuss about this topic (the role of Joan Robinson among the important ones), brought about by the interesting, controversial, but very friendly debate between Marc Lavoie and Sergio Cesaratto which I’ll leave for other posts.


  1. You're great. I'm linking it to Cesaratto's facebook. What I didn't understand was the problem of instability under a demand growth model.

    1. The question of instability is not specifically about demand driven models. It is about the convergence of any model to its long term solution. On the Sraffian literature on gravitation I suggest this paper by Bellino and Serrano (

  2. Lot of nice information!

    By the way your first link doesn't take one to the conference website.
  3. Great post. Really does a good job of covering the main issues. have you read semmler's 1984 book on this topic? If so, what did you think of it?

    1. Hi Nathan. Read papers by Willi Semmler on the topic and others that cited his book "Competition, Monopoly, and Differential Profit Rates, New York: Columbia University Press." By the time I was at the New School in the 1990s he had moved to New Keynesian models. So in all fairness, I never read it directly. The general argument is that, if I recall correctly, there is no relation between barriers to entry (the old classical concept of competition being related to the absence of barriers) and profitability, and prices are not affected by monopoly power. In principle, I tend to believe in the centrality of the classical notion of competition.

  4. I'd like to add that, in my opinion, a key feature of Sraffian models is that they're anchored in reality because of their input-output basis; if, for example, one wishes to study the movements of market prices, this can't be done without a basis, rejecting production prices; these prices, thanks to their I-O basis, are an obligatory reference of any serious study of a capitalist economy.
    That was precisely Garegnani's point when commenting on Kregel during the 1st Trieste Summer School back in the 80's (I'm lucky, just read him 2 days ago).
  5. I just have some questions. Why do you say that Neo-Kaleckian models come from Joan Robinson? From which Joan Robinson? From The accumulation of capital? From her last papers? Because basically Rowthorn's paper of 1981 (the first Neo-Kaleckian paper)goes precisely against The accumulation of capital (and Kaldor's 1955 paper). That paper aimed at overthrowing the notion that there was a negative relationship between the real wage and the accumulation rate. In Rowthorn, the relationship is positive, Bhaduri-Marglin attenuate that statement, and what they conclude is that one can expect ANY relationship, depending on the characteristics of the country, and I believe that is something Sraffians might agree with. I understand why Sraffians disagree with the Kaleckian rejection of a normal position (the only Kaleckian thing of this type of models), but I don't understand for instance the rejection by Vianello and Ciccone in the 80's, in which they emphatically reject the positive relation between real wage and accumulation, saying that it is necessarily negative. And that is something I don't think any post-keynesian (including Sraffians) would agree.
    As for the use of a normal or fully adjusted position as a benchmark, I have given up any hopes of an agreement between both sides. It is a matter of "vision" (in the Schumpeterian sense), and when two visions diverge, is difficult that they come to terms. The difference is just how "normal", how persistent in real life, those normal positions are. I think that the most civilized thing to do, given the other many coincidences the two strands have, is just to accept each other terms when engaging in discussions, if the discussion is meant to be constructive.

    1. Rowthorn (1981) is the seminal NK model, and it follows the Joan Robinson of the 1962, Essays in the Theory of Economic Growth, of the famous banana graph model. As correctly pointed by Sergio this models do not contain C. Also, more generally they have an exogenous I (independent of S as in B) that does not follow the accelerator. And that's how you get wage-led versus profit-led outcomes. But as I pointed out in another post the profit-led argument is a unicorn. Why firms are going to invest if there is no increase in demand. Although, these models are referred as Kaleckians they are anti-Kaleckians. Rowthorn's contributions in this area, more than Joan Robinson, have had a terrible effect, confusing and leading to conservative arguments. THeir ideological point with profit-led results was that Social Democracy (i.e. wage-led) was not possible anymore. As far as I know Rowthorn, like Bowles, Gintis and several others in that camp, have moved, not just theoretically, but politically too, to the right.
    2. But in Rowthorn's paper of 1981 there is no profit-led. It is wholly wage-led. That is precisely the critic of Bhaduri-Marglin. In his later papers, Rowthorn may have turned to conservative arguments, I don't know, I haven't read him. But certainly in the 1981 paper, that I read an infinite amount of times, there is no profit led regime. It is not possible to have a profit led regime in his model. Because an increase in the capacity utilization rate not only affects one of the arguments of the investment function; it also increases the profit rate (which in this sense is not independent of demand) adding an additional impulse. This "double counting" of the capacity utilization rate was precisely what B-M criticized, and that's why they separated the components of the profit rate (and the same did Heinz Kurz). They follow Robinson' 1962 even closer: they explicitly say that investment depends on the profit rate, and then they decompose it in the capacity utilization and the profit share, which in their view is independent of demand. And Tracy Mott criticized them for that, in turn. The original Neo-Kaleckian models did not have a profit led regime. Critics tried to incorporate it, or even abolish the wage-led regime, like Dumenil-Levy, Skott and Vianello. I really recommend a reading of the original paper of Rowthorn, in my view it will clarify many thing regarding this issue, notwithstanding what he wrote before and after, which I haven't almost read at all.

  6. Very good post.
    There are many others discrepancias between sraffians and keynesians.
    See, for example (sorry just in Spanish), especially the page#12 table:
    I think this differnce (long run prices as centres of gravitation) comes from the polemic between Garegnanni and Joan Robinson. See Garegnanni´s “Valore e Domanda Effetiva”, 1979,Einaudi Paperbacks.

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