Are there notable socialist economists

Conclusion - the business blog

Mark Twain is credited with saying that history does not repeat itself, but it rhymes. The current economic discussions are increasingly reminiscent of the debates half a century ago: The will to renew goes hand in hand with great confidence in the feasibility of a policy advised by economists. This article tells the story of the harrowing practical failure of a theory in what was then a potent economy. The economists who contributed to this failure were far from being fools. Your story proves an unfortunately timeless realization: intelligence and expertise do not offer reliable protection against ideological delusion and missionary self-overestimation.

Prehistory: A Science of Things

Piero Sraffa is considered by his followers as “one of the outstanding thinkers of all time” (Pier Luigi Porta), as “together with Keynes probably the greatest economist of the 20th century and one of the outstanding figures in European culture of his time” (Alessandro Roncaglia ) and celebrated as “one of the very great political economists of the last century” (Heinrich Bortis) thanks to a work that can be described as “quite unique in the history of economic thought” (Gilles Dostaller). Such veneration of saints would not be complete without a mystification: “Piero Sraffa is a riddle. This noun sums everything up ”(Luigi Pasinetti). Of course, the effect of such an extraordinary man cannot have been small: “After Sraffa, economics is no longer what it was” (Heinz D. Kurz and Neri Salvadori).

A comparable tendency towards hagiography can only be observed among the admirers of Karl Marx and Ludwig von Mises. And it is hardly by chance that benevolent references to Marx's work can be proven for both Sraffa and not a few of his admirers. Many economists in the young 21st century are likely to take note of Sraffa's unlimited boasting with a shake of their heads. Most likely, the majority have not even heard his name.

Piero Sraffa (1898 to 1983) came from Turin and had lived in Cambridge since the second half of the twenties. Similar to Ronald Coase, Sraffa, who did not allow close insights into his work, has published little of his own. A masterpiece was the publication of the collected works of the classic British economist David Ricardo, on which he had worked for more than two decades. Through his youthful studies on Marx and his intensive preoccupation with Ricardo, Sraffa became a supporter of the economic classics. And through his own work he still shapes the perception of this epoch in the history of theory to this day.

Therefore, the school founded by Sraffa in memory of Ricardo is also referred to as “Neoricardianism” and its members as “Neoricardians”. The school's stronghold was in Italy. Your most important representatives in the German-speaking area are Bertram Schefold (Frankfurt) and Heinz D. Kurz (Graz). Sraffa's work has also found supporters in other European countries over the past few decades, but the school found it difficult to cross the Atlantic.

In 1960, Sraffa published a book entitled “Commodity Production Using Commodities”. It is one of the strangest economic works, written by one of the strangest economists. The book, which Sraffa had already started developing more than 30 years earlier, only has around 100 pages and cites Karl Marx, who died in 1883, as the latest source. The mainstream theory that Sraffa seeks to attack with his work is not detailed in his book. There are no institutions, not even a carefully worked out role of the state.

Sraffa-affiliated economist Luigi Pasinetti states that Sraffa "makes no reference to any historical context, he does not mention any kind of" economic agent ". He carefully avoids any assumption about human behavior, market structures, competition, economies of scale. He even evades a specific position on distribution ”. There is once a monetary interest, but Sraffa does not really analyze a monetary economy.

Like traditional economists, Sraffa wants to make statements about long-term economic behavior. But its model is essentially static. And like the classics, it is interested in macroeconomic supply and not in demand. To put it bluntly: The whole thing seems to have completely fallen out of time.

With the help of human labor, inputs are processed into outputs in individual branches of the economy. Assuming a uniform rate of profit in all economic branches, systems of equations arise in Sraffa's model world which show how objectively long-term relative prices of goods are formed for a given technology and inputs of labor and raw materials.

“If a man fell from the moon to earth and noted the amounts of things that are consumed in each factory and the amounts of products that are consumed in all of the factories each year, he would deduce the values ​​at which the goods are sold, when the interest rate is uniform and the production process repeats, ”Sraffa wrote. "In summary, the equations show that the exchange conditions result solely from the production conditions."

In short: Sraffa's economics is, in his own words, a “science of things”, not a science of people. “It's a snapshot of a production system at a specific point in time,” explains Axel Leijonhufvud. “It is able to reproduce, but the quantities don't change; they are kept constant. The allocation of resources is not explained. Instead, the focus is on finding a logical basis for an objective measurement. It is a system for coherent, internally consistent macroeconomic accounting. "

We are primarily interested in the question of the economic policy implications. The answer is: initially nothing follows from the production model. “Sraffa's book is, after all, a perfect example of what some economists think is wrong with economics: Hardly a sentence in the book deals with the real world and it is perfectly obvious that Sraffa is very concerned with practical relevance versus logical Exchange strict, ”wrote Mark Blaug.

This statement is true, even if Sraffa with the subtitle “An Introduction to a Critique of Economic Theory” limits the claim of his book - and a well-planned continuation never came about later.

Nonetheless, Sraffa's book was hailed as an “epochal work” (Maurice Dobb) by well-meaning people, even if predecessors from the middle of the 20th century have been discovered for the nature of his analysis. According to Dostaller, the book was cited in 360 publications in the first 15 years after publication. In the age of Google Scholar, that number may not impress. But under the conditions at that time, when there was no internet and far fewer economists than today, this response can be regarded as very respectable for a purely theoretical work by an outsider who had largely stayed away from current economic debates for decades.

Around a third of the references deal with the question of the relationship between Sraffa and Marx. This not least because, unlike Marx, Sraffa had formulated his production model without the very controversial labor theory of values ​​and the question arose as to whether Sraffa had made Marx obsolete. In the sixties and early seventies this was definitely an issue in intellectual circles in the West as well.

When asked why Sraffa's book received so much attention, Schefold cites two main reasons in a recently published article: Sraffa gave the opportunity to attack the theoretical foundations of the mainstream head-on and he allowed a return of interest in the work of classical economists like Adam Smith and David Ricardo.

Both are true, of course. But there is also a third solid reason: Sraffa's work could be instrumentalized for a certain political direction that was spreading in the political and social environment of the time. “Socialist readers feel that Sraffa's book supports their political beliefs,” stated Joan Robinson.

In terms of economic policy, the question of how production is divided between workers and employers in Sraffa's economy becomes interesting. Here comes the highlight from Cambridge: In stark contrast to mainstream theory, Sraffa arrives at the postulate of a distribution that is completely independent of production! For every production that results from a certain technology, a multitude of combinations can be thought of how production is distributed between the workers and the capitalists. One of the two distribution parameters must be set in this model; the other parameter is determined automatically from this.

In the mainstream, distribution results from production through supply and demand for goods and production factors (capital & labor). In the classical period and in Sraffa, the distribution is determined outside of the model: the classics like Ricardo assumed that the workers receive a kind of subsistence wage and the rest falls to the capitalists as a so-called “surplus”. Sraffa did not do this; In his model, you can choose to specify the wage or the rate of profit. 1)

In this way, Sraffa opens up a second level in addition to the strict logic with which he wants to determine long-term price relationships from the merging of production factors, which he has not worked on himself. “Then we discuss on another level how the quantities, employment and distribution change over time and under the influence of contingent historical factors,” explains Schefold. "This creates the strange contrast for the representatives of other economic schools between the formalism of the neo-Cardian price model and the extensive, mostly verbally expressed economic considerations on accumulation, distribution and employment."

This dichotomy of levels takes on an understanding that could be found between the late 18th century and the first half of the 19th century in the Classical Era: “The distribution of wealth ... depends on the laws and customs of a society. The laws that govern them are what the opinions and feelings of the ruling part of a community make of them, and they are very different in different ages and countries. " (John Stuart Mill).

In practice, the “extensive, mostly verbally expressed economic considerations” were not only economic considerations but also set pieces taken from historical studies, law, political science and sociology, with which verbose, but also without the argumentative rigor of the economic Model, for example, about distribution norms. A knowledgeable economist who looks beyond the narrow subject boundaries can make interesting and instructive investigations on this second level; Mention should be made of Schefold's research program for comparing economic styles (here and here).

But in the smoky student bars of the sixties and seventies, in the offices of union officials, in party headquarters and also in chairs, the second level had an overwhelming charm for completely different reasons: Those who wanted to deal intensively with Sraffa's price model on the first level had to do matrix calculations master. That wasn't given to everyone. Anyone who wanted to give workers a hefty wage increase on the second level with reference to the exploitation that has been lamented since the 19th century only needed the appropriate attitude and willingness to overturn “laws and customs”. You can guess where the asymmetry between the two levels led in practice.

One hope of the Neoricardians was to use the second level “paradigm without characteristics” (Leijonhufvud) to attract followers of other heterodox schools and to mobilize them for the fight against the mainstream. If you look at the current situation, you will see attempts by heterodox schools in 2020 to gather under the umbrella of whatever defined “pluralism”. Experience has shown that such alliances work as long as they are against a common enemy. Building a forward-facing platform together is more difficult.

In assessing the importance of neoricardianism for economic policy, we are of little interest in its theoretical criticism of the mainstream. This may come as a surprise because a great deal of innocent ink has been shed on this subject over the decades. It was Neoricardians who, together with radical Keynesians from Cambridge, fought out the so-called capital controversy with the mainstream in the 1960s.

In it, the critics succeeded in demonstrating theoretical deficits in an older, but still popular version of the mainstream's capital and distribution theory. This undermined the thesis that the distribution of economic output among the production factors capital and labor must be based on clearly defined criteria in the interests of economic efficiency. Above all, the critics wanted to get rid of the idea that wage policy should be geared towards productivity, otherwise there was a risk of unemployment. The object of battle was nothing less than one of the most important bastions of the economic mainstream.

At the time, some critics believed in all seriousness that by winning a purely theoretical debate, like all capitalism, they would have rung the death knell. A witness to the events was the future Nobel Prize winner Amartya Sen, who studied in Cambridge. Sen rejected participation in the controversy, arguing that the fate of capitalism would not depend on whether problems were discovered in a theoretical model.

This statement, for which one did not need the gift of a prophet, but actually only common sense, was received with complete incomprehension by the brave contenders against the mainstream. Of course it came as Sen predicted: the capital controversy is an episode in the history of theory, but capitalism is still alive.

"It takes a model to beat a model." This sentence, so familiar to modern economists, explains why theoretical criticism of the mainstream, however justified, is of little concern to us here. Criticism of the prevailing doctrine has no consequences as long as the critics themselves do not have an attractive model that can also be used in economic policy. Let us therefore look at what Sraffa's adepts did in practice.

To the best of our knowledge, there is only one larger country where Sraffa's ideas temporarily influenced economic policy: Bella Italia.2)

First act: Rome, in the autumn of 1969

The theme of the 10th session of the Association of Italian Economists was “The essence and limits of marginalism”. The topic promised a critique of the economic mainstream that was very widespread at the time and its conviction that wage policy should be oriented towards productivity developments. However, those economists who saw themselves as progressive at the time were not content with criticism alone.

Their intention was to justify a much more aggressive wage policy with an alternative theoretical model. Sraffa's work was suitable for this, because in his model wage policy has, as is well known, a degree of freedom that it cannot have in the mainstream. Proponents of an aggressive wage policy derived from Sraffa's model the call for a kind of organized class struggle, in which unions, in case of doubt, enforce massive wage increases through tough conflicts with employers.

Sraffa seemed to be what a political left was looking for in numerous countries, positioned between moderate social democracy (which claimed what critics believed was a softened version of Keynes) and tough Marxists hoping for revolution. Given Sraffa's political preferences, it was unlikely that he would object to such an appropriation. He didn't either. The “good left” who, with authority, proclaims politically pleasing wisdom for the disadvantaged, without demanding the revolution with all its risks that are difficult to calculate, and who was therefore able to move the masses - at last he seemed to have been found.

A degree of freedom for an expansive policy was promising, especially at a time when many people in different areas of life were striving for more freedom - the sixty-eight revolution had also left its mark on Italy. Breaking constricting chains is a widespread desire, especially in times that are supposedly calling for fundamental change and for a “new way of thinking”.Old, well-tried theories that stand in the way of the strictness of the chains must be refuted, and if that doesn't work, defamed and put away.

That is the case again today, when the ideas of the sixty-eighties are replaced by the idea of ​​a new understanding of the economy and society in the age of climate change. With a view to the current discussion, Stefan Kooths writes: “It is currently en vogue among left economists to locate today's world close to the ideal of a“ neoliberal orthodoxy ”and thus to blame it for all adversity. This caricature goes hand in hand with sweeping blows against everything that is established in economic thinking. "

Supposedly new ideas that should take the place of the established and are often little more than old wine in new bottles can be found quickly. Fifty years ago these were ideas from Sraffa's work, among other things, today there are concepts such as the Modern Monetary Theory (MMT) or the idea that with an interest rate currently below the growth rate of the economy, national debt is almost unlimited and without any distributive effect over the generations feasible away. MMT can be understood, only slightly abbreviated, as a combination of Abba Lerner's idea of ​​“Functional Finance” with Georg Friedrich Knapp's Chartalism. But be careful: The aforementioned Mark Blaug compared economic doctrines that seem to set no limits to politics with “tennis without a net”.

This is how economists played in Italy half a century ago. With the growing political importance of the left and especially of the Italian Communist Party, which, in the course of so-called “Eurocommunism”, strived for independence from Moscow and participation in the government in Rome with bourgeois parties, the field seemed to be in good shape for “progressive” economists. Ezio Tarantelli, who was later murdered by the Red Brigades, wrote:

“The most widely accepted theory of income distribution, at least in Italy, is the one developed by Sraffa ... This theory has given a liberating bath to all those economists who, in my view, rightly believe that the distribution of income between wages and profits is a question of relative power between the two (or more) classes of income, and not a quantity that can be determined on the basis of technology alone. "

Sraffa's supporters on the left were not undisputed. The traditional Marxists, often loyal to Moscow, looked with disgust at the neoricardians, who were oriented towards a left reform policy, because they saw them as traitors to the revolutionary idea. The economist Claudio Napoleoni complained that Sraffa's production model did not take into account the historical dimension of a capitalism that was prone to crises. Marxists who were willing to reform saw the Neoricardians as competitors for power and influence. And finally, there were not a few Keynesians working in Italy - some of the moderate social democratic type, others willing to intervene far-reaching in economic life.

Back then, Sraffa was not only familiar with highly motivated economists who had their hearts on the left. “Sraffa became a national symbol that radical political economists liked to invoke,” write Markus Brunnermeier, Harold James and Jean-Pierre Landau in their book on the euro. "Unions adorned their strike banners with his portraits." The shift to the left even affected parts of the Italian economy. Several major banks published specialist journals in which radical economists could publish. Sraffa, who lived secluded in Cambridge and was too shy to give lectures, had come a long way in the public eye.

The trade unions also got far with their attempts to lead the country into the class struggle. The time seemed propitious because Italy's economy had grown vigorously between 1950 and 1969. Even then, the south suffered from stubborn structural problems, but the industrialized north, with its well-trained workforce, was characterized by numerous competitive companies. The exchange rate between the lira and the D-Mark had been largely stable. The story that was widespread in Germany that Italy only functions as a weak currency country was demonstrably wrong until the early 1970s.

Then the following happened:

Growth rates (%)

Nominal wages real wages labor productivity

1968-1969                6,8                             4,8                             5,9

1970                        19,9                           15,0                             6,2

1971-1972              10,9                             5,6                             3,8

1973-1975              22,7                              7,1                            2,4

The wage policy, which had long been part of the mainstream tradition and did not move far from the development of productivity, got completely out of hand from 1970 onwards. The workers took, as it was said at the time, an extremely heavy "gulp from the wage bottle" - and with the approval of a scientific authority from Cambridge! Numerous regulations on the labor market have also been adopted.

At the same time, the influence of fundamentalist Keynesians ensured a debt-financed expansion of state activity, which was intended to support investment spending. And when the Bretton Woods exchange rate system collapsed in the early 1970s and monetary policy was no longer bound by consideration of the exchange rate, all three areas of macroeconomic policy - monetary policy, fiscal policy, and wage policy - appeared to have degrees of freedom. According to the convictions of the time, this had to have a positive effect on economic growth.

The economists who remained connected to the economic mainstream were pushed into the background, but not all of them gave up their beliefs. Not only in Italy did the now dominant left economists see the mainstream in a serious crisis and the market economy on the verge of collapse. As it goes, the long-laughed but now quickly ascended alleged winners behaved intolerant and hurtful towards the alleged losers. The moderate Keynesian teaching in America, Franco Modigliani (a later Nobel Prize winner), for whom wage increases went far too fast, was described in his Italian homeland as a “true enemy of the working class”; a “moral abyss” separates Modigliani from the true left economists, it was even said. That was more than shabby.

Second act: Rome, March 1976

Euphoria and arrogance are short-lived phenomena. As early as the beginning of 1976, the economy threatened to sink into an ominous spiral of high inflation, a deterioration in the current account and a devaluation of the lira, which encouraged even higher inflation. The oil crisis of 1973 hit the Italian economy as well as the economies of other industrial nations. But no large industrialized country found itself in a situation as difficult as Italy in the mid-1970s.

The rise in the price of oil had only contributed to an inflation process that had been set in motion at home by a combination of strong wage increases and an expansive monetary and wage policy. Economic growth had collapsed; the inflation rate rose from 5 to 17 percent between 1970 and 1975 and was preparing to climb further. At the beginning of the 1980s it was even over 20 percent. In order to prevent real wage losses of the workers it was notorious in 1975 in the course of the scala mobile the nominal wage development linked to the inflation rate. This increased the risk of a wage-price spiral.

In March 1976 the study center of the rising Communist Party of Italy invited to a conference in which not only economists close to the communists took part. Particularly noteworthy at this conference was an intervention by the communist party economist Eugenio Peggio, in which he, following the moderate Keynesian Modigliani, who was also present, criticized the neoricardians' thesis of the degree of freedom in wage policy with a view to international developments: “In general and in the medium term, it is important to realize that the dynamics of unit labor costs are not very different from what is happening in countries with which Italy competes. This condition is necessary to guarantee that Italy can continue to be an open economy without having to make protectionist concessions. "

An internationally closely interlinked economy must keep an eye on the effects on foreign trade relations in its domestic policy. It seemed as if Sraffa's adepts had at least underestimated this knowledge, although it was extensively discussed in the writings of classical economists. An attempt at extensive substitution of imported goods - a strategy that has been tried and tested in emerging countries with varying degrees of success - in connection with protectionism was out of the question, not only for economic reasons. The Communist Party, which has been under the leadership of the charismatic General Secretary Enrico Berlinguer since 1972, sought participation in the government as part of a so-called "historical compromise" and, with regard to Italy's members in NATO and the European Union, had no interest in being an insecure cantonist appear. Therefore she was interested in a commitment to free trade and a market economy.

An Italy in international competition could not, however, increase wage costs significantly on its own without suffering losses in foreign trade. The deterioration in the current account, in turn, led to a devaluation of the lira, which made it more expensive to import goods. The degrees of freedom of national economic policy are limited by foreign trade. In retrospect, Piero Bini wrote that the conference was a setback from the point of view of left-wing economists who advocated a class conflict-oriented wage policy. But it was to get worse for her.

Third act: Pavia, September 1978

In the autumn of 1976 the parliamentary elections had brought the Communist Party strong gains to 34.4 percent. The party now tolerated a minority government of the Christian Democrats and was thus indirectly at the levers of power. Many Neoricardians might view this development as a political triumph. But at the same time their influence waned. Not only was the Communist Party no longer interested in a conflict strategy, the majority of the trade unions also threw overboard the idea of ​​a policy that tried to use illusory degrees of freedom for aggressive wage increases.

Luciano Lama, general secretary of the trade union federation, said: "We have realized that an economic system cannot withstand independent variables ... So we have to be intellectually honest: it was stupid because in an open economy all variables are interdependent."

The empirical unsuitability of Sraffa's strategy of determining the foundations of production and distribution not simultaneously, as is customary in the mainstream theory relentlessly opposed by Sraffa's supporters, but sequentially and independently of one another could not have been more clearly described.

The radical wing was not only ready in the trade unions, but also among economists, to raise the white flag. And so it came to serious disputes at a conference in autumn 1978 in Pavia. Bini reports on a debate with the “character of an ideological confrontation in all fields, which revolved around the question of the legitimation of corporate profits and a market-based capitalism”. This, too, characterizes a well-known phenomenon: economists who run out of arguments on factual issues like to take refuge in discussions on meta-levels.

Or you look for the guilty party for your own failure elsewhere. In the Italian debate, three main evasive strategies were (and in some cases still are) to be observed:

  • Proponents of a policy of sharply increasing public investment complained about the inefficiency of public administration, which made implementation difficult. Behind this hides a more fundamental problem of any endorsement of extensive public investment programs not only in Italy: From the definition of suitable projects to the decision and planning to implementation, it is a long way with many stumbling blocks. The naivety of some proponents of extensive investments in the areas of climate, environment and education is currently part of an unfortunate historical tradition.
  • Foreign countries are to blame. This claim works in many policy areas. With regard to Italy, legend has it that a very sensible policy in the 1970s was killed by the oil crisis and the inflation and recession that followed. This is nonsense. Yes, the oil crisis hit Italy too, but it didn't just hit Italy and elsewhere, for example in Germany, inflation remained significantly lower.
  • The policies of the early 1970s were correct, but they were betrayed by a subsequent austerity policy. This motif can also be found again and again, but here too you shouldn't believe everything that is told. The policy of austerity, if there was one, was a necessary reaction to the previous policy of delimitation.

Fourth act: Italy, in the early eighties

Sraffa's adepts, who were in public discussion, did not recover from the blows they had suffered. Withdrawal movements became recognizable, which will be briefly described using a very committed early fighter. As early as the mid-1970s, Luigi Spaventa had doubts about the suitability of Sraffa's analyzes for economic policy advice. A theory that is primarily interested in the development of long-term relative prices and regards the rest as some kind of epiphenomenon that does not need to be taken care of could not be a suitable point of reference: "I now think that this is a very dangerous view, because it limits economics to a very small sector. "

That was harsh criticism of the second level idea. A fundamental problem can be identified here that goes far beyond the time: the mainstream is often accused of wanting to explain more with its sophisticated, mathematically formulated models than can be meaningfully explained in such a model. This accusation is not always wrong.

But many heterodox schools fall into the opposite extreme and want to explain too many economic relationships outside of strictly formulated economic models. The risk of shipwreck is great, especially if the authority to interpret the “far-reaching, verbally formulated considerations” is taken over by radical politicians or lobbyists in phases of social conflict.

Spaventa also had enough of a strategy of total confrontation of economic doctrines. With a fundamental rejection of mainstream theory based on Sraffa's work, numerous elements “useful and vital” for economic analysis would be “washed away with the bath water,” he complained. With their fixation on Sraffa, the Italian economists of that time cut themselves off from international developments and formed a “lost generation”. That was tough stuff.

Eugen von Böhm-Bawerk's “economic law” formulated before the First World War says: If “social power” opposes the market, it always loses. Is it a mere irony of history, or is it rather an expression of this law, that Sraffa and his successors relentlessly ran against the mainstream marginal productivity theory of distribution, which ties wages to economic criteria - but within a few years a wage policy detached from economic variables in Sraffa's spirit failed precisely for those reasons that can be explained with the help of the hated marginal productivity theory?

Sraffa didn't notice the decline any more. The man Schefold describes as “a very friendly and very affable elderly gentleman who led a simple and withdrawn life in one of the most distinguished Cambridge colleges”, suffered in his later years from a progressive loss of his memory and other serious illnesses, which excluded participation in economic debates. He died in Cambridge in 1983.

His estate, which he bequeathed to Trinity College, contained, to a great surprise, an 8,000-volume library and around 30,000 pages, mostly in a very clean and beautiful handwriting, of unpublished manuscripts, sketches and letters. The economist, who had hardly published anything and was therefore considered lazy to write, had actually been an unusually diligent writer - albeit in secret.

Fifth act: Britain, back in time

After Sraffa failed to reap laurels in economic policy, his supporters were not satisfied with their fight against mainstream theory. Some threw themselves on researching the history of theory, which Sraffa had already dealt intensively with.In this area, they have undeniably left their mark: they have made a committed contribution to the rediscovery of the history of theory since around 1980, which manifested itself in the establishment of national and international interest groups and in the edition of new specialist journals, among other things. 3)

The activity of the Neoricardians was particularly the research of British economists from the Classical Era, associated with names such as Adam Smith, David Ricardo and John Stuart Mill. Here Sraffa had done some outstanding preparatory work with his Ricardo edition. The intense work of the Neoricardians undoubtedly deserves recognition. But this work also served to promote a very own cause, which certainly allows a critical examination.

The British classics have left a far-reaching legacy because they - some more, some less - have embedded their economic thoughts in sociological, moral-philosophical and historical considerations. Therefore, there are several, not necessarily mutually exclusive, ways of approaching the classics. 4) The Neoricardians chose as a focus in the tradition of Sraffa the development of a theory of values ​​and distribution within the framework of a class society, which they understood as the "basis of all the other economic analyzes of the classical authors ...". (Heinz D. Kurz and Neri Salvadori).

This meant that they could refer to the introduction to Ricardo's main work. Above all, however, it opened up the possibility for them to highlight Sraffa as the (only) legitimate heir of the classical period and to vehemently dispute the lines of connection between the classical and the despised mainstream (which is often associated with the term “neoclassical”) that were still worked out in old textbooks. The rediscovery of classical music postulated by the Neoricardians was at least to the same extent an attempt at appropriating classical music.

Sraffa himself had already promoted the theory-historical elevation to the legitimate heir of the Classical period by assigning a theoretical model (the famous Korn model) to his hero in his introduction to the Ricardo Complete Edition, which is explicitly not found in Ricardo's writings, but which is like a natural one The predecessor of a model later developed by Sraffa appears. 5)

This approach, which can be described as ingenious as well as brazen, but also a pointed compression of the work of the classics on the theory of value and distribution, has been clearly criticized by economists who did not succumb to Sraffa's magic. As quoted here, the Nobel Prize winner Sir John Hicks wrote bluntly: "Sraffa ... bit a piece out of Ricardo's shirt, hung it on a flagpole and claims that it was all Ricardo had worn."

What does this mean for economic policy? Whatever the theoretical view of the neo-Cardian research strategy in the history of dogma, the economic policy recipes from Italy in the early 1970s cannot be derived from Ricardo's work. Rather, the opposite is more the case:

  • Ricardo had great sympathy for the workers and he wanted their situation to improve. Since for him investments by companies were essential for economic growth and technical progress, he would not have supported a policy that increases wages very significantly at the expense of corporate profits. Instead, Ricardo advocated promoting savings among workers through the establishment of local banks.
  • An expansive financial policy could not be made with Ricardo; on the contrary, he thought hardly anything was as devastating as national debt, for him it was a “very great evil”. This may surprise modern economists at first, because they think they know the opposite under the name “Ricardian Equivalence”. But that is not true: Ricardo had recognized the theoretical possibility of an equivalence in the financing of government expenditure through taxes or debts, but also immediately wrote that the necessary prerequisites were not met in practice. Ricardo was a supporter of a fiscal minimal state because he also considered any form of taxation to be harmful and therefore only wanted to finance a state that was extremely limited: “Political economy, once you have understood its fundamentals, is only useful when it is urges governments to adopt correct policies of taxation. " He considered the taxation of entrepreneurs' capital to be bad, because it would impair the interests of workers by impairing investment and thus also the demand for labor: “To the extent that a country's capital decreases, so does its production necessarily decline, and therefore if the same people and government expenditures continue to be made with ever decreasing annual production, the people and state resources will dwindle with increasing rapidity, and misery and misery will ensue. " This is not exactly a typical position for leftist economists or politicians.
  • Nor was he up for a loose monetary policy. On the contrary, it was a large increase in the currency in circulation in Great Britain during the Napoleonic Wars that first moved Ricardo to speak out publicly on economic issues.

Ricardian economic policy of the early 19th century and Neo-Ricardian economic policy of the mid to late 20th century do not seem to harmonize at all. You could also say: This is what happens when the liberal legacy of the classics is swept under the rug.


Beyond the history of theory, the exchange between Neoricardians and representatives of other schools of thought, which was still observable in the 1970s and 1980s, gradually faded into the background. The initial hype surrounding Sraffa's book was not permanent. On the other hand, a preoccupation with oneself could increasingly be observed, in which, especially after the opening of the Sraffa archives, there were occasionally tough internal battles over the correct interpretation of the master’s works. And it is no coincidence that these disputes revolved around the question of the extent to which Sraffa was influenced by Marx in his work.

In the eighties, Sraffa's supporters also looked into approaching a kind of “friend and enemy”. In Cambridge, parallel to Sraffa, Keynes students like Joan Robinson tried to establish their own anti-mainstream teaching, which, under the name of post-Keynesianism, used completely different models than Sraffa, but in its criticism of capitalism and its economic policy recommendations not far from the recipes of the Neoricardian was removed. 6)

Ideologically, both camps spoke the same language. In addition, they fought together in the capital controversy against the neoclassical mainstream. Between 1980 and 1990 conferences took place in the north-eastern Italian state of Trieste, at which Post-Keynesians and Neoricardians exchanged ideas in an extremely lively manner, but did not meet theoretically.

For a Keynesian like Hyman Minsky, Sraffa's work was simply irrelevant for the analysis of modern economics and for the design of economic policy: “Modern capitalist economies are intensely financial ... At the parched level of Sraffa, the Keynesian view had that effective demand was financial and monetary variables reflects, no meaning because there is no monetary or financial system at Sraffa. " No solution was found for the so-called “Trieste problem” (the term is historically charged in politics). 7)

The attempt at rapprochement in Trieste could also have been due to the recognition of a not too dynamic further development of the Neo-Cardian doctrine, although work was being done on it: Schefold, for example, in the field of joint production, Pasinetti in the field of growth theory.

Attempts have also been made to flange a monetary sector to the basic model. A special form of a combination with demand politics gave rise to a “Sraffa super multiplier” (SSM). Further contributions could be cited.

Of course, Neo-Cardian writers have also dealt with the disaster of the 1970s. Today models exist in which very high wage increases result in unemployment, even if other reasons than the mainstream are given for this. The pioneer in the left was the economist Stephen Marglin, who was more closely related to Marxism, who wrote in an often discussed essay published in 1984: “I would think that a left program must respect the logic of the economic situation. Productivity doesn't just set physical limits on wages. As long as productivity remains the mainspring of investment, there are economic limits that limit the share of wages. In capitalism, profits are actually the goose that lays the golden eggs ... A leftist program must therefore accept limits on real wages. "

From such a contribution it becomes clear that the old fundamental opposition to the mainstream and the old idea of ​​an economic policy with considerable degrees of freedom cannot be maintained.

In this respect, something has definitely happened. But with his own combination of verbal elegance and polite restraint, Schefold indicates the nonetheless existing problem with the sentence: “It is a strange phenomenon to what extent Sraffa's work and person have remained at the center of the discussions of the neo-Cardian school, although a school education began very quickly after the publication of 'commodity production by means of commodities' and Sraffa had pupils in the formal as well as in the figurative sense, who in turn had a certain charisma ... ”

In view of the obvious difficulties, Schefold has suggested that a solution to the “Trieste problem” should be reconsidered in order to pool the dwindling forces of the Neoricardians and the Postkeynesians.

At the end of the day, the Neoricardians took themselves out of the game early on in terms of economic policy and also fought against the mainstream in their disputes with the mainstream, which undoubtedly also demanded attention from the broader professional world. Spending cuts in higher education have certainly made it difficult for students of today's mostly retired first generation to be appointed to chairs, but the reference to lack of funds and increasing monopoly of chairs by the mainstream would not tell the whole truth.

In 2013 Pier Luigi Porta wrote, visibly annoyed: "Today Piero Sraffa is discussed - predominantly, if not exclusively - by a limited group of his self-appointed acolytes." Most of these “acolytes” would have helped make Sraffa look “out of date and incomprehensible”. Unfortunately, much of the literature is written for the "inner circle" only. “If Sraffa were still alive today, he might say; ‘I'm not a Sraffian, '” said Porta.

At least nowadays anyone interested can get an idea of ​​the work of the master, because for a few years the written estate of Sraffa has been publicly accessible on a website operated by Trinity College in Cambridge. This very praiseworthy initiative was preceded by very strange processes, which recalled the defense of the library against the unduly inquisitive in Umberto Eco's famous medieval novel “The Name of the Rose” - with the fortunate difference, however, that the defenders of Sraffa's writings did not do the unduly inquisitive like those murdered by Eco, but only to handicapped people and, if there were signs of insubordination in the interpretation of the source situation, they were sometimes verbally harsh.

Sraffa had appointed Pierangelo Garegnani as literary executor, who after Sraffa's death had the unexpectedly extensive and largely disorganized material brought to a library. Garegnani then ensured that interested researchers would not have access to the material for an indefinite period of time.

In response to protests, according to Portas, Garegnani indicated that he was responsible for the interpretation of Sraffa's works after an agreement with Sraffa. This gave the obvious impression that any doubters and unbelievers should be kept from studying the sources in order not to be able to cast doubt on Garegnani’s all responsible interpretation of Sraffa.

However, Garegnani did not get on well with his work. Schefold writes: Garegnani had the intention of compiling materials for a supplementary volume on "commodity production by means of commodities", but selection problems entangled with scientific problems and Garegnani's eagerness to advance the theory itself thwarted this. " A written documentation of the agreement with Sraffa mentioned by Garegnani does not seem to exist; On the contrary, Porta quotes passages from Sraffa which speak against the existence of such an agreement.

After ten years, Trinity College, as the owner of the estate against bitter protests by Garegnani, lifted the lock on researchers to have access to the material, even if some restrictions on the use of the material remained. A promised edition of the work for which Heinz D. Kurz was responsible has not yet appeared. With the gratifying opening of the archive to Internet users, which came about at the instigation of the current administrator of the estate, Lord Eatwell, Sraffa has now obtained a public in a different way that he could not have imagined in his day.

Perhaps this will give rise to a detailed biography of this discreet thinker, who was friends with the Italian writer and Communist Party Secretary General Antonio Gramsci in his youth and who for years later regularly exchanged views with the Austrian-born philosopher Ludwig Wittgenstein in Cambridge. Of the two books on Sraffa currently on the market, the author Jean-Pierre Potier was not yet able to use the archive, while Alessandro Roncaglia allegedly did not want to use it.

At the end of this long description, with a view to the current debates, it should be remembered: History does not repeat itself. But it at least threatens to rhyme when modern economists, obviously blind to history, begin to speak again about extremely generous degrees of freedom in economic policy.

Today it is not wage policy, but monetary policy and financial policy, in which (almost) everything seems possible. No one should assume that today's proponents of unrestricted politics are necessarily wiser or theoretically more solid than Piero Sraffa, who, however one judges his teachings today, was without a doubt a very clever and well-read man. While students who were active 50 years ago can be told that they could very well have known better, but perhaps should not have known better, there would no longer be any claim to leniency in the case of recurrence, with a view to today's active generation for serious economic misdirection.

If economics were a playground in a laboratory, no outsider would have to worry about the depreciation of intellectual capital, which historically unsuspecting economists threatens to admit to questionably well-founded economic policy theses as soon as the failure of their conceptions has become obvious. The cost of this individual failure would be negligible to the general public.

But economics is not only used in a laboratory and, contrary to what Sraffa said, it is not a science of things, but a science of and for people. When things go bad, many millions of people bear the costs of misguided economic policy. Meanwhile, the academic cursors of the disaster with full pension entitlement sit in their state-funded chairs, where they can spend their time with verbose and inconsequential explanations as to why they were actually right, even though they were obviously wrong. Until repetita still placent.

  1. Based on a reference in Sraffa's book, neoricardian models often specify a rate of profit influenced by the central bank interest rate, from which the wage then follows. But that is not mandatory and in politics one proceeded differently.
  2. The description of the events in Acts 1 to 3 is based heavily on a work by Piero Bini. For the role of the Communist Party see Neubert.
  3. Schefold and Kurz have published extensively on this. A selection of Schefold's contributions that go far beyond the classical is here. Among other things, Kurz has published a very interesting collection of essays, mainly on classical music; Books about Ricardo that he has edited are also highly recommended (here and here).
  4. In an article for the new edition of a book written by Joachim Starbatty about classical music, Heinz Rieter described seven approaches, not all of which were mutually exclusive.
  5. Perhaps the grain model correctly reflects Ricardo's thinking, at least at the time of the “Essay on Profits” published in 1815, and perhaps Sraffa is right when he writes that the model could be found in letters and manuscripts that have not survived. Ricardo's students also used the grain model. But anyone who insists on the correct use of sources as a scientific principle must clearly state: The grain model is not found in Ricardo's writings at hand!
  6. Just as Sraffa admirers helped install devastating economic policies in Italy, so Robinson & Co. had helped install devastating economic policies in Britain in the 1960s and 1970s. No other major industrialized country got through these years as badly as Great Britain and Italy. This article should therefore also have been based on the example of Robinson / Kaldor / Kahn in Great Britain 8) can be written in Italy instead of Sraffa & students. This makes the warning against a renewed delimitation of economic policy in our time all the more urgent.
  7. Jens Reich has well summarized what is lacking.
  8. The British example can also be used to describe how far the economic policy concepts diverged between classic economists and Cambridge.
Keywords: Antonio Gramsci, workers, labor theory, exploitation, Bertram Schefold, Cambridge, David Ricardo, Enrico Berlinguer, financial policy, monetary policy, marginal productivity theory, Heinz D. Kurz, Italy, Joan Robinson, capitalists, capital controversy, Karl Marx, wage policy, wage share, Ludwig Wittgenstein, Mark Blaug, Markus Brunnermeier, Neoricardianism, Piero Sraffa, production prices, rate of profit, Scala mobile, Triest problem, Trinity College, distribution theory
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When economists are wrong

From Gerald Braunberger

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