In 2017 we have a better formal framework for analyzing the salient properties of capitalism than the labor theory of value available to Marx in the nineteenth century. It’s time to make use of it!
• Sraffian theory provides a more straightforward and rigorous explanation of price determination in capitalism than does formal Marxian theory using the labor theory of value.
• Sraffian theory explains why profits are the result of depriving those who produce them of some of the goods they produce, without misidentifying one of many inputs capitalists purchase as the sole source of their profits.
• Sraffian theory does not mislead us about the effect of technological change on the rate of profit, and helps us understand why Adam Smith’s second invisible hand is as unreliable as his first: Just as competitive markets cannot be trusted to allocate scarce productive resources efficiently at any point in time when there are externalities, capitalists cannot be trusted to adopt and reject new technologies to raise labor productivity when the rate of profit is positive. In short, unlike Marxian theory, Sraffian theory demonstrates that perhaps the strongest argument in defense of capitalism – that whatever other flaws it may have, capitalism can be relied on to promote dynamic efficiency – turns out to be untrue.
• Sraffian theory demonstrates that Marx’s hypothesis that capital deepening would eventually reduce the rate of profit and lead to a system-ending crisis was a lengthy red herring. Moreover, Sraffian theory is allied with post-Keynesian, neo-Kaleckian, Minskian, and structuralist heterodox macroeconomic schools of thought which provide more rigorous models of crises which are real possibilities, without deceiving us that some “internal contradiction” will inevitably bring capitalism to an end.
• Sraffian theory easily incorporates rents for natural resources into our explanation of price and income determination, and helps us rigorously measure what ecological economists call “environmental throughput” so we can formulate sufficient conditions for environmental sustainability, which do not mislead us into thinking that environmental protection is incompatible with further increases in material living standards.
• Moreover, Sraffian theory does all this using concepts and methodologies that are familiar to economists and the lay public, rather than requiring people to learn a nineteenth-century framework and methodology foreign to all today except Marxists. And as this book demonstrates, Sraffian theory can be presented in a readily accessible way that only requires one to be comfortable with solving two equations in two unknowns.
So why would anyone today persist in any longer using Marxian formal economic theory grounded in the labor theory of value, rather than Sraffian theory instead?
• Marx was, is, and will remain a giant intellectual figure in human history. Like Darwin and Freud, Marx changed our understanding of ourselves forever. Moreover, Marx wrote as much, on as many different subjects as Sraffa wrote little, on a narrow range of topics. So if posed as: Choose Marx or Sraffa – choose a major or a minor intellectual figure – the choice is a no brainer!
• Suppose you are only beginning to suspect that capitalism is not the be-all-and-end-all of economic systems that mainstream economists, mainstream politicians, and the mainstream media would have us believe. Or suppose you have already seen enough damage to feel sure that the capitalist system plays a major role in causing many of our most trenchant problems, and that humanity must surely be capable of organizing our economic affairs in a better way. Why would you reject the greatest critic of capitalism for an economist few have heard of, whose followers shy away from drawing normative conclusions and refuse to cast judgement on capitalism?
But these are false choices. One need not reject Marx in his entirety, nor look to Sraffa for answers to all questions. Precisely because great intellectual figures address many, large issues, it is predictable that they will make mistakes – mistakes that smaller intellectual figures can subsequently correct. And if we make use of new intellectual tools which become available we can sometimes improve upon earlier theories and arguments. What this book proposes is simply that we substitute superior Sraffian treatments of particular subjects in economics for their formal Marxian counterparts which have become outmoded.
However, I am under no illusions that those in search of a useful radical political economy for the twenty-first century will be inclined to do so unless Sraffians explicitly address the moral illegitimacy of the overwhelming majority of income inequality under capitalism, and afford environmental sustainability the attention it clearly demands. A second goal of this book was to show how Sraffian theory can be extended to do both.
The argument is simple: Radical political economy should honor Great Grandfather Marx for the unpayable debt we owe him. But it is past time we should also take advantage of formal modeling improvements pioneered by Uncle Sraffa – all as we continue to show how Sraffian economics can help us address the two great challenges that face us as the twenty-first century unfolds: Climate change and environmental destruction, and the moral outrage of escalating economic inequality.