For too long radical political economy has suffered for lack of a coherent alternative to formal Marxian economic theory. For too long those dis-enamored with the economics of competition and greed have had only two choices: (1) Continue to use a formal model based on the labor theory of value as Marx developed it in Capital – to justify one’s opposition to capitalism. Or (2) abandon the Marxian framework as outmoded – and risk losing a rationale for rejecting capitalism as fundamentally flawed. This book is dedicated to providing the next generation fighting against the destructive effects of financialized, neoliberal, global capitalism a third choice: (3) A modern, rigorous, logically sound, and profoundly radical version of Sraffian economics.
Sraffian theory uses concepts and tools familiar and acceptable to economists and philosophers in the twenty-first century. A radical version of Sraffian theory can be every bit as critical of capitalist inequality as Marxism. Sraffian theory suggests no mythical theories of crisis, allowing us to focus on real sources of instability and crisis in capitalist economies. And finally, unlike Marxian theory, the Sraffian framework proves to be well suited to addressing what is arguably already the paramount issue of the twenty-first century – environmental sustainability. However, before beginning it is appropriate to pay homage to Marx, who in all likelihood will forever remain the greatest critic of capitalism.
Prior to Marx nobody understood how much the way we organize our interrelated economic activities affects the way we think and behave. In the hands of some of his disciples lumping the political, cultural, and reproductive spheres of social life into a single “superstructure,” and insisting that the “economic base” always exerts more influence over the superstructure than vice versa, may have become an obstacle to a fuller understanding of how human societies function.1 But to blame the prophet for the sectarian excesses of his disciples is unfair.
Nobody has provided more support to workers’ sense that capitalists rob them of part of what they produce and suppress their abilities to manage and coordinate their own laboring capacities. Even if it proves that we now have better tools and ways to explain how and why the capitalist employment relationship is exploitative than were available to Marx 150 years ago, this does not diminish the magnitude of what he accomplished in this regard: Nobody has provided stronger ideological support for the labor movement and its cause than Marx.
And finally, Marx more than anyone else emphasized that capitalism was merely the latest in a series of flawed, class-divided economic systems that have come and gone throughout history. And like other human creations before it, there is no reason people cannot replace it with a better economic system, a classless economy in which workers and consumers coordinate a rich and productive division of labor among themselves – democratically, fairly, and efficiently.
For all this, and more, we owe Marx an unpayable intellectual debt, and nothing in this book should be interpreted as implying otherwise.
In chapter 1 the Marxian and Sraffian theories of prices are presented and compared. Sraffian theory derives relative prices in capitalism directly from the technologies used to produce different goods and services and whatever hourly wage rate workers are able to win. Marxian theory assumes a subsistence wage rate, derives labor values from technologies, and then transforms labor values into “prices of production.” The chapter argues that not only are labor values unnecessary, i.e. redundant, they also mislead analysts about the process of price formation in capitalism.
In chapter 2 the Marxian and Sraffian theories of profits are presented and compared. Explaining the origin of profits is an important issue in radical political economy. And the fact that neoclassical theory provides no explanation for why “normal profits” will be different from zero in a long-period analysis, much less what actually determines the “normal” rate of profit, is one of its most glaring deficiencies. Marxists explain capitalist profits as the result of the difference between the amount of “value” labor power creates when used in production – the “use-value” of labor power – and the amount of “value” employers must pay for labor power – the “exchange value” of labor power. Sraffians explain profits as the result of employers expropriating part of the surplus of goods produced in a productive economy from those who produced them. The chapter argues that a “fundamental Sraffian theorem” is a more straightforward explanation for the origin of profits than the “fundamental Marxian theorem,” and also avoids a mistaken belief that capitalist profits derive only from the amount of labor they hire, when in fact profits derive from a markup on non-labor as well as labor costs of production.
In chapter 3 the Marxian and Sraffian analyses of technical change are presented and compared. A major flaw in Marxian theory is the prediction that there will be a tendency for the rate of profit to fall as workers are equipped with ever more produced inputs to work with, i.e. that capital deepening, or automation, will lead to crises of profitability. The source of the misconception in Marxian theory is explained, and a logically consistent Sraffian analysis of technical change is presented as an alternative. A bonus to the Sraffian theory of technical change is that it reveals that capitalists cannot be trusted to always adopt more productive technologies and reject less productive technologies – a flaw in capitalism Marxism never identified.
Chapter 4 compares Marxian theories of crises with post-Keynesian, neo-Kaleckian, Minskyan, and structualist theories which share a methodological framework with Sraffian microeconomic theory. The chapter explains why Marxian “tendency for the rate of profit to fall” and “under consumption” theories of crisis mislead people into the false belief that capitalism is plagued by “internal contradictions” and will therefore inexorably dig its own grave, distracting attention from genuine sources of crises other heterodox schools of macroeconomics now focus on.
Chapter 5 explains why the labor theory of value is ill-suited to integrating inputs from the natural environment into our analysis, and shows how Sraffian theory is well suited to this important task. Not only is it easy to integrate rents paid to owners of natural resources into a Sraffian analysis of price and income determination, it turns out that a Sraffian framework facilitates rigorous measurement of environmental throughput and changes in throughput efficiency so that sufficient conditions for environmental sustainability can be derived for a modern, integrated, multi-good economy.
In Chapter 6 Marx’s “Hegelian” critique of capitalism is contrasted with a more straightforward, moral critique of capitalism consistent with both Sraffian theory and modern egalitarian philosophical theories of distributive justice.
The conclusion briefly summarizes the advantages of replacing formal Marxian economic theory – which after 150 years has not surprisingly become outmoded in a number of respects – with a thoroughly radical, modern version of Sraffian economic theory.
1 See Albert et al. (1986) for a critique of historical materialism and a proposal by seven radical authors for how to build upon its strengths while eliminating its weaknesses.