Piero Sraffa - Expensivity

Sraffa’s Early Life and Education

Piero Sraffa (1898–1983) was born in Turin (Torino), Italy. His father was a professor of commercial law and an academic dean. His mother was from a wealthy family.

Sraffa was raised as a practicing Jew but in later life he became an agnostic.

The family moved often, as the father held a succession of academic appoints at the universities of Turin, Milan, and Parma.

When Sraffa was a teenager and a young university student, he was in a position through his father’s connections to make the acquaintance of many aspiring young intellectuals like himself.

One such acquaintance, with whom Sraffa became lifelong friends, was Antonio Gramsci, later the leader of the Italian Communist Party, whose Prison Notebooks on communist theory and practice had then—and continue to have to this day—an outsized influence over the imaginations of leftwing intellectuals around the world.

Another such acquaintance of Sraffa’s was Filippo Turati, an Italian Socialist Party leader.

In 1914, at the age of 16, Sraffa matriculated at the law school of the University of Turin.

Sraffa turned 18 in the summer of 1916 and, after receiving military training, he saw service in the spring of 1917 as an officer with the Military Engineer Corps of Italy’s First Army.

After the Armistice, Sraffa served for the next two years, 1919–1920, as a member of an Italian Royal commission that was set up to investigate war crimes alleged to have been committed by enemy forces on Italian soil during the hostilities.

However, Sraffa’s two years of service on the Royal commission cannot have been too onerous, because he also managed to take his law degree at the University of Turin in 1920.

Sraffa’s dissertation was entitled “Monetary Inflation in Italy During and After the War”—economics being part of the law curriculum in Italy at that time. One of his supervisors was Luigi Einaudi, one of Italy’s foremost economists and later President of the Republic of Italy.

After a brief stint working in the government administration of Milan, Sraffa traveled to the UK in 1921, where he entered the London School of Economics. During a visit to the University of Cambridge, he was introduced to John Maynard Keynes, who took the young foreigner under his wing.

Sraffa’s Career

As a result of his interactions with Keynes, in 1922 Sraffa published a pair of papers in English on the Italian banking system, including one published in the Economic Journal, which Keynes then edited.

Keynes also entrusted Sraffa with editing the Italian translation of his recent book, A Tract on Monetary Reform.

Sraffa’s biographers all say that his acquaintance and collaboration with Keynes was the turning point in his career.

Upon his return to Italy from England in 1922, Sraffa took up his old job in the Milan city government administration.

In the fall of 1922, Benito Mussolini and his Fascist Party took power in Rome. A purge of the intelligentsia followed, which impacted Sraffa personally. His father was beat up by a Fascist gang, while Mussolini himself demanded that Piero Sraffa publicly denounce the work he had published in England on the Italian banking system.

Sraffa refused to comply, though in the end he was allowed to remain in his post. However, his friendship with Gramsci, who was arrested in 1926, made Sraffa’s position in Mussolini’s Italy more and more untenable.

Finally, in 1927, Sraffa left Italy and assumed a teaching position at the University of Cambridge, where he remained for the rest of his life.

During his early years at Cambridge, Sraffa became good friends with the economists Michał Kalecki, Joan Robinson, and Nicholas Kaldor, as well as the philosophers Ludwig Wittgenstein and Frank P. Ramsey.

In the early 1930s, Sraffa was also involved in a famous three-way public controversy with Friedrich A. Hayek and John Maynard Keynes on the theory of prices.

Sraffa’s Ideas

In 1925, Sraffa wrote his pioneering essay, “The Laws of Returns under Competitive Conditions” (see “Selected Works Authored or Co-authored by Sraffa” below), which was published in England the following year.

The subject of this essay was “returns to scale,” on the assumption of perfect competition. The phrase “returns to scale” signifies the way in which income is related to the scale of production.

In particular, Sraffa wished to show that the neo-classical Marshallian understanding of the laws of diminishing and increasing returns on the basis of partial equilibrium was inconsistent and ad hoc.

In his 1926 essay, Sraffa argued as follows:

Under conditions of perfect competition, in the competition for each good the following conditions apply:

The equilibrium price is determined by the intersection of the demand and supply curves.
The demand and supply curves are symmetrical.
As the quantity produced increases, the returns initially increase, but beyond a certain point they decrease.

Sraffa observed that according to classical economic theory, the laws of diminishing and increasing returns derive from different economic principles.

The law of diminishing returns arose from constraints on the productivity of the economy as a whole, as a result of the scarcity of some natural resource, such as arable land. The law of increasing returns, on the other hand, arose from the division of labor and applied to the productivity of individual firms

Sraffa’s insight was that the two laws of returns must be expressions of fundamentally the same underlying principle. Thus, he called for a theory that would unify these two tendencies into one single principle of non-proportional productivity. This idea became the germ of Sraffa’s theory of prices.

Some years later, Sraffa abandoned the neo-classical analysis of prices as deriving from the causal relation between the laws of returns and the quantities produced, in favor of the classical Ricardian theory of prices as arising directly out of the conditions of production.

In his 1960 magnum opus, Production of Commodities by Means of Commodities: Prelude to a Critique of Economic Theory, Sraffa attempted a full-scale rehabilitation of the Ricardian approach to economics, which prioritized production in economic causality.

For this reason, Sraffa is considered to be the “father of neo-Ricardian economics.”

Selected Works Authored or Co-authored by Sraffa

“Sulle relazioni tra costo e quantità prodotta,” Annali di economia, 2: 277–328 [On the Relations Between Cost and Quantity Produced] (1925).

“The Laws of Returns under Competitive Conditions,” Economic Journal, 36: 535–550 (1926).

“Increasing Returns and the Representative Firm,” with D.H. Robertson and G.F. Shove, Economic Journal, 40: 79–116 (1930).

“An Alleged Correction of Ricardo,” with Luigi Einaudi, Quarterly Journal of Economics, 44: 539–545 (1930).

“Dr. Hayek on Money and Capital”, Economic Journal, 42: 42–53 (1932).

“A Rejoinder,” Economic Journal, 42: 249–51 (1932).

“Introduction to David Ricardo,” in Piero Sraffa and M. H. Dobb, eds., The Works and Correspondence of David Ricardo. Cambridge University Press; Volume I: On the Principles of Political Economy and Taxation; pp. xiii–lxii (1951).

“Malthus on Public Works,” Economic Journal, 259: 543–544 (1955).

Production of Commodities by Means of Commodities: Prelude to a Critique of Economic Theory (1960).

Piero Sraffa: The Man and the Scholar: Exploring His Unpublished Papers, edited by Heinz D. Kurz, Luigi Pasinetti, and Neri Salvadori (2008).