Neo-Ricardian Theory: With Applications to Some Current Economic Problems

168 Pages·1978·3.803 MB·English

by  Bertil Näslund, Bo Sellstedt (auth.)

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continuation on page 169
Lectu re Notes
in Economics and
Mathematical Systems
Managing Editors: M. Beckmann and H. P. Kunzi
156
Bertil Naslund
Bo Sellstedt
Neo-Ricardian Theory
With Applications to Some Current Economic Problems
Springer-Verlag
Berlin Heidelberg New York 1978
Editorial Board
H. Albach A. V. Balakrishnan M. Beckmann (Managing Editor)
P. Dhrymes J. Green W. Hildenbrand W. Krelle
H. P. Kunzi (Managing Editor) K. Ritter R. Sato H. Schelbert
P. Schonfeld
Managing Editors
Prof. Dr. M. Beckmann Prof. Dr. H. P. Kunzi
Brown University Universitat Zurich
Providence, RI 02912/USA 8090 Zurich/Schweiz
Authors
Bertil Naslund Bo Sellstedt
Stockholm School of Economics Department of Business Administration
Box 6501 Stockholm University
11383 Stockholm/Sweden 10691 Stockholm/Sweden
ISBN-13 :978-3-540-08763-2 e-ISBN-13:978-3-642-46373-0
DOl: 10.1007/978-3-642-46373-0
AMS Subject Classifications (1970): 90A 15
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© by Springer-Verlag Berlin Heidelberg 1978
Printing and binding: Beltz Offsetdruck, Hemsbach/Bergstr.
2142/3140-543210
PREFACE
During the last fifteen years certain very fundamental aspects of
economic theory have been very actively debated. The debate has
often been called the Cambridge controversy, since the main parti
cipants in the debate come from Cambridge, USA and Cambridge, Eng
land.
In this debate certain important foundations of economic theory
have been criticized which are specifically important for understand
ing price formation and income distribution. An important starting
point has been Sraffa's extensions of Ricardo's theory and one has
therefore sometimes called those neo-Ricardians, who have based
themselves on Sraffa's work.
We shall deal with some important issues that have been debated, and
we shall try to describe a rather complete theoretical construction
which will be an alternative to neo-classical theory.
A special problem relates to the title of the book and classification
of authocs to whom we refer. Perhaps post-Keynesian would sometimes
be a better label than neo-Ricardian. We have used the latter name
for the book due to its large emphasis on Sraffa's work.
To understand the main parts of the book only basic algebra and
calculus are necessary.
The book is divided into two parts, where Part I presents the histori
cal development concentrating on Ricardo and Sraffa. The reason for
this is that Sraffa has been of great importance for many aspects of
the above mentioned debate and his work builds, as we have pointed
out, to a large extent on Ricardo. In the rest of Part I we deal
with some major consequences in economics of Sraffa's work and also
some ways, in which his theory can be made more complete.
The theories that we describe in Part I are applied to some current
economic problems and areas of social concern.
IV
The book has been written as we were teaching a doctoral course in
neo-Ricardian economics. We would like to thank the participants in
this course for many valuable discussions.
CONTENTS
PART I THEORY AND DEBATE
CHAPl'ER 1 WHAT IS NEO-RICARDIAN THEORY? 3
CHAPl'ER 2 HISTORY EMPHASIZING RICARDO . 9
2.1 The time before Ricardo 9
2.2 Ricardo 9
2.3 The reaction against Ricardo 21
2.4 Marx' system . 23
2.5 The neo-classical system 26
2.6 The Keynesian revolution 31
2.7 Conclusions 32
CHAPTER 3 THE SRAFFA SYSTEM 33
3.1 Introduction 33
3.2 Production without surplus 34
3.3 Production with a surplus which goes to the
capitalists 36
3.4 Production with a surplus: the Sraffa system 39
3 . 5 The standard product 44
3.6 The Sraffa system: uniqueness 50
3.7 Transformation into labor terms. 54
3.8 Conclusions 56
CHAPl'ER 4 THE CAPITAL CONTROVERSY 59
4.1 Determination of the factor-price curve 59
4.2 The production function and income distribution 64
4.3 The surrogate production function . 65
4.4 Critique of Samuelson's production function' 66
4.5 The importance of the rate of interest 70
4.5.1 One commodity 70
4.5.2 Many commodities . 72
4.6 Conclusions 74
CHAPTER 5 INCOME DISTRIBUTION AND GROWTH 77
5.1 Conditions for long run growth 78
5.2 The neo-·classical view 81
5.3 A combined view 82
5.4 Kaldor 83
5.5 Pasinetti 85
5.6 Samuelson and Modigliani 87
5.7 Kaldor again 90
5.8 Conclusions 92
VI
PART II APPLICATIONS 93
CHAPl'ER 6 APPLICATIONS: AN INTRODUCTION
95
CHAPTER 7 SOME STABILITY PROBLEMS: AN OUTLINE 99
7.1 Introduction 99
7.2 Effects of a wage increase 100
7.3 Effects of a productivity increase 102
7.4 Effects of changes in demand 104
7.5 Sunnnary 106
Appendix A 1Q 7
Appendix B 109
CHAPl'ER 8 WAGE EARNERS' FUNDS. 111
8.1 Some forms of wage earners' fund 112
8.2 Analysis 113
8.3 The valuation ratio 115
8.4 The share of capital owned by the fund 117
8.5 The capitalists' propensity to save 120
8.6 Wage earners' funds and the stockmarket 121
8.7 Conclusions 122
CHAPl'ER 9 TECHNOLOGICAL CHANGE 125
9.1 Introduction 125
9.2 Measurement of technological change: a critique 127
9.3 A growth model: Kaldor and Mirrlees 138
9.4 Summary. 144
CHAPl'ER 10 THE EFFICIENCY OF DIFFERENT ECONOMIC SYSTEMS 145
10.1 "Double switChing" and efficiency 146
10.2 Macroeconomic equilibrium 150
10.3 Convergence or not 153
10.4 Conclusions 155
CHAPTER 11 CONCLUDING REMARKS 157
REFERENCES 161
PART I
THEORY AND DEBATE
CHAPl'ER 1 WHAT IS NEO-RICARDIAN THEORY?
Economic theory deals with systems, economic systems. Economists
therefore meet problems that are common within all analyses of
systems, namely
(a) definition of the boundaries of the system (size)
(b) specification of the structure of the system (depth and
complexity)
With respect to (a) we know that all economic systems are subsystems
of larger systems, e.g. large economic systems or large social and
ecological systems. Furthermore, it is necessary to abstract from
the real system being studied «b) above). How the boundaries of
the system are set and how its structure is specified naturally de
pends upon the problem being studied (e.g. macro or micro) but it
also depends upon the person studying the problem. Persons observing
the same phenomena can represent it with different abstract systems.
The difference may depend upon different purposes and different frames
of reference.
Since the number of problems that a person can study is very large,
a choice is necessary. The problems chosen also depend upon the
person's purpose and frame of reference.
Two types of purposes or goals can often be distinguished, namely
practical and theoretical ones. To take an example: Marx's main
practical purpose was to change the economic structure of society.
His theoretical purpose was "to investigate the capitalistic society,
its economic and social development and its eventual decline and de
struction" (Sommerville, 1972, p. 21). The theoretical purpose was
no doubt of less importance than the practical one.
It is clear that if a practical purpose is stressed then the historical
conditioning in the choice of problem will be important which naturally
is also the case if theoretical purposes are emphasized (it is
difficult to imagine a monetary theory without the existence of a
monetary economy). However, the important difference is that the
specification of the structure of the system will. be different (the
objectives determine the methods).
4
It is probably true that most classical economists emphasize
institutional circumstances (historical conditioning in the sense
mentioned above). In neo-classical theory one has rather tried
to arrive at generalizations which should be true in every type of
exchange economy (the theoretical objective), e.g. institutions
1)
playa much smaller role.
We also have another form of historic conditioning, namely existing
theories, ideas and methods. The development of utility theory
was influenced by Bentham's philosophical ideas and the existence
of calculus and the methods used by Marx depended upon Hegel's philo
sophy.
The choice of problem and the structuring of problems are also
affected by subjective conditioning; emotions, wishes, opinions.
One has a tendency to see what one wants to see.
Two rather different respresentations of a modern economy are
(a) the neo-classical system
(b) the neo-Ricardian system
Between different theoretical systems there might be different
kinds of conflicts. One relates to the relation between the real
system and the theoretical system; e.g. one theoretical system uses
individuals as components while another system uses social classes.
This type of difference can be the result of the historical and
subjective conditioning mentioned above.
Another difference between theoretical systems can be that concepts
which they are using are incompatible. The basic concept in economics
has been "value" in one form or another (see Myrdal, 1972, p. 89).
One has tried to find a more fundamental value than the exchange
value or price; something that can explain price (this does not apply
to modern neo-classical theory based on revealed preference), or
at least serve as a stable measuring rod for e.g. analysis of ex
change value. A theory of value gives inputs, constants, to the
system of equations often used by economists to describe an econo
mic system (see Dobb, 1940, p. 5 ff). The conditions which a theory
1) Sometimes certain neo-classical economists are accused of having
the practical objective of defending existing social conditions
and institutions.