For those uninitiated with the Cambridge Capital controversies and the internal inconsistency of the neoclassical (or marginalist) theory of distribution, the names Piero Sraffa and Pierangelo Garegnani may be new. However, for those involved in developing an alternative economics perspective, these names form the heart of an alternative theory for the determination of prices, distribution (wages and profits), and output distinct and in opposition to dominant orthodox economics.
One of the most persistent difficulties that economic theory has had is to explain capital and the determination of the general rate of profits in a manner consistent with the theory; in the absence of that, there is little that economics can say about the capitalist economic system. The criticisms of Sraffa and Garegnani hastened a significant shift in the dominant neoclassical theory as the internal inconsistencies in the long-period general equilibrium capital theory were exposed. The abandonment of the long-period capital theoretical models and their replacement with intertemporal equilibrium models (see, for example, Malinvaud, 1953) in which the notion of the uniform rate of profits and the idea of equilibrium -- containing the notion of existence, stability and uniqueness – were abandoned) were also addressed by Professor Garegnani. Finally, if you were ever curious as to why most neoclassical growth models employing a uniform rate of profit condition are conducted in the context of a one commodity (or corn) model it arises from the criticisms levelled by Piero Sraffa and Professor Garegnani.
The project for an alternative economic theory as outlined by Piero Sraffa was threefold:
1) the critique of the neoclassical theory of value and distribution;
2) the revival and recovery of classical and Marxian economic theory;
3) the development of a classical theory of output deriving from the development of a long-period theory of effective demand.
During his life as an economist, Professor Garegnani wrote on all three of these parts of the Sraffian project developing and extending Sraffa’s ideas. Professor Garegnani wrote extensively on the notion of capital in economic theory and the problems with the internal inconsistencies in classical political economy, Marx and neoclassical economic theory on the determination of the general rate of profits. While, the dependence of the value of capital upon changes in distribution affected classical (and Marx) and neoclassical theories significantly, Sraffa (1960) maintained that the classical theory was capable of recovery by the simultaneous determination of the rate of profits and the prices of all commodities.
Perhaps Garegnani is known primarily as a critic of the neoclassical theory of capital and distribution. The Cambridge capital controversies exposed the internal inconsistencies inherent in the neoclassical attempts to determine the general rate of profit when capital is specified both on the production function and as a given endowment of a factor of production as the value of capital used in the production process (see discussions of reverse capital deepening and reswitching; this is not perfect, but will suffice: (http://en.wikipedia.org/..., not perfect by any means but good enough). Rather than Joan Robinson’s (1953) mistaken characterisation of the difficulty as an "aggregation problem," Garegnani clarified that the capital controversy derives from the inability of neoclassical capital theory to define the produced factor of production capital in a manner independent of distribution and to determine the general rate of profits consistently within the demands of the structure of the theory. This problem pervades the theory in various formulations from Walras’s attempt to treat it as heterogeneous capital goods, to the unity formulations of capital in Austrian capital theory where capital is treated as the time in which capital is tied up in the production process and Wicksell and Samuelson’s attempts to treat it as the value of capital (see Garegnani, 1960, 1990).
However, it was Garegnani’s (1970) criticism of Paul Samuelson’s (1962) surrogate production function model that essentially exposed the internal inconsistencies with the capital endowment treated as the value of capital leading to a break-down in marginal productivity theory, essentially confining the analysis to a one-commodity world. Sraffa’s critique as developed by Professor Garegnani hastened the abandonment of comparative statics in capital theoretic models based upon the inverse relationship between wages and the rate of profits deriving from the notion of substitution between value of capital and labour.
Professor Garegnani’s work was not only negative. He advanced the recovery of classical economics from the interpretations of neoclassical economic theory (either as a subset of neoclassical theory or an erroneous pre-cursor) both in his discussions of the material rate of profits in Ricardo and in his understanding of the surplus approach to value and distribution (1982, 1983a, 1984a, 1987, 1990b). Finally, Professor Garegnani (1978, 1979) addressed the development of a theory of output consistent with the classical model. The development of a theory of output in classical economics was halted when Say’s Law was incorporated into classical economic theory by James Mill. Garegnani raised (way before Sargent and Lucas) that Keynes’s theory of effective demand was inconsistent with the neoclassical general equilibrium model to which it had been forcibly wed in the neoclassical synthesis. Instead the theory could be more consistently used to form a theory of output for the surplus approach based upon the writings of the classical economists and Marx. Garegnani (and his students) addressed discussions of economic growth, accumulation and trying to create a long-run theory of effective demand so as to create a theory of output consistent with classical economics.
Having had the opportunity to study under Professor Garegnani and having his input on many economic discussions (including my PhD thesis), I can only express my loss on the death of a brilliant, devoted and dedicated economist. His students, followers and many opponents are indebted to him for his brilliance both as teacher, mentor and critic. For Italian speakers, here are the obituaries that appeared in L’Unita and Il Manifesto: http://www.sinistrainrete.info/...
Pierangelo Garegnani: (Milan, 1930 - Lavagna, 14th October 2011)
Selected Bibliography of Pierangelo Garegnani:
(1960) Il Capitale nelle teorie della distribuzione, Milan: Giuffre’ (the Italian publication of his Cambridge PhD thesis).
(1970). "Heterogeneous Capital, the Production Function and the Theory of Distribution", Review of Economic Studies V. 37, N. 3 (July): 407-436.
(1976) "On a Change in the Notion of Equilibrium in Recent Work on Value", in Essays in Modern Capital Theory (ed. by M. Brown, K. Sato, and P. Zarembka), North Holland. (Reprinted in J. Eatwell and M. Milgate (editors) (1983) Keynes's Economics and the Theory of Value and Distribution, Oxford.)
(1978) "Notes on Consumption, Investment, and Effective Demand, Part I", Cambridge Journal of Economics, V. 2: 335-353.
(1979) "Notes on Consumption, Investment, and Effective Demand, Part II", Cambridge Journal of Economics, V. 2:3: 63-82.
(1982). "On Hollander's Interpretation of Ricardo's Early Theory of Profits", Cambridge Journal of Economics, 6, pp. 65-77.
(1983a). "Ricardo's Early Theory of Profit and its 'Rational Foundation': A Reply to Professor Hollander", Cambridge Journal of Economics, 7, pp. 175-8.
(1983b). "The Classical Theory of Wages and the Role of Demand Schedules in the Determination of Relative Prices", American Economic Review, Papers and Proceedings, 73, pp. 309-13.
(1984). "Value and Distribution in the Classical Economists and Marx", Oxford Economic Papers, V. 36, N. 2 (June): 291-325.
(1984b), ‘On Some Illusory Instances of “Marginal Products”, Metroeconomica
(1987) “Surplus Approach to Value and Distribution” in The New Palgrave Dictionary of Economics, Macmillan.
(1990). "Quantity of Capital", in The New Palgrave: Capital Theory (Ed. by J. Eatwell, M. Milgate, and P. Newman), Macmillan Press.
(1990b). "Sraffa: Classical versus Marginalist Analysis", in Essays on Piero Sraffa: Critical Perspectives on the Revival of Classical Theory (Ed. by K. Bharadwaj and B. Schefold), Unwin-Hyman.
(1997) "Equilibrium in the classical conception and some supposed obstacles to the tendency of market prices toward natural prices" in G. Caravale (ed.) Equilibrium and Economic Theory, London: Routledge.
(2010). "On the Present State of the Capital Controversy", Sraffa's Production of Commodities by Means of Commodities,1960-2010: Critique and Reconstruction of Economic Theory, Roma (2-4 December).
References for pieces mentioned in text:
Arestis, P and M. Sawyer (2000), A Biographical Dictionary of Dissenting Economists, second edition, Edward Elgar Publishers.
Malinvaud, Edmund "Capital Accumulation and the Efficient Allocation of Resources", 1953, Econometrica
Robinson, Joan. 1953. "The Production Function and the Theory of Capital" in Review of Economic Studies. 21, 81-106
Samuelson, Paul (1962), "Parable and Realism in Capital Theory: The surrogate production function", Review of Economic Studies.
Sraffa, Piero (1960) Production of commodities by means of commodities, Cambridge.
Walras, Leon (1874) Elements of Pure Economics, or the theory of social wealth, transl. W. Jaffé), 1874. (1899, 4th ed.; 1926, rev ed., 1954, Engl. transl.)
Wicksell, Knut, Lectures on Political Economy, volume I.
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