Editing Piero Sraffa (section)

=== ''Production of Commodities by Means of Commodities'' ===
The critique of neo-classical price theory based on the relations between cost and quantity produced leads Sraffa to abandon the analysis of partial equilibrium. Since the late 1920s, he began to work on a price theory that takes up the classical concepts of reproducibility, surplus, circularity of production, and freedom of entry.<ref name="Morroni 1998a, p. 212">Morroni (1998a, p. 212)</ref> In his book, ''Production of Commodities by Means of Commodities''',''''' published only in 1960, Sraffa focuses on the analysis of relative prices and income distribution, assuming "no changes in output and ... no changes in the proportions in which different means of production are used ..., so that no question arises as to the variation or constancy of returns".<ref>Sraffa, 1960, pp. v-vi; cf. Panico and Salvadori (1994, pp. 324 ff.)</ref> As in classics, in Sraffa's 1960 book, relative prices are determined by the conditions of production and not on the basis of the functional connection between returns and quantity produced.<ref name="Morroni 1998a, p. 212"/>

Sraffa's ''Production of Commodities by Means of Commodities'' is proposed to perfect classical economics' [[theory of value (economics)|theory of value]] as originally developed by Ricardo and others. He aimed to demonstrate flaws in the mainstream [[neoclassical economics|neoclassical]] [[theory of value (economics)|theory of value]] and develop an alternative analysis.

In this important work, Sraffa analyzes a linear production model in which it is possible to determine the relative price structure and one of the two distributive variables (rate of profit or wage), exogenously given the other and the technology.<ref>Sraffa (1925 in 1986, p. 17).</ref> The value of the capital employed can be known only together with the prices of the goods from which it is made. In essence, Sraffa shows that:

# It is not possible to identify a law that simultaneously determines the wage and the rate of profit because: i) the rate of profit can only be determined by setting the wage (or vice versa); ii) it is impossible to measure capital without also determining prices (including the profit), so it is not possible to calculate the profit based on the value of capital (as its remuneration).
# It cannot be assumed that, as wages increase, labour is replaced by capital, as the value of the capital depends on the duration of the initial investment; considering capitals of different duration, it may well happen that we prefer to replace capital with labour even if wages increase (so-called "return of techniques"); consequently, unemployment cannot be attributed to the increase in wages.

Sraffa's technique of aggregating capital as "dated inputs of labour" led to a debate known as the [[Cambridge capital controversy]].

Sraffa's analytical apparatus was used by some followers for the solution to the Marxian problem of transforming values into prices of production and for the criticism of the Marxian theory of value. Moreover, as highlighted by Pasinetti, Sraffa's analysis overcomes the limits of the input-output system of Wassily Leontief, in particular with regard to the effects of technical change.<ref>Pasinetti (1977)</ref> Pasinetti's approach, based on Sraffa's theory, has recently been developed by Kurz and Salvadori.<ref>Kurz and Salvadori (1997)</ref>

Economists disagree on whether Sraffa's work refutes [[neoclassical economics]]. Many [[post-Keynesian economics|post-Keynesian economists]] use Sraffa's critique as justification for abandoning neoclassical analysis and exploring other models of economic behaviour. Others see his work as compatible with neoclassical economics as developed in modern [[general equilibrium]] models, or as unable to determine a long-period position, just like the [[Léon Walras|Walrasian]] approach.<ref>Fabio D'Orlando (2005). "Will the Classical-type Approach Survive Sraffian Theory?", in ''Journal of Post Keynesian Economics'', 27(4), pp. 633–654</ref> Others still argue that the importance of Sraffa's economics is that it provides a new framing for how we understand capitalist economies that do not fall back on the arguably unrealistic assumptions of neoclassical economics.<ref>{{Cite web |date=2014-04-29 |title=The Sraffian Versus the Marginalist Worldview: A Strong Case For Academic Pluralism |url=https://fixingtheeconomists.wordpress.com/2014/04/29/the-sraffian-versus-the-marginalist-worldview-a-strong-case-for-academic-pluralism/ |access-date=2024-07-04 |website=Fixing the Economists |language=en}}</ref>

Nonetheless, Sraffa's work, particularly his interpretation of Ricardo and his ''Production of Commodities by Means of Commodities'' (1960), is seen as the starting point of the [[neo-Ricardian school]] in the 1960s.<ref>[[Paul A. Samuelson]] ([[The New Palgrave: A Dictionary of Economics|[1987]]] 2008). "Sraffian economics." ''[[The New Palgrave Dictionary of Economics]]'' 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_S000220&q=Sraffian%20economics&topicid=&result_number=2v Abstract.]</ref><ref>*[[John Eatwell]] and Carlo Panico (1987 [2008]). "Sraffa, Piero." ''The [[New Palgrave: A Dictionary of Economics]]'', v. 3, pp.&nbsp;445–52.</ref>