Sraffa's silliness

Suppose we lived in a world where everybody made exactly the same thing- wheat, let us say. Would there be a market for wheat?

Sure. If you have a surplus you go see if any unfortunate had a bad harvest and will be willing to borrow on advantageous terms. The reverse happens if you were unfortunate. 

Markets exist because marketplaces pool information and are Schelling focal for forging or reinforcing trust based relationships.

Piero Sraffa was a bright guy. But, he didn't get why Markets exist. Consequently, his 'Production of commodities' was utterly worthless.

Consider the two fallacies that occur at the very inception of his work.


Would a prudent agent not maintain a reserve of necessities and capital goods? Moreover, the existence of uncertainty would cause speculative demand to arise. If there is no uncertainty, or if people lack prudence and rationality, there would be no market.

There is no unique set of exchange values because where markets exist, contingent contracts involving contingent assets and liabilities- e.g. promises to pay under a certain contingency- also exist. If they don't exist, there isn't really a market- just some conventional folk ritual or coercive mechanism.

The Sonnenschein–Mantel–Debreu theorem tells us that there is no unique equilibrium if there are significant Income or Hedging effects. It is enough that Knightian Uncertainty to obtain for this to always be the case no matter how simple or complex the economy.

Suppose one defines 'exchange value' in terms of labor- then the sort of Economics one would be doing would not apply to our species. We don't know what our subsistence level is. Evolution endows us with phenotypal diversity because our fitness landscape is uncertain.

Sraffa now introduces a third industry. 

Such 'triangular trade' would exist even if there was just one commodity. Me and you make a pact to loan each other wheat under a certain contingency. Sadly, when the monsoon fails, we are both out of luck and so you have to cash in a reinsurance pact with a third party.

It is enough that there is uncertainty as to whether or not a 'surplus' will exist for Markets to exist in even a one commodity economy. However, there will be no unique set of 'exchange values' or prices. Nothing can be said in advance about whether speculator will make a profit or how high that might be. 

There will be 'luxuries' even in a one commodity economy. A successful speculator will have servants. This will occur even if there is no overall 'surplus'. History shows us that people who have invested in social and other networks survive a general dearth. Those who did not have such investments perished or had their longevity and reproductive success reduced.

Sraffa takes a different view. 'Surpluses' endanger Virtue which otherwise magically pre-exists.  It never happens that some people who are well connected are well fed while others who are not reduce their life-span by working on meager rations.

The motivation for production over and above subsistence is to acquire 'hedges'- i.e. the luxury of security or a type of esteem which has cash value in times of adversity. Thus, the existence and price of such 'luxuries' enters into the production function of even the most 'basic' commodity. Common sense tells us that if luxuries disappear, the incentive for harder work ceases to exist. The same is true for 'hedges'. Sraffa appears unaware of this. He speaks of 

a new class of ‘luxury’ products which are not used, whether as instruments of production or as articles of subsistence, in the production of others.

'Luxuries' are used to motivate workers and managers. They are 'instruments of production'- which is why they are a business expense. Furthermore, they serve a hedging and signalling purpose.
Without 'luxuries',  there would be very little economic activity- even in a totalitarian country. The nomenklatura does love its little perks.

Sraffa goes on to make a very foolish claim (similar to the so called Bortkiewicz corollary)

If an invention were to reduce by half the quantity of each of the means of production which are required to produce a unit of a ‘luxury’ commodity of this type, the commodity itself would be halved in price, but there would be no further consequences; the price-relations of the other products and the rate of profits would remain unaffected.

Nonsense! There would be income and substitution effects as well as incentive based supply side effects. The peasants will grow more food if they get cool stuff in exchange. The proles will do overtime to get that big screen TV that's been marked down. Rates of profits may or may not be affected. It depends on what is happening to Risk- that is Uncertainty.

But if such a change occurred in the production of a commodity of the opposite type, which does enter the means of production, all prices would be affected and the rate of profits would be changed.

Not necessarily. If a related type of Uncertainty increases proportionately, there will be no change.

This can be seen if we eliminate from the system the equation representing the production of a ‘luxury’ good. Since by the same act we eliminate an unknown (the price of that good) which only appears in that equation, the remaining equations will still form a determinate system which will be satisfied by the solutions of the larger system.

 The larger system of equations is worthless. It can't describe any actual economy because it encodes absurd assumptions.
Economics only exists because of Uncertainty. If it could be described by a deterministic system of equations then neither Markets nor the Profit motive would exist because everyone would know the future and what everybody else would do. There would be no need for Language or Commerce or Art or Science.

Sraffa's claim is not simply absurd, it is absurd in its modesty. He's just killed off the need for Culture and Communication and Scientific Research. Why prattle on about ostrich eggs or race horses?

On the other hand, if we eliminated one of the other, non-luxury, equations, the number of unknowns would not thereby be diminished since the commodity in question appears among the means of production in the other equations and the system would become indeterminate. What has just been said of the passive role of luxury goods can readily be extended to such ‘luxuries’ as are merely used in their own reproduction, either directly (e.g. racehorses) or indirectly (e.g. ostriches and ostrich-eggs) or merely for the production of other luxuries (e.g. raw silk). The criterion is whether a commodity enters (no matter whether directly or indirectly) into the production of all commodities. Those that do we shall call basic, and those that do not, non- basic products.

Sraffa's world would consist of brainless zombies silently piling up 'basic products'.  That's a good thing coz zombies don't need no entrepreneurs to coordinate their actions. Thus no one would regret the disappearance of the bourgeoisie, whose brains would have been eaten anyway. This is a wonderfully non violent way of achieving the Marxist dream,

Consider a commodity which enters to an unusually large extent into the production of itself. It may be imagined to be some crop such as a species of beans or of corn the wastage on which is so great that for every 100 units sown no more than 100 are reaped. It is clear that this would not admit of a rate of profits higher than, or indeed, since other means of production must be used as well, as high as, 10%.

The profit on it may be negative or it may 1000 per cent. Suppose there is a plant with a less than one to one seed yield (assume seeds go bad). It is vital under a particular contingency, useless otherwise. Entrepreneurs plant a little- just in case. If that contingency materializes, they make a shed load of money. Most often, they take a small loss. Ultimately, the commodity will disappear. However,  ceteris paribus, for speculative reasons its price will increase towards the end of its species life.

If there is no Uncertainty- i.e. everybody knows the future perfectly, then there will be no markets and no profits. All economic actions would be perfectly coordinated without need for any signals- including linguistic ones. We'd wake up knowing exactly what to do and where to go to receive stuff- no questions asked.

If the product in question is a basic one there is no problem; it simply means that the Maximum rate of profits of the system will have to be less than 10%.

Suppose there is a crop with an almost one to one seed yield which is needed in minute amounts in every industry- i.e. its demand is inelastic. Then, if Uncertainty obtains, it must be the case that the Maximum rate of profit is some multiple of variance in supply. If production fluctuates by 10 percent, profits may fluctuate by 100 percent.

Apparently, there is still a small Sraffa industry. This represents a hedge against the possibility that some Gramscian nutjob gains absolute power in which case idiots who indulge in this shite suddenly become powerful and famous.

That's why a diminishing number of idiots write worthless papers responding to worthless papers in this area. How would Sraffa himself have explained this stupidity? I suppose, his answer would be that Sraffa-shite is a 'luxury' not a basic good. No wonder, Indian economists went in for it in between trying to fuck up their own kids' life-chances.

I notice that one such- the late Krishna Bharadway- has a daughter, Sudha Bharadwaj, who gave up American citizenship, and who now works as  a lawyer representing very poor people. She sent her own adopted daughter, also now a lawyer, to Hindi medium. With typical ham-fistedness, the Police are trying to frame Sudha as a 'Naxal' intent on assassinating Modi. Still, the fact remains, very poor people want Modi not yet more Marxian shite.