Skip to main content

Sraffa and the Confidence Fairy

Sraffa's views on macroeconomic issues are difficult to gather since he didn't directly write on the issue. However, there is some evidence that he believed in the accelerator, that is, the idea that investment is induced demand, depending on variations of the level of income. Franklin Serrano points out the following passage in a paper by Terenzio Cozzi (my translation, so remember that in this case it is true that il traduttore è un traditore):
“In the spring of 1963 or in the fall of 1964, I asked Sraffa why he had chosen to take as a given, not the real wage, but the rate of profit, and had suggested that the level of the latter could be influenced in particular by the monetary rate of interest. He replied that in the past entrepreneurs, in deciding how much to invest, were strongly influenced by the general state of economy and how the level of activity evolved in recent periods. At the first sign of a decline in production levels, they decided to stop investing. Now, however – we are in 63 or 64 – the entrepreneurs expect that the authorities will still be able to adjust the performance of the system back to its normal growth path. Even bankers think in this way. That's why the interest rate is an indicator of the normal rate of profit. And that's also why the fluctuations of the past are no more, and economic growth is stabler.” Terenzio Cozzi (1986), “Un teoria con un grado di libertà,” in Riccardo Bellofiore (a cura di) Tra teoria economica e grande cultura europea: Piero Sraffa, Franco Angeli, Milano, p. 208.
In the original:
“Nella primavera del 1963 o nell' autunno del 1964, ho chiesto a Sraffa come mai egli avesso preferito assumere come dato, non il tasso di salario, ma il tasso di profitto e avesse sostenoto que che il livello de quest'ultimo poteva essere influenziato in particolare dai livelli dei tassi dell' interesse monetario. Mi rispose che nel passato gli imprenditori , nel decidere quanto investire, erano fortemente influenziati dall' andamento generali dell' economia e da come si erano manifestati questi andamenti nei periodi ricenti. Al primo accenno di caduta di livelli produttivi, decidevano bloccare gli investimenti. Attualmente invece - siamo nel 63' o 64' - essi si aspettano che la autorità saranno comunque in grado di regolare l' andamento del sistema riportandolo in condizioni di crescita normale. Si aspettano, quindi, che la redditività dei loro investimenti tornerà rapidamente al livello normale. Anche i banchieri ragionano in questo modo. Ecco perché i tassi di interesse rappresentano un indicatori del tasso di profitto normale. Ed ecco perché questo non ha piu' le oscillazioni del passato, e cosi la crescita del sistema è piu' stabile.”
No doubt that Sraffa didn't believe in confidence fairies.

Comments

Popular posts from this blog

What is the 'Classical Dichotomy'?

A few brief comments on Brexit and the postmortem of the European Union

Another end of the world is possible
There will be a lot of postmortems for the European Union (EU) after Brexit. Many will suggest that this was a victory against the neoliberal policies of the European Union. See, for example, the first three paragraphs of Paul Mason's column here. And it is true, large contingents of working class people, that have suffered with 'free-market' economics, voted for leaving the union. The union, rightly or wrongly, has been seen as undemocratic and responsible for the economics woes of Europe.

The problem is that while it is true that the EU leaders have been part of the problem and have pursued the neoliberal policies within the framework of the union, sometimes with treaties like the Fiscal Compact, it is far from clear that Brexit and the possible demise of the union, if the fever spreads to France, Germany and other countries with their populations demanding their own referenda, will lead to the abandonment of neoliberal policies. Aust…

A brief note on Venezuela and the turn to the right in Latin America

So besides the coup in Brazil (which was all but confirmed by the last revelations, if you had any doubts), and the electoral victory of Macri in Argentina, the crisis in Venezuela is reaching a critical level, and it would not be surprising if the Maduro administration is recalled, even though right now the referendum is not scheduled yet.

The economy in Venezuela has collapsed (GDP has fallen by about 14% or so in the last two years), inflation has accelerated (to three digit levels; 450% or so according to the IMF), there are shortages of essential goods, recurrent energy blackouts, and all of these aggravated by persistent violence. Contrary to what the press suggests, these events are not new or specific to left of center governments. Similar events occurred in the late 1980s, in the infamous Caracazo, when the fall in oil prices caused an external crisis, inflation, and food shortages, which eventually, after the announcement of a neoliberal economic package that included the i…