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neo-Ricardian economics

  A school of economics that provides criticisms of, and an alternative to, neo-classical and Marxian economics by drawing upon the ideas of the English classical economist David Ricardo (1772-1823). Although the historical antecedents of neo-Ricardianism include the Russian economist V. Dmitriev and the Prussian statistician L. von Bortkewicz (both writing at the beginning of the twentieth century), it was an Italian economist working at Cambridge University, Piero Sraffa (1898-1983), who established the school in 1960 with the publication of his slim monograph, The production of commodities by means of commodities.

Sraffa\'s model of the economy consists of two components (see figure):

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neo-Ricardian economics

The technical conditions of production are represented by a series of fixed, linear input-output production equations, thereby eliminating the effects of demand. Following the classical economic tradition, Sraffa conceives of production as a circular and interdependent process where the output in one production period is used as an input for the next production period. Peculiar to Sraffa\'s analysis is the absence of any fundamental entity determining relative prices. In contrast, Ricardo, and later Marx, grounded their analysis in the labour theory of value, the idea that the price of a good is fixed by the amount of labour time required to produce it. In Sraffa\'s scheme there is no such ultimate price determinant: the price of a good in one period is determined by the prices of all goods produced in the previous period, where those prices themselves were determined by the prices of all goods produced in the production period before that, and so on back to the beginning of time. At no point are prices derived from a final source such as labour values.

When outputs exceed inputs, a \'surplus\' exists that forms the basis of the social conditions of distribution. The surplus represents the pool from which each social class draws its respective income share. In common with other proponents of the circular view of production, Sraffa demonstrates that at least one of the income shares must be given from outside the system of production in order to derive a determinate set of prices. This is important because it means that, unlike orthodox neo-classical economics, neo-Ricardianism is compelled theoretically to refer to non-economic relations. The effect is to redraw the traditional boundaries of economics so as to include the wider array of social, political and cultural institutions that bear on income distribution. Furthermore, because the surplus is finite, the relationship among social classes is necessarily adversarial: one class\'s gain is another\'s loss.

Significantly Sraffa\'s book is subtitled Prelude to a critique of economic theory. While Sraffa does not engage in the critique himself, his model provided the basis for subsequent systematic criticisms of both standard neo-classical and Marxist theories. These criticisms were first taken up in the capital controversy, where neo-classical marginal productivity theory was attacked, and later in the value controversy, where the Marxist labour theory of value came under scrutiny.

The capital controversy raged during the 1960s. It was initiated by Joan Robinson\'s (1953) query about the definition of capital within the neo-classical aggregate production function, that is, the formally defined relation between the two inputs, labour and \'capital\', and the resulting output. It was not until Sraffa\'s demonstration of \'capital reswitching\' and \'capital reversing\' that a decisive assault on neoclassicism was made, however. According to neo-classical theory, the income accruing to a factor of production is equal to its marginal product; the output of the last unit of that factor hired. Assuming that marginal productivity falls as more of a factor is used (a result of diminishing returns), neoclassicism derives a negative relationship between the rate of profit (the marginal product of capital) and the amount of capital employed (measured as capital intensity). More broadly, this negative relationship implicitly justifies profit as the consequence of capital scarcity: when capital is scarce, and hence marginal productivity high, profits are high, and vice versa when capital is abundant. In this sense, the relationship between the scarcity of capital and its price (the rate of profit) seems no different in kind than for any other commodity.

While this neo-classical \'parable\' appears intuitively plausible, Sraffa\'s findings of capital reswitching and reversing rebut it. The details are complex, but both capital reswitching and reversing negate the supposed negative relationship between the rate of profit and the amount of capital employed, thus also undermining the neo-classical marginal productivity theory which is its basis. In so doing, the critique opens the way for a new interpretation of the meaning and justification of profit, in this case, one that treats the price of capital as set by social, not technical, relations.

The value controversy began in the mid-1970s. Identified in particular with Ian Steedman (1977), the debate on Marx\'s labour theory of value centred around the \'transformation problem\', that is, finding a correct procedure to convert labour values into a set of consistent prices. Steedman argues that for a number of reasons Marx\'s original solution to the problem was incorrect. This failing, however, is not simply due to Marx\'s poor arithmetic, but is a result of employing labour values in the first place. Following Sraffa, Steedman shows that prices can be determined independently of labour values. Steedman\'s critique is not meant as a sweeping dismissal of the whole of Marxist economics, however. Rather, neo-Ricardians believe that a coherent and logically consistent theory of capitalism can only be elaborated once metaphysical entities such as labour values are expunged from that tradition.

Neo-Ricardianism, in its turn, has been criticized often by Marxists. The complaints include: that neo-Ricardianism is empty formalism, without social or historical grounding; that it contains no theory of history or change; that it draws upon Weber\'s class categories, which for Marxists at least are inadequate because they are insufficiently rooted in relations of production; that it provides no discussion of the labour process; that it emphasizes market over production relationships; that it is a theory based upon commodity fetishism; and that it smuggles in its own form of essentialism (Roosevelt, 1974). In response, the supporters of neo-Ricardianism argue that such criticisms miss the point of Sraffa\'s work. Sraffa is not concerned with constructing a Grand Theory to explain everything. Instead, he offers a contextual approach (Barnes, 1996a, ch. 7; cf. contextual approach), concerned with a few precisely defined issues within political economy, but saying nothing about broader questions that are resolvable only within the context at hand.

The question, though, is whether such a minimalist approach satisfies. Judging by the paucity of publications within the neo-Ricardian tradition over the 1990s, it appears that it doesn\'t. There remains continued interest in Sraffa as a twentieth-century intellectual, but neo-Ricardianism as a school is increasingly dormant. Even former acolytes of the movement, such as Steedman and Hodgson, now pursue historical and methodological studies rather than high theory. (Hodgson\'s (1988) account of his \'conversion\' to institutional economics is especially illuminating.) While Sraffa\'s logic might be impeccable, it has proven no match against an ostensibly less logical, neo-classical and Marxist economics which has barely registered his objections. The likely problem is that Sraffa\'s logic is too pure: \'a double distilled elixir\' as Joan Robinson (1953, p. 7) once described it. Such purity always required besmirching by the world, and because it wasn\'t, it lost out to other logics that were.

Economic geographers have made some use of neo-Ricardian economics. The work begins with Scott\'s (1976) pioneering paper linking Sraffa\'s model of production with von Thünen\'s models of agricultural rent. More recently, other topics within economic geography examined from a neo-Ricardian perspective include: agricultural land use (Huriot, 1981), interregional trade (Barnes, 1985), spatial reswitching (Pavlik, 1990), and urban fixed capital (Sheppard and Barnes, 1990, ch. 7). To date there has been no direct empirical application of Sraffa\'s work in economic geography, however. Rather, as in economics, neo-Ricardianism has been most effective as a logical critique, especially of a number of theories and propositions found in the neo-classical-inspired regional science movement, and offshoots such as the new urban economics. In making those critiques, however, it was found that the introduction of geography into Sraffa\'s work produces indeterminacy in his otherwise determinant aspatial conclusions (for example, with respect to technical change and trade; Sheppard and Barnes, 1990). While those indeterminacies might be resolved through empirical study, what has happened, as in economics, is the increasing abandonment of neo-Ricardianism by former proponents in favour of other approaches that deal more directly with the world, for example, in Scott\'s (1988) use of Regulation theory, or in Barnes\'s (1996b) application of the staples model with its strong links to new institutional economics. It might turn out that economic geography is too base a discipline to practise Sraffa\'s high-minded logic. (TJB)

References Barnes, T.J. 1985: Theories of interregional trade and theories of value. Environment and Planning A17: 729-46. Barnes, T.J. 1996a: Logics of dislocation: models, metaphors and meanings of economic space. New York: Guilford. Barnes, T.J. 1996b: External shocks: regional implications of an open staples economy. In J.N.H. Britton, ed., Canada and the global economy: the geography of structural and technological change. Montreal and Kingston: McGill-Queens, 48-68. Hodgson, G.M. 1988: After Marx and Sraffa: essays in political economy. Basingstoke: Macmillan. Huriot, J.M. 1981: Rente foncière et modèle de production. Environment and Planning A 13: 1125-49. Pavlik, C. 1990: Technical switching: a spatial case. Environment and Planning A 22: 1025-34. Robinson, J.V. 1953: The production function and the theory of capital. Review of Economic Studies 21: 81-106. Roosevelt, F. 1974: Cambridge economics as commodity fetishism. Review of Radical Political Economy 7: 1-32. Scott, A.J. 1976: Land use and commodity production. Regional Science and Urban Economics 6: 147-60. Scott, A.J. 1988: Flexible production systems in regional development: The rise of new industrial spaces in North America and Western Europe. International Journal of Urban and Regional Research 15: 171-86. Sheppard, E. and Barnes, T.J. 1990: The capitalist space economy: geographical analysis after Ricardo, Marx and Sraffa. London: Unwin-Hyman. Sraffa, P. 1960: Production of commodities by means of commodities. Cambridge: Cambridge University Press. Steedman, I. 1977: Marx after Sraffa. London: New Left Books.

Suggested Reading Barnes (1996a), ch. 7. Rowthorn, R. 1974: Neoclassicism, neo-Ricardianism and Marxism. New Left Review 86: 63-87. Wolff, R.P. 1982: Piero Sraffa and the rehabilitation of classical political economy. Social Research 49: 209-38.



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