Sraffa

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Sraffas Given Quantities of Output and
Keyness Principle of Effective Demand
Man-Seop Park, Korea University
Keynes Seminar Post Keynesian Study
Group Robinson College, Cambridge 13 March 2012
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The objective(s)

• To show how the given quantities of output in
  the Sraffa system can be interpreted as
  those being determined in accordance with
  Keyness principle of effective demand
• To provide a framework for the long-period
  analysis of effective demand which is compa-
  tible with the Classical/Sraffian perspective

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Key ideas/concepts

• The long period position capital equipment /A
  fully-adjusted position
• The long period position exists in the present
• Three states of the economy for a long-period
  analysis

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The long period position capital equipment
log K
warranted investment
log Y
autonomous investment
long period position capital equipment
time
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The long period position capital equipment

• The size (and composition) of the capital
  equipment ( ) that
• would have been utilised at the normal level for
  a given level of
• investment
• the autonomy of investment ? not necessarily
• long period
• fully-adjusted to the level of output (
  utilised at the normal level)
• regarded normal with respect to the current
  state of effective demand, thus guiding
  investment in the next period
  (reference point /centre of gravity)

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The long period position capital equipment
WG
log K
realised
log Y
LPP
time
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The long period analysis three states of the
economy
The Warranted Growth state
log K
log Y
The state of effective demand
The long period position
The realised state
time
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The long period position

• The long period position exists in the present
• (paraphrasing Garegnanis reply to Joan Robinson,
  1979)
• It is in the present that the long period
  position is firmly located because this is the
  state of the economy which is being regarded as
  normal with respect to the state of effective
  demand in the present, it is also the state
  of the economy that present experience will lead
  entrepreneurs in general to take into account
  when they make decisions on their investment in
  the future.

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(The short-period analysis)
log K
log Y
time
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A fully-adjusted position

• The relation between the quantities of the means
  of production and the quantities of output in
  the respective industries is such that
• output is produced at the normal utilisation of
  the means of production
• each type of output is produced of the quantity
  that is exhausted for gross
  investment and consumption in the
  economy as a whole (supply (effectual) demand)

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A fully-adjusted position

• Returns to scale
• Sraffa (1925, 1926)
• - increasing returns
• division of labour
• - decreasing returns
• land

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A fully-adjusted position

• The prices of production
• a set of exchange-values which if adopted by
  the market restores the original
  distribution of products and makes it
  possible for the processes to be repeated
  (Sraffa, 1960, p. 3)
• For the relations between the means of production
  and output to be repeated,
• the means of production must be utilised at the
  normal level
• for each type of output, supply effectual
  demand

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A fully-adjusted position
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The Warranted Growth state
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The state of effective demand

• autonomous investment decision in individual
  industries

• the volume of gross investment
• the capacity-generating effect
• the effective-demand-constituting effect
• the autonomy of investment not necessarily

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(The recurrence relation)
Some examples
(7) too complex to formalise (completely
autonomous)
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The Long Period Position
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The realised state
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The realised state
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The financial market

• Investment Saving
• Both in the aggregate and in individual
  industries
• Investment generates saving in the aggregate
• Saving in the mind of savers is not
  industry-specific
• Saving is allocated into each industry
• ? the financial market

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The financial market

• The Kaldor (1966) formulation

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Constraints for an EDC economy

1. normal utilisation (aggregate) (NU)

(2) full utilisation (individual) (FU)
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Constraints for an EDC economy
(3) full employment (FE)
where
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Constraints for an EDC economy
(4) self-replacing state (SR)
(5) financial market (FM)
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Illustration the Hicks-Spaventa economy
C golden age BC restrained golden age CD
limping golden age (leaden golden
age) AB creeping platinum age DE galloping
platinum age
FE
NU
SR
FU2
LP
A
B
LP
C
OA (technique)
1
FU1
OE (financial market)
F
F (effective demand)
D
F
FM
E
1
O