Piero Sraffa

His Life, Thought and Cultural Heritage

Alessandro Roncaglia

• Publisher: Routledge
• Year: 2000
• eBook ISBN: 9781134565771
• Topic: Business
• Subtopic: Business General
• Index: Business

This is a lively, intellectual biography of a leading protagonist of 20th century culture and his relations with other protagonists, such as Gramsci, Keynes and Wittgenstein. The book includes an authoritative interpretation of his main work Production of Commodities by Means of Commodities, a survey of the debates which followed its publication, a

Chapter 1

Piero Sraffa

The early writings: money and banking

Piero Sraffa was born in Turin on 5 August 1898. His father, Angelo Sraffa, was a well-known professor of commercial law and subsequently – for many years – dean of the Bocconi University in Milan. His father’s career implied moving from one university to another; thus the young Sraffa began elementary school in Parma, to continue his education in Milan and Turin. Here he attended the secondary school, specialised in classical studies and went on to enrol in the faculty of Law. His attendance was by no means assiduous (in particular he shunned the lectures of Achille Loria (1857– 1943), holder of the chair in political economy, who inspired him with little respect or liking). In fact, he spent 1917–20 doing his military service, and at the end of the war was assigned to the secretariat of the ‘Royal Commission for the Investigation of Violations of Human Rights Committed by the Enemy’, which concluded with the seven volumes of reports published between late 1919 and early 1921. He was thus able to take his exams in uniform, a condition which used to gain the favourable attention of the examiners. In November he graduated with a thesis on Monetary Inflation in Italy during and after the War. The supervisor of the thesis was Luigi Einaudi (1874–1961), a liberal senator since 1919 who was to become president of the Italian Republic; Sraffa remained on friendly terms with him for the rest of his life. However, the subject seems to have been suggested by Attilio Cabiati (1872–1950), who was professor of economics at Genoa at the time, and a friend of his father.¹

The graduate thesis was also his first publication (Sraffa, 1920). A sharp rise in prices was associated with expansion in the circulation of money, in line with the dominant tradition of the quantity theory of money. Nevertheless, Sraffa’s empirical analysis here stood at a distance from the quantity theory of money to consider pragmatically the differentiated trends shown by the various price indexes, their significance being sought in the different points of view of the various groups playing a part in economic life, and in particular the social classes of workers and entrepreneurs. The point is worth stressing, since it is precisely the non-univocal nature of the concept of the general price level (and thus of its inverse, the purchasing power of money) that underlies Keynes’ criticism of the quantity theory of money in the opening chapters of his Treatise on Money (Keynes, 1930).

The most significant original contribution offered by Sraffa’s thesis lies in the distinction between stabilisation of the internal and of the external value of money, or in other words between stabilisation of the average level of domestic prices and stabilisation of the exchange rate. According to traditional gold standard theory the two coincide, but in principle at least they should be kept apart. In fact, the distinction becomes essential both when considering shortterm problems and inconvertible paper money systems; thus it was of crucial importance in the economic policy decisionmaking of the time.² Moreover, the point also has connections with the development of Keynesian theory: while Keynes made no use of the distinction in Indian Currency and Finance (1913), he did bring it into his Tract on Monetary Reform (1923), having in the meantime (in August, 1921) met Sraffa (who was to edit the Italian edition of the Tract).³

Sraffa’s earliest publications continued to address monetary issues: an article of 1922 on the crisis of the Banca

Italiana di Sconto in the Economic Journal, and one on the bank crisis in Italy – again of 1922 – in the Manchester Guardian Supplement on Reconstruction in Europe edited by Keynes. The two articles reveal a thorough command of the institutional and technical aspects of banking (probably thanks in part to the practical experience the young Sraffa acquired in a provincial branch of a bank immediately after graduating), a strikingly well informed approach and awareness of the interests at stake.

The first of the articles reconstructs the story of the Banca Italiana di Sconto from its birth at the end of 1914 to bankruptcy in December, 1921. Sraffa concludes with some pessimistic remarks on the risks involved in direct relations between banks and enterprises and the inevitability of such relations given the backwardness of Italy’s financial markets. He also comments on the difficulty of bringing about any change in the situation, due in the first place to a lack of real will at the political level. New laws are called for, he argues, ‘to prevent the formation of trusts, to protect the independence of banks, to regulate the reserves on banking deposits’, though in other countries’ experience legislative reforms by themselves have shown to be insufficient to prevent crises. In Italy the risks are enhanced by the connections between the fascist government and the financial élite, as Sraffa stresses in a strong-worded final sentence:

But even if these laws were not futile in themselves, what could be their use as long as the Government is prepared to be the first to break them so soon as it is blackmailed by a band of gunmen or a group of bold financiers?

(Sraffa, 1922: 197)

All these points remain extremely relevant, often cropping up in the recent debates on the choice between the ‘specialised’ banking system (based on separation between short and medium-long term credit) and the ‘universal’ banking system that have marked the process of elaboration and ratification of the new Italian bank-law of 1993. Sraffa’s attacks to the perverse connections between top politicians and financiers have also proved their persisting relevance on a number of occasions in recent years, such as in the bankruptcies of Sindona’s Banca Privata Italiana (1974) and Calvi’s Banco Ambrosiano (1983).

The second article highlights the weakness of Italy’s three leading commercial banks (Banca Commerciale, Credito Italiano, Banca di Roma), casting serious doubts on the correctness of their official accounts and of the institutional expedient (resorting to a Consortium for industrial stock subsidies) adopted to side-step the law setting limits on the support issuing banks could give to commercial banks.

The first article, published in an academic journal, went unnoticed in Italian political and financial circles. The second article, however, was soon noticed and signalled to Mussolini who, strongly irritated and possibly worried by the impact the article could have on international financial circles in the presence of impending risks of a banking crisis, telegraphed Angelo Sraffa demanding – to no avail – a public recantation from his son. The Banca Commerciale also threatened to sue, but took the threat no further. Its chairman, Toeplitz, wrote a letter of protest to Keynes, as editor of the Manchester Guardian Supplement, who published it in a subsequent number with a short and harsh rejoinder. Given these circumstances, Keynes decided to invite the young Italian economist to Cambridge. Sraffa accepted, but was turned back when he landed at Dover in January 1923, possibly as a tribute by the British authorities to the Fascist government, possibly because Sraffa had already been branded persona non grata on account of the relations he had entered into with the British Marxist left on his previous visit of 1921.⁴

Monetary issues were subsequently to re-emerge among Sraffa’s interests. A brief, biting attack on an article in Popolo d’Italia on the exchange rate movements of the lira was published in Piero Gobetti’s (1901–26) Rivoluzione liberale in 1923; two letters on the revaluation of the lira were published by Angelo Tasca (1892–1960) in Stato operaio in 1927; from 1928 to 1930 he held courses in Cambridge on the Italian and German financial systems, along with his more celebrated courses on the theory of value. The 1932 controversy with Hayek, to which we shall return, was also about problems of monetary theory.

All in all, Sraffa’s early publications show us a ‘complete’ economist, whose interest in pure theory is tempered by a solid knowledge of institutional details and exemplary analyses of specific real-world issues.

Friendship with Gramsci⁵

In 1919, at the University of Turin, Sraffa met Antonio Gramsci (1891–1937). They were introduced by Umberto Cosmo (1868–1944), who had been Sraffa’s Italian teacher at upper secondary school; subsequently he went on to teach at the university, with Gramsci as one of his most brilliant students. In 1919 Gramsci founded L’ordine nuovo (The new order), and Sraffa collaborated with some translations from German and three short articles which he sent from London on the occasion of his visit there in 1921. The same year of 1921 saw the foundation of the Italian Communist Party in Livorno. Gramsci became its secretary in 1924. Sraffa never joined the party, maintaining independent views while keeping up a close intellectual relationship with his friend.

An important piece of evidence documenting the two friends’ political exchanges is offered by a letter from Sraffa that Gramsci published (unsigned, initialled S.) in the April 1924 issue of L’ordine nuovo with his reply (Gramsci and Sraffa, 1924). In his letter Sraffa stressed the function played by bourgeois forces of opposition in the struggle against fascism and the importance of democratic institutions for the social and political development of the proletariat. In a scenario dominated by the rise of a fascist dictatorship, he found the working class absent from the political scene and the unions and communist party incapable of organising political action, while the workers had to face their problems as individuals, rather than as organised groups.

The main issue, taking first place over any other, is one of ‘freedom’ and ‘order’: the others will come later, but for now they can be of no interest to the workers. Now is the time for the democratic forces of opposition, and I think we must let them act and possibly help them.

Antonio Gramsci’s response was flatly negative, in line with the position of Amadeo Bordiga, then secretary of the communist party (where the centralist principle prevailed and no dissent to the official line could be shown). Gramsci rejected Sraffa’s suggestions as conducive to the liquidation of the communist party, subjected as it would be to the strategy of the bourgeois forces of opposition, and went as far as accusing his friend of ‘having so far failed to rid himself of the ideological residue of his liberal–democrat intellectual background, namely normative and Kantian, not Marxist and dialectical’. However, Gramsci’s thesis – that the communist party should advance ‘its own, autonomous solutions to the general, Italian problems’ – did not in itself contradict the idea of an alliance for action with the other antifascist parties: an idea that Gramsci could never openly assert, since it differed from the party line.

Nevertheless, the very fact that Sraffa’s letter was published, probably after heart-searching discussion between the two friends, amounted to significant recognition of the problems it raised and the political ideas suggested by the young economist. Indeed, Gramsci drew attention to these ideas again, far more explicitly, in a letter reserved for comrades closer to his position, and thus less subservient to the Bordiga orthodoxy (see Togliatti, 1962: 242 ff.).

The episode suggests that Sraffa played some role in the development of Gramsci’s political thinking and the distance he took from Bordiga’s line, in particular from the idea of the total opposition of the communist party to all the other political forces for the sake of the Bolshevik revolution. Years later, the point of arrival of Gramsci’s political reflections appeared close to the position Sraffa had taken up as early as 1924, when Gramsci in turn proposed a pact between the anti-fascist political forces for the reconstruction of a democratic Italy after the hoped-for fall of the fascist regime. Indeed, we may see a particular significance in the fact that, apparently in their last meeting in March 1937,⁶ it was to Sraffa that Gramsci entrusted a verbal message for the comrades still enjoying freedom, and one he attached great importance to – the watchword for the constituent assembly, encapsulating his proposal for a collaboration of the Italian communist party with all democratic, anti-fascist, forces.

Along with this fundamental point in the political debate, we must also recall the help Sraffa gave Gramsci after his arrest in 1926. It was he who took pains to get books and magazines to his friend in prison; it was he who explored the possible paths to freedom (on the binding condition that Gramsci insisted on, and which Sraffa adhered to, that no concessions be made to Fascism, such as a petition for pardon would imply); it was he who liaised with the communist leaders in exile and gave Gramsci further food for thought (through his sister-in-law Tatiana) in the reflections that were to take shape in the Quaderni del carcere. Some documentation of these activities can now be found in a posthumously published volume of letters from Sraffa to Tatiana (Sraffa, 1991).

Sraffa’s friendship with Gramsci is an indication of an intense passion for politics which must be borne in mind to understand the ideological roots of the research project that Sraffa was to pursue in the field of economic science. It should, however, be emphasised that Sraffa’s economic research and its results must be judged independently of his political background. It would not even seem as if Gramsci had any influence on the gradual switch in Sraffa’s interests from problems of applied economics to theoretical ones in the first half of the 1920s.

Criticism of Marshallian theory ⁷

Thus, in the years following his graduation Sraffa’s interests ranged from politics to questions of applied economics, and in particular – but not only – monetary economics.

After his brief experience as a bank clerk Sraffa spent a year in London attending courses at the London School of Economics. He was then appointed director of the Labour Office of the Milan Provincial Council, at the time under the socialist administration presided over by a lawyer, Nino Levi, who was however soon to resign when the fascist regime took over and the socialist provincial council fell.

It was then that Sraffa turned to an academic career, which he began as lecturer on political economy and public finance in the University of Perugia, Faculty of Law. Sraffa had probably read at least some of the works of Marx and the major classical and marginalist economists before 1923, but the evidence suggests that his interest in theoretical problems – possibly stimulated during his 1921–22 stay in London – developed at this stage, and deepened when he took on a general course in political economy.⁸ He then found himself having to confront the academic framework then dominant in Italy, namely marginalism in the Marshallian version of Maffeo Pantaleoni (1857–1924), whom Sraffa (1924: 648) himself called ‘the prince of [Italy’s] economists’.

In fact,⁹ keeping faith with the principle he often recommended to his students (always look to the best exponent of the approach to be criticised), Sraffa adopted for his lessons Marshall’s Principles which, although conceived as a reference book for university courses, was by no means the simplest textbook that students of a law faculty could wish for.

The fruits of Sraffa’s reflections – a radical critique of the Marshallian theory of the equilibrium of the firm and the industry – were set out in a long article published in 1925 in the Annali di economia entitled ‘On the relations between cost and quantity produced’. Five years had passed since publication of the eighth edition of Marshall’s Principles of Economics, and one year since his death.

Sraffa’s article was a contribution to the debate on the ‘laws of returns’ sparked off by a paper that John Harold Clapham (1873–1946) published in the Economic Journal in 1922. The point in question was of vital importance for the Marshallian theoretical construction and, more generally speaking, for the marginalist theory of value. According to the marginalist approach, prices are to be seen as indexes of relative scarcity; the equilibrium values for prices and quantities produced are determined through a confrontation between the preferences of economic agents and the scarcity of available resources, and thus by the balancing of demand and supply. A decisive factor in this approach and, in particular, in the Marshallian method of partial equilibria – where the market for each single commodity is analysed in isolation – is the plotting of a supply curve for each product expressing the (marginal) cost as a function of the quantity produced, both for the individual firm and for the industry as a whole.

Marshallian theory singles out three cases accounting for all eventualities: constant, increasing or decreasing returns, according to whether the average unit cost remains constant, decreases or increases when the quantity produced increases. Clapham, a professor of economic history, set out to tackle the problem of the concrete application of these theoretical categories, and came to a startling conclusion, finding the theoretical apparatus in question sterile: the three categories of constant, increasing and decreasing costs were ‘empty economic boxes’ (this was also the title of his paper), impossible to fill with concrete examples of real industries.

Clapham’s article provoked immediate response, with an article in the following issue of the Economic Journal by Arthur Cecil Pigou (1877–1959), Marshall’s successor to the chair of economics at the University of Cambridge and paladin of a line in Marshallian orthodoxy that led to the ‘geometrical method’ of demand and supply curves for the firm and the industry, for the short and the long period. This construct, it should be noted, does not fully correspond to Marshall’s view of the matter; tacking between ambiguities, constantly veering back en route, in subsequent editions of the Principles Marshall had attempted to reconcile an evolutionist, and thus intrinsically dynamic, conception with an analytic apparatus based on conditions of demand and supply equilibrium, and thus necessarily static.¹⁰ A greater fidelity to Marshall’s ideas was in fact shown by Dennis Robertson (1890–1963), who raised further doubts on Pigou’s analytic apparatus in an article published in the March 1924 issue of the Economic Journal.

The debate continued in the pages of the Economic Journal, unflagging after the publication of Sraffa’s articles (the Italian article of 1925 and another article, published in the December, 1926 Economic Journal, which we shall be dealing with subsequently), with contributions by Allyn Young, Pigou, Lionel Robbins, Joseph Schumpeter, Roy Harrod and, in 1930, with a symposium on ‘I...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Introduction
• Chapter 1: Piero Sraffa
• Chapter 2: Production of Commodities by Means of Commodities
• Chapter 3: The Sraffian schools
• References