Effects of Systemic Constraints

Many political economists have analyzed the overall systemic constraints imposed by macroeconomic characteristics of the economy, constraints that create the environment in which individual decision makers have to make decisions about prices and especially about the sizes of markups.

Within this aspect of the analysis, I have in mind the links between discretion over price setting and the need to raise internal finance for planned accumulation. These ideas are especially associated with Jim Ball (1964), Al Eichner (1973, 1976), Adrian Wood (1975) and Peter Kenyon and myself (1976). My conjecture is that the Sraffa prices at each moment of time are both the systemic and individual industry and firm con­straints within which these decisions have to be made.

In the long-period interpretation of Sraffa prices, the long-period structure of prices is seen to be in the outcome of persistent processes. Is this not inconsistent with, or at least unable to cope with, the impact of continuous technical change and fluctuations in aggregate demand on the economy and on the structure of Sraffa prices? The snapshot view overcomes this but, of course, carries with it the danger that if the characteristics of the snapshots vary widely from period to period because of the impact of changing levels of activity and technical variations in investment to labor and investment to output ratios, the establishment of general norms that guide behavior will not occur.

This last consideration brings to the surface a problem that plagued Keynes, his ulti­mate despair of ever being able to find a definite unit of time with which he could han­dle the analysis of all the interrelated processes he had emphasized in the development of his revolutionary theory of the workings of a monetary production economy in The General Theory and afterwards.

That certain time periods are characterized by instability or even crisis is, of course, not a surprising inference to be drawn from any relevant theoretical structure and approach to the analysis of economic systems. (That it was not an inference of the dom­inant theoretical structure is a major criticism of its failure to predict the recent global financial crisis (Harcourt, 2010).) Certainly, I do not think Sraffa would have been either surprised or dismayed by such an inference. I also conjecture that these suggestions fit well into, indeed supplement sensibly, the structures of Goodwin’s and (late) Kalecki’s cyclical growth models.

The contributions of other great thinkers from the last century are also relevant here. I start with Dennis Robertson. One of his criticisms of what he saw as the Keynesians attempting to sustain full employment and attain a steady rate of growth arose from his understanding of the real business cycle he argued formed the foundations for the processes at work in modern economies. He pointed out that when we consider a inter­related production economy—which has different lengths of gestation periods for the construction of machines in different sectors and their accompanying methods of use, and different economic lifetimes of their operation—it is just not possible to conceive that the aggregate outcome of their operation would be either full employment of labor over time or steady growth of output over time (Anyadike-Danes, 1985).

I understand that Sraffa, unlike some of his followers, had great respect and liking for Kalecki, as did Maurice Dobb. In the late 1930s, Sraffa worked with Kalecki on pricing in UK manufacturing industries. Goodwin (1983, chaps. 7 and 8) also was influenced by and wrote on Sraffa’s approaches, so it is pleasing that these three great original political economists may and should be agreeably brought together in a deeper understanding of the processes at work in modern capitalism.