By Ajit Sinha
This booklet attracts at the paintings of 1 of the sharpest minds of the 20 th century, Piero Sraffa. Ludwig Wittgenstein credited him for 'the such a lot consequential principles' of the Philosophical Investigations (1953) and positioned him excessive on his brief checklist of geniuses. Sraffa's innovative contribution to economics used to be, although, misplaced to the realm simply because economists didn't be aware of the philosophical underpinnings of his economics. in line with exhaustive archival examine, Sinha offers an exhilarating new thesis that indicates how Sraffa challenged the standard mode of theorizing when it comes to crucial and mechanical causation and, as an alternative, argued for a descriptive or geometrical concept according to simultaneous family members. A end result of this strategy used to be an entire removing of 'agent's subjectivity' and 'marginal technique' or counterfactual reasoning from monetary research – the 2 primary pillars of orthodox financial theory.
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Extra info for A Revolution in Economic Theory: The Economics of Piero Sraffa
However, every year the real value of one year of production would rise but remain lower than $200. Thus, if wages are paid every year for five years to the exact amount of the value produced it will total less than $1,000. And it is this difference in value that explains interest. In other words, even if workers are paid full values of their production over the entire period of time there still would remain something for interest on capital investment. Thus the origin of interest lies in the psychological trait of human beings to discount future consumption over present.
All the ‘marginal method’ does is to dodge the problem rather than solve it. In the Jevonsian tradition the marginal change in capital is measured on the continuous scale of time, which ignores its relation to physical techniques of production, but it still has to ignore the effect of the changes in the rates of interest and wages on prices. In the Clarkian tradition the marginal change in ‘capital’ is associated with an implicit change in technique of production but its impact on prices is ignored.
He argues that in a stationary state which is continuously reproducing itself there is no time-gap between the investment of social capital and the production of consumption goods. He conceptually distinguishes between capital goods and ‘capital’. According to him, capital is a value (money-value) that endures during production while capital goods perish. In other words, although the particular physical capital goods are used up in the process of production, at the same time the system is continuously reproducing other capital goods to replace them, and therefore the value of capital initially invested endures through production rather than being used up.