I've heard Keynesians claim Sraffa 'destroyed' Hayek's work, do you guys agree?
Ripped him to shreds.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
2 threads from a search:
http://mises.org/community/forums/t/9682.aspx
http://mises.org/community/forums/t/18487.aspx
And a daily by RPM, although that one doesn't mention any hayek/sraffa connection:
http://mises.org/daily/1486
And a short article by Ludwig Lachmann:
https://direct.mises.org/misesreview_detail.aspx?control=38
And one by Garrison:
http://www.auburn.edu/~garriro/garrison.pdf
I read some of what I think the OP refers to, but I can't even tell what Hayek and Sraffa were disagreeing about, or even if they were in disagreement. It's at times like these that economists should start throwing pies around, to show the world that serious intellectual business is being conducted.
Seriously, Sraffa claimed that there is a multiplicity of interest ratest, and that there is no such thing as a natural interest rate. Then the anti-austrians (for example, Lord Keynes) wrongly believe that the ABCT is disproved. Not surprising when you think about how they misinterpret the ABCT. But like I said before, saying that the existence of multiplicity of interest rates disproves the ABCT is like saying that the amount of saving can’t determine the amount of money the bank could loan.
The only thing to remember : the less people consume and the more people save, the more banks loan money, and the more the production structure lengthens. That’s the core of ABCT.
Seriously, Sraffa claimed that there is a multiplicity of interest ratest, and that there is no such thing as a natural interest rate. Then the anti-austrians (for example, Lord Keynes) wrongly believe that the ABCT is disproved.
Why don't you try and get my actual view right, instead of a straw man?
My view is that Sraffa's demonstration of why there is no such thing as a unique Wicksellian natural rate severely undermines those versions of ABCT that use the unique Wicksellian natural rate (that is, the Hayekian versions).
That is also the opinion of Robert Murphy:
“In his brief remarks, Hayek certainly did not fully reconcile his analysis of the trade cycle with the possibility of multiple own-rates of interest. Moreover, Hayek never did so later in his career. His Pure Theory of Capital (1975 [1941]) explicitly avoided monetary complications, and he never returned to the matter. Unfortunately, Hayek’s successors have made no progress on this issue, and in fact, have muddled the discussion. As I will show in the case of Ludwig Lachmann—the most prolific Austrian writer on the Sraffa-Hayek dispute over own-rates of interest—modern Austrians not only have failed to resolve the problem raised by Sraffa, but in fact no longer even recognize it. Austrian expositions of their trade cycle theory never incorporated the points raised during the Sraffa-Hayek debate. Despite several editions, Mises’ magnum opus (1998 [1949]) continued to talk of “the” originary rate of interest, corresponding to the uniform premium placed on present versus future goods. The other definitive Austrian treatise, Murray Rothbard’s (2004 [1962]) Man, Economy, and State, also treats the possibility of different commodity rates of interest as a disequilibrium phenomenon that would be eliminated through entrepreneurship. To my knowledge, the only Austrian to specifically elaborate on Hayekian cycle theory vis-à-vis Sraffa’s challenge is Ludwig Lachmann.” (Murphy, “Multiple Interest Rates and Austrian Business Cycle Theory,” pp. 11–12).
http://socialdemocracy21stcentury.blogspot.com/2011/07/robert-p-murphy-on-sraffa-hayek-debate.html
Other versions of ABCT that do not use the unique Wicksellian natural rate are wrong for other reasons that also happen to apply to Hayekian ABCT too.
Lord Keynes : "Why don't you try and get my actual view right, instead of a straw man?"
You might be right that it doesn't destroy ABCT. I agree (as somebody above pointed out, since I still endorse the ABCT in popular writing). But it's certainly problematic when the standard Austrian position says stuff like "the interest rate reflects the premium placed on present vs. future goods," if it turns out that there is no such thing.
Lord Keynes,
Have you come accross Hulsmann's Theory of Interest? He's an Austrian who rejects the time preference theory for his own based around means and ends. I haven't read it for a while so can't discuss it well. I do remember thinking it was convincing. Much latter than this he reworked the structure of production and consquently the ABCT. This can be found here.
The atoms tell the atoms so, for I never was or will but atoms forevermore be.
Yours sincerely,
Physiocrat
My take on all this:
The essence of ABCT is the claim that booms and busts in modern times are caused by money printing by a central bank. [Indeed, even when central banks did not exist and booms and busts occured, careful research will show that there was some other way that the money supply increased, such as when the Spaniards brought in boat loads of gold from South America].
Now big picture, an increase in money supply means someone will be consuming more than he produced, as explained in this humble article [see second question]. Of course this will hurt the economy. But Mises, and Hayek after him, fleshed out the details, wishing to explain specific patterns that seemed to occur again and again in booms and busts. They found that the key to understanding things down to the fine points is the lowering of the interest rate, which the central bank always seems to be doing when there is a boom and bust.
Of course, to explain everything based on a low interest rate, one has to have a definition of "low". And their definition was "lower than it should be". Which of course requires a new definition of what an interest rate "should be". The easy way, that avoids all attacks from Saffra and Lord Keynes and everyone else, is to say "whatever it would have been had the central bank not printed all that money". After all, central banks admit that they have the power to influence interest rates, and that their way of doing so is by printing money. [That's why he's called Helicopter Ben].
But Hayek had a certain fish to fry. He wanted, for reasons I have not investigated, the central banks to make sure they set the interest rate to the "real, genuine, authentic, natural" one, not one that is too low. Which means Hayek had to go out and find out what the real interest rate is. Nowadays, I think Austrians agree that we'd be better off without any central bank at all. We don't need a central bank to set any interest rate, not the real one and not the phony one. So that we have no need of finding out what the "real" rate is. Suffice to say that it is certainly higher than the one that comes into being after mountains of money printing, and that's enough to explain the ABCT.
In any case Sraffa told Hayek that there are many different interest rates. Each commodity has a different rate of what it costs now and what it costs to buy a future crop of it, which is an interest rate. So that the central bank cannot set the "real" rate, because there isn't one. Each commodity has a different rate. It's like asking what is the real price of a car. Are you talking about a Jaguar or a jalopy?
Hayek wrote that there is no problem with that, since there is a tendency for all commodities to have the same interest rate, and that number they all tend to is the magic number we are looking for, the real interest rate. Mises and Rothbard also made the same assumption as Hayek does, that there is indeed a magic number, albeit one that we may not be able to calculate in practice.
Bob Murphy writes that Hayek did not solve the problem with that explanation, and proposes his own solution. Given my level of understanding, I'll have to go tl:dr on his paper. Huisman wrote a tl:dr article apparently proposing 8 possible numbers.
Bottom line, there are two topics going on. First, there is a quest for the holy grail, the elusive magic number which is the real interest rate. Mises and Hayek and Murphy and Huisman and Sraffa and LK are out there slugging it out, either claiming they found the magic number, or claiming it doesn't exist. [The whole discussion is way over my head, at least when we get to the writings of the modern Austrians, Murphy and Huisman. But it is a technical topic of theoretical interest for specialists, and has nothing to do with refuting ABCT, as we have already shown and will shortly summarize again].
But Sraffa and LK then move on to a different, second, topic. They claim that if no magic number exists, then it is absurd to say that banks ever lend money at a rate lower than some non existent magic number.
They claim that the Austrians are saying that the winner of the World's Strongest Man contest declared on television is not the world's strongest man in fact, since the Incredible Hulk is stronger. And Sraffa and LK are refuting that by pointing out that there is no Incredible Hulk.
And that's where Sraffa and LK make their big mistake. They are saying that depending on the givens of a particular case, Jaguar or jalopy, you get a different number, and thus there is no one unique number at all. And the rebuttal is that there is a unique number for a given particular situation. [Even though it may be impossible to actually calculate, it's there]. And that number is, given a specific banker and a specific given person on a specific day and all the specific details of the specific loan, the rate that would have been set by that specific banker if there was no central bank printing money.
Now I know that some out there that won't be happy with an economics discussion unless they have some math jargon to chew on. So for them, here is that final paragraph, restated for their pleasure in cumbersome language:
Let A be a given borrower. Let B be a given Banker. Let C be a given loan made on date D with specific details of the loan denoted by E. Define X(A, B, C,D,E) as the interest rate that would have existed absent a central bank. Define Y(A,B,C,D,E) as the interest rate that actually happened, because the central bank printed tons of money. If, for a great many values of A,B,C,D, and E, we have Y<<X [meaning Y is much lower than X], then the conditions exist for a valid ABCT explanation.
It's fairly difficult to have a serious and fruitful discussion with an economic sect (referring to neo-ricardians) that doesn't seem to understand arbitrage.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
Physiocrat :
I do remember thinking it was convincing. Much latter than this he reworked the structure of production and consquently the ABCT. This can be found here.
I'm glad to see that someone else has heard about his 2011 paper. "The structure of production reconsidered" is very enlightening, and I highly recommend it. I wrote a comment here, few weeks ago, for those who are interested.
Who has actually read the three relevant articles in the debate? Hayek explicitely states that the interest rate 'problem' is not central to the issue he was most interested in explaining in Prices and Production — fiduciary expansion and phantom profits. Further, in his response to Sraffa, Hayek says that there are multiple interest rates: one for each commodity.
Show us the way, oh Jonathan.
And Hayek's concession is highly damaging to his whole theory, for his policy advice is shown to be utter nonsense.
Sraffa:
“I pointed out that only under conditions of equilibrium would there be a single rate; and that when saving was in progress there would at any one moment be many ‘natural’ rates, possibly as many as there are commodities; so that it would be not merely difficult in practice, but altogether inconceivable, that the money rate should be equal to ‘the’ natural rate. And whilst Wicksell might fall back, for the criterion of his ‘money’ rate, upon an average of the ‘natural’ rates weighted in the same way as the index number of prices which he chose to stabilise, this way of escape was not open to Dr. Hayek, for he had emphatically repudiated the use of averages. Dr. Hayek now acknowledges the multiplicity of the ‘natural’ rates, but he has nothing more to say on this specific point than that they ‘all would be equilibrium rates.’ The only meaning (if it be a meaning) I can attach to this is that his maxim of policy now requires that the money rate should be equal to all these divergent natural rates.” (Sraffa, P. 1932b. “A Rejoinder,” Economic Journal 42 (June): 249–251 at p. 251).
For other reasons why Hayek's ABCT failed, see here:
http://socialdemocracy21stcentury.blogspot.com/2012/01/hayeks-trade-cycle-theory-equilibrium.html
Rodolphe Topffer: Seriously, Sraffa claimed that there is a multiplicity of interest ratest, and that there is no such thing as a natural interest rate.
Smiling Dave: In any case Sraffa told Hayek that there are many different interest rates. Each commodity has a different rate of what it costs now and what it costs to buy a future crop of it, which is an interest rate. So that the central bank cannot set the "real" rate, because there isn't one. Each commodity has a different rate.
Jonathan M. F. Catalán: Further, in his response to Sraffa, Hayek says that there are multiple interest rates: one for each commodity.
Sraffa missed Hayek's point in the rejoinder — focusing on what Hayek claimed to be secondary to the actual argument. Further, Sraffa mistakes Hayek's "neutral money" for some kind of policy recommendation, or some kind of guide that we ought to consider. In his response to Sraffa's original critique of Prices and Production, Hayek is explicit in arguing that his reference to "neutral money" was not what Sraffa made of it. Rather, it was an explanatory device to help explain the concept of the structure of production and the distribution of real goods between the different stages of production. In fact, Prices and Production is one big tract on how the non-neutrality of money can lead to major industrial fluctuations. So, what Hayek really meant by "neutral money" and the "natural rate of interest(s)" was reference to equilibrium values, where fiduciary overexpansion is seen as a rupture of this equilibrium — equilibrium, of course, is also used as a means of theoretical exposition (which if not obvious, is at least clarified in Hayek's monograph Profits, Interest and Investment [1939]).
What Hayek was really interested in was the process by which this equilibrium could be ruptured, or fiduciary overexpansion — what he called "phantom profits." You don't need a "natural rate of interest" to see the effects of phantom profits, and this is what Hayek was trying to get across in his response to Sraffa (a point that Sraffa obviously missed). This is probably a major reason why in his 1939 monograph Hayek prefers to talk about the rate of profit, rather the rate of interest.
_____
Bert,
You write,
Let's say we accept that each commodity has it's own interest rate, why wouldn't an arbitrarily low interest rate have a negative affect across the board?
More importantly, why wouldn't fiduciary overexpansion change prices in such a way to create profits that wouldn't otherwise exist? As I try to get across above (maybe unclearly), this is the real argument in Prices and Production.