Economics Questions

Re: Sraffa vs Hayek

nirgrahamUK — Thu, 30 Jul 2009 17:53:56 GMT

perhaps press the button on the right of the toolbar for Edit HTML source, and write in <P> tags at paragraph breaks.
and consider whether your text could be shortened without sacrificing meaningful content

Re: Sraffa vs Hayek

tke — Thu, 30 Jul 2009 16:46:02 GMT

I dont know why it wont let me include any space's in my post, may be its too long. Sorry about that

Re: Sraffa vs Hayek

tke — Thu, 30 Jul 2009 16:43:59 GMT

The Sraffa-Hayek debate you are referring to here took place in "The economic journal" in 1932. I have not read anything else about the debate than the articles by Sraffa, Hayek, and another article about the debate by Cottrell. I might change my mind as I am going to read more about this, but as far as I am concerned, I think this is the potentially most devastating critique of the ABCT out of the 30+ that i have encountered. Though, I have to emphasize, I am not familiar with the ways Hayek changed the theory to deal with this, but it doesnt seem as if modern explanations such as that of Garrison or de Soto have taken this into account.

The question is essentially, how does the lengthening of the structure of production even get going in the first place. De Soto's first step states that "As the lower rate of interest signals that a lengthening of the production structure is profitable, entrepreneurs bid up the prices of the factors in order to invest in early stages of capital goods." But why is there a lag between the investment and the increase in the price of factors? Sraffa's point is that the monetary expansion makes investments in longer stages more profitable AND AT THE SAME TIME increases the price of factors proportionally. Hayek assumes a lag here even though these factors must be paid/bid up BEFORE the investments and i.e. the credit lengthening can even happen. I quote here the crucial passage from Cottrell

Cottrell p 15-16: "I quote in extenso, for it seems to me that this raises an important problem for Hayek’s argument as a whole: Every individual entrepreneur can increase his real capital only by spending more on capital goods and less on labour used in current production (or, what amounts to the same thing, more on labour which is invested for a relatively long period). He can, however, spend more on capital goods than on wages only so long as wages have not risen in proportion to the additional money which has become available for investment. Ultimately, incomes must rise in that proportion, since even the money used for the purchase of new capital goods must ultimately be paid out to the factors which make these new capital goods. [fn. Except for such amounts as may be absorbed in cash holdings in any additional stages of production.] But they will rise to the full extent only when all the new money has passed backwards through the successive stages of production until it is finally paid out to the factors. There will, therefore, always be a considerable lag between the increase in the money used for productive purposes and the corresponding increase in the incomes of the factors—and the consequent increase in the demand for consumers’ goods. Recognizing that if wages rise in proportion to the monetary expansion without delay his process cannot get started, Hayek insists on a substantial lag in the increase in factor incomes.14 But is his reasoning sound? He argues that it takes time for increased expenditure on producer goods to ‘work its way back’ to the factors of production. Glance back at Table 1. We have already noted that physical output (work in progress) can be thought of as moving diagonally downwards and to the right over time. Hayek seems to have in mind that money moves along the other diagonal, upwards and to the right. That is, of the income derived by Stage 7 from sales to consumers in a given period, part is paid out in wages and part proceeds to Stage 6 in the following period as payment for intermediate product, and so on. As money income passes upwards over time, the proportion spent on wages at each Stage rises, while the cumulated proportion of the original consumer spending passing back to the factors of production also rises towards unity. So far so good, if we are considering the effects of an increase in consumer spending. But investment in a new, more roundabout process must presumably begin at the highest Stage, i.e. precisely where the proportion of expenditure flowing directly to the ‘original means of production’ is highest, if not unity. In arguing for an investment-wage lag, Hayek seems to have forgotten what he said about the very nature of production in Lecture 2. We already know that the ‘financial’ assumptions of Lecture 2 (according to which wages don’t rise at all) are incompatible with the dynamic argument of Lecture 3, but this new problem is more severe. If the ‘highest-order’ industries—those supposedly at the ‘beginning’ of the production sequence, and which first feel the impact of increased investment demand—in fact spend a large proportion of their outlays on produced inputs rather than original factors, then the key Austrian assumption of ‘non-circularity’ is subverted. Then, as Hicks (1983, p. 99) points out, “there is no period of production; there is no roundaboutness.” These terms become undefined, and it is back to the drawing board for the whole Hayekian theory."

Re: Sraffa vs Hayek

hayekianxyz — Tue, 28 Jul 2009 17:24:41 GMT

Zach_the_Lizard:

krazy kaju:
I don't remember Sraffa ever getting a Nobel prize

Our Lord, His Holiness Sir Paul Krugman, Knight of the Broken Window, Champion of Our Lord the Bubble has received a Nobel prize. Therefore, a Nobel prize must not mean anything, even when received by economists we agree with.

You're right, they don't mean anything. I'm getting my fourth one through in the mail this week from eBay. I think I got it from some guy that managed to find it in Milton Friedman's garage sale. My other three are from Jim Buchanan, Gary Becker and Gordon Tullock.

Re: Sraffa vs Hayek

Zach_the_Lizard — Tue, 28 Jul 2009 12:27:07 GMT

krazy kaju:
I don't remember Sraffa ever getting a Nobel prize

Our Lord, His Holiness Sir Paul Krugman, Knight of the Broken Window, Champion of Our Lord the Bubble has received a Nobel prize. Therefore, a Nobel prize must not mean anything, even when received by economists we agree with.

Re: Sraffa vs Hayek

AF — Tue, 28 Jul 2009 08:01:20 GMT

Conza88:

Labor is a commodity... You sell it on the market...

lol.

But labour is people!!!

krazy kaju:

Ask the poster exactly where, when, and how Sraffa "intellectually defeated" Hayek. I don't remember Sraffa ever getting a Nobel prize; the man is largely a joke as his economic ideas have been long refuted even before he was born.

Watch your reasoning there. A nobel prize doesn't necessarily make one's arguments valid *cough*krugman*cough*.

Re: Sraffa vs Hayek

krazy kaju — Mon, 27 Jul 2009 21:09:27 GMT

Ask the poster exactly where, when, and how Sraffa "intellectually defeated" Hayek. I don't remember Sraffa ever getting a Nobel prize; the man is largely a joke as his economic ideas have been long refuted even before he was born.

Re: Sraffa vs Hayek

ziragt — Mon, 27 Jul 2009 20:59:06 GMT

From what I understand of the debate, Sraffa was probably right in some of his critiques of Hayek on the complexity of monetary relations. However, this was probably a positive development, since it forced Hayek to reformulate some of his ideas (which later ended up in the Pure Theory of Capital). Anyway, not many economists today take Sraffa seriously, especially since Blaug attacked his interpretation of Ricardo a few years ago.

Re: Sraffa vs Hayek

Jon Irenicus — Mon, 27 Jul 2009 19:21:43 GMT

Thanks. I never read Lachmann before. Im gunna give this a read.

From what I've seen he is well worth reading.

Re: Sraffa vs Hayek

hayekianxyz — Mon, 27 Jul 2009 18:59:08 GMT

Perhaps, I've not read either so I'm not sure. I've got it saved on my harddrive and plan on reading it soon, but if you're interested there's a whole load of other books available on PDF there. I think the one you may be referring to is available on the internet, but I'm not sure.

Re: Sraffa vs Hayek

Jon Irenicus — Mon, 27 Jul 2009 18:37:21 GMT

The Lachmann piece is available here for anybody that is interested.

Hmm that is a different one I think, more of a synopsis. I didn't know about this one.

Re: Sraffa vs Hayek

Eric — Mon, 27 Jul 2009 17:11:16 GMT

GilesStratton:
The Lachmann piece is available here for anybody that is interested.

Thanks. I never read Lachmann before. Im gunna give this a read.

Re: Sraffa vs Hayek

hayekianxyz — Mon, 27 Jul 2009 16:59:31 GMT

Jon Irenicus:

Roger Garrison has a piece on the Hayek/Sraffa debate, as does Lachmann. The latter is hard to find online, the former easy - just google it. It's a clueless assertion, and from what I've read from Lachmann, the whole thing is much ado about nothing.

The Lachmann piece is available here for anybody that is interested.

Re: Sraffa vs Hayek

Jon Irenicus — Mon, 27 Jul 2009 16:53:57 GMT

Roger Garrison has a piece on the Hayek/Sraffa debate, as does Lachmann. The latter is hard to find online, the former easy - just google it. It's a clueless assertion, and from what I've read from Lachmann, the whole thing is much ado about nothing.

Re: Sraffa vs Hayek

hayekianxyz — Mon, 27 Jul 2009 16:01:35 GMT

I think whoever is making this criticism doesn't really know what he's talking about. Fair enough lets concede that Sraffa defeated Hayek, he must have also defeated the entirety of neoclassical economics. If he really wishes to concede that point, he's free to do so, but he's got a hell of a lot to prove if he think that. As for Hayek, he wasn't really an a priori theorist, in fact, in his later years he was explicitely Popperian.