Radical Political Economy: Sraffa versus Marx, London: Routledge, 2017; 110 pp.: ISBN 9781138050037, 21.99 [pounds sterling] pb
Robin Hahnel is the Professor Emeritus of the Department of Economics at the American University in Washington DC. Hahnel's Radical Political Economy: Sraffa Versus Marx argues that 'Sraffian theory can now provide a stronger basis for radical political economy in the twenty first century than formal Marxian economic theory' (p. vii). In an accessible and lively fashion, Hahnel describes the key elements of the Sraffian physical price alternative to Marx's labour value theory. He argues that 'labour values unnecessary, i.e. redundant, they also mislead analysts about the process of price formation under capitalism' (p. 2). (1) Instead of Marx's theory of surplus value, 'Sraffians explain profits as the results of employers expropriating part of the surplus of goods produced in a productive economy from those who produced them' (p. 3). Sraffa's theory avoids the 'mistaken belief that capitalist profits derive only from the amount of labour they hire, when in fact profits derive from a markup on non-labour as well as labour costs of production' (p. 3). Hahnel's directness is to be applauded. His assertion of the superiority of Sraffa's theory provides a very clear opportunity to assess its viability as an alternative to Marx's model. Hahnel's argument hinges of the use of linear algebra and the assumptions necessary to make it work. Hahnel considers that, as Marx lacked this key mathematical tool, so he applied a redundant methodology that valued commodities (or explained price) by the amount of labour required to produce a given output (p. 5-6).
Basic goods, relative prices and the measurement of value
Hahnel starts with his version of Adam's Smith's nation of hunters. If, Smith explained, 'it usually costs twice the labour to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer' (Adam Smith, cited in Hahnel (p. 5)). According to Hahnel, Smith assumes that 'there is only one "primary" input in production, labour ... everything is ultimately made by labour and labour alone ... moreover ... labour is homogeneous'... (p. 6). He continues, 'we assume that labour is the only non-produced input in the economy' (p. 6). By primary input, Hahnel means 'basic good'. Sraffians define basic goods as those goods 'which enter into the production either directly or indirectly of every good' (p. 35). Sraffians believe these basic goods, 'play a different role in the economy than 'non-basic' goods' (p. 35). In all Hahnel's examples it is assumed that the goods 'are basic' (p. 35). If Hahnel took his definition literally then he would have to agree with Smith. An economy is a social organization through which humans produce their environment, by transforming raw materials (inputs) into different useful products (outputs). The only input common to all human productive activities is human labour. But if we took Sraffa's definition literally, this would be a rather short review. In fact what Hahnel means by basic goods are raw materials, the only physical inputs that can increase the physical scale of outputs. All other goods produced by manufacturing, services and so on, use up physical inputs. Consequently, logic demands that goods other than raw materials be excluded from Hahnel's model, not least as Hahnel applies the Forbenius-Perron theorem (p. 34). This requires that every sector expands physically in aggregate. Hahnel's model is, therefore, only really concerned with that small part of the economy that produces basic goods--the raw materials sector. Consistent with this Hahnel translates Smith's model into a two good economy with identical inputs and outputs, fixed relative prices, and an assumed 'surplus'. Hahnel provides 'recipes' for making each good that express these assumptions mathematically. Hahnel notes that, 'the first step is to write down an equation for each industry that expresses the truism that revenue minus cost for the industry is, by definition, equal to industry profit' (p. 10). But, is this a truism?
What is the unit for this revenue measurement? The unit, Hahnel answers, is the system of relative prices itself,
But we are only interested in relative prices, i.e. how many units of...