A Note on the rate of profits as an independent variable and its relation to the rate of interest in Sraffa’s PCMC
Within the first thirty three pages of his book, Sraffa (1960) changes his numéraire twice and settles with the third one for the rest of the book. This, by itself, had broken from the classical tradition in a significant way; but with the final numéraire came another momentous rupture from the classical tradition in the shift from taking wages as ‘given’ from outside to taking the rate of profits as ‘given’. Both the cause and the theoretical significance of this move have not been well understood in the orthodox Sraffian literature. In this note, I try to clarify this issue and go on to formulate a simple model to explain Sraffa’s claim that the rate of profits is ‘susceptible of being determined from outside the system of production, in particular by the level of the money rates of interest’ (Sraffa 1960, p. 33). To paraphrase Sraffa: though the arguments of this paper do not enter into any discussion of the orthodox Sraffian literature, they have nevertheless been designed as a critique of that literature.
Area: Eshet Conference
Keywords: Sraffa, Money Rates of Interest, Rate of Profits
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