Money, Banks and Finance in Economic Thought

Sraffa's on the banking system and the monetary theory of distribution

Zambelli Stefano, University of Trento

Sraffa's research may be divided in two apparently disjointed parts. The first part is the one where his research interests are closely related with monetary and banking theory (Sraffa, 1920, 1922, 1932, and see Panico1988). The second part is the one concerned with the measurement and distribution of the physical surplus produced by an economy (Sraffa, 1925, 1926, 1951, 1960). There are two objectives in this paper. The first objective is to show that the two parts are coherent with Sraffa's view that the production prices are not determined by the "natural or mechanical" economic forces alone. A well know quote on this is directly taken from Sraffa' book: "The rate of profits is accordingly susceptible of being determined from outside the system of production, in particular by the level of the money rate of interest (Sraffa, 1960, p.33). If the money rate of interest may determine the commodities rate of profits and the commodities rate of profits determine the distribution of the surplus, it must also be the case that the forces that determine the monetary interest rate determine distribution as well. This was an important point already put forward in Sraffa (1922) and subsequently in his debate with Hayek (Sraffa, 1932). Chapter 17 (\emph{The Essential Properties of Interest and Money}) in \cite{Keynes1936}' \emph{General Theory} may be interpreted as addressing this problem using also the arguments put forward by Sraffa. The influence of Sraffa on Keynes' work is somewhat acknowledged by Keynes himself in the footnote on the own rate of interest (p.223) where he thanked Sraffa (1932) concept of the own rate of interest. The second objective of the paper, expanding and extending Zambelli(2018), is to introduce money, credit and debt inside Sraffian schemes. Using the words of Nuti(1971, p.35} reported in the introduction of Panico (1988, p.7) this is done having in mind that: "The most appropriate way of approaching the theory of distribution, reintroducing the reality of class struggle into this important branch of Political Economy, seems therefore that of combining the Sraffian relation between wage and profit rates with the little we know - not least from Marx- about the interaction of real and monetary phenomena." The original contribution of the paper is the inclusion of credit and debt inside Sraffian schemes. This is done without the assumption of the 'long-run' position, where the rates of profits are assumed to be uniform, and without the assumption of self-replacing. In order to be able to elucidate the causal relation between the money rate of interest and the profit rate a rigorous formal treatment of money in within the Sraffian schemes is an analytical necessity that we hope to fulfill.

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Keywords: Money, credit, debt, interest rates, profit rates, monetary theory, distribution, Sraffa, Keynes, Marx

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