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Production of Commodities: A Comment

Author(s): Piero SraffaReviewed work(s):Source: The Economic Journal, Vol. 72, No. 286 (Jun., 1962), pp. 477-479Published by: Wiley on behalf of the Royal Economic Society

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1962] PRODUCTION OF COMMODITIES: A COMMENT 477

VI

The aim of this note has not been to deny the usefulnessof Ascheim's

analysis. On the contrary,his analysis s plainly both usefuland stimulating.

My central argument is merely that ProfessorAscheim may have moved,somewhat too readily, from essentiallyqualitative theoretical conclusionsto

policy recommendations and, in doing so, have neglected some relevant

possibilities.If my argumentsare acceptable it appearsthat the relative efficiencyof

open marketoperationsand variationsin reserverequirements,at least in the

short run,1 cannot be determined by qualitative arguments alone. What

matters are the relative magnitudes of a number of coefficients. On this

question we have little to go on but our intuition.This being so, until em-

pirical researchproducesrelevant evidence, we must remain in the familiar

if unsatisfactorypositionof being able to use our intuition tojustify whatever

outcome we happen to prefer. ProfessorAscheim, in short, may well be

right in his judgments. His theoretical analysis, however, is not sufficient

to prove that he mustbe.D. C. ROWAN

TheUniversityf Southampton.

PRODUCTION OF COMMODITIES: A COMMENT

PERHAPS I may be allowed briefly to clear up two points which seem to

have given rise to misunderstanding n Sir Roy Harrod'sgenerousreview of

my bookProductionfCommoditiesyMeansofCommoditiesECONOMICOURNAL,

December 1961).

The first concerns Sir Roy's belief that the system presented must be

indeterminate because it fails to take into account the composition of con-sumerdemand. He startsfrom the example, in ? 1 of the book, of a system

consistingof two industrieswhich producerespectivelycommoditiesa and b,

and from this he concludes: " the rate of exchange of a for b is determined,

quite simply, by the ratio of the excess production of a to the excess pro-

duction of b " (p. 783, my italics). He then proceedsto consider" a greater

number of industries and commodities," and here again he finds that the

exchange values " are determinedby the same principle " (p. 784), namely

by the ratios between the excessproductionof the variouscommodities.

Now this is clearly a misunderstanding,since the exchange ratios are, of

course, determined by the equations of production and not by the ratios

between the excess productionsof the commodities. Sir Roy has been mis-

led by the fact that the two ratios happeno be equal in the first example

1 Defined as a period in which the maturities of bank-held bonds are less than the bond sales

required by the banking contraction.

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478 THE ECONOMIC JOURNAL [JUNE

given (a no-surplustwo-commoditysystem which is in a self-replacing tate).

Even in this simplestcase, however, if, with the same equations,the two com-

modities were producedin different proportions (so that the system ceased to

be in a self-replacingstate) the exchange ratio would remain the same but

the ratio between the excess productionsof the two commodities would be

changed, so that the two would no longer be equal. In the case of a system

of more than two commoditiesthe ratiosof the excessproductions would not

in general be equal to the values even n the self-replacingstate.

Sir Roy, however, having adopted the notion that the exchange values

are always equal to, and determined by, the ratio between the excess pro-

ductions of the commodities, is led to the conclusion that a change in the

composition of consumer demand " would at once, in accordanceith Mr.

Sraffa's wnequations,ffect the price ratios " (p. 784); and this even thoughthe words which I have italicised necessarily mply that the methods of pro-

duction would be unchanged. This misunderstanding, f I may adopt Sir

Roy's own words, " runs through all the complications of his subsequent

treatment."The second misunderstanding s incidental to Sir Roy Harrod's defence

of the idea of a quantity of capital and the related concept of period of pro-duction. He discussesthe example given in ? 48 of two industries in which

" the pattern f the periods of production is different": " at a low rate of

interest' a risein the rateof interestwill cause a greaterrise in the price of A,at higher ratesof interesta rise in the rate of interest will cause a greaterrise

in the price of B and at still higher rates of interest a rise will again cause a

greater rise in the price of A " (p. 786). This example is a crucial test for

the ideas of a quantity of capital and of period of production. Sir Roy,

however, disposesof it by trying to reduce it to another and quite distinct

case: namely, to the effect which a rise in the rate of interest has in raising

the value of partly worn out fixed-capital goods relatively to similar goods in

new condition (?83 of the book) and says: " this is the point that reallygives rise to the reversalsf the effect of interestincreases n Mr. Sraffa'scom-

plicated example " (p. 787). That these two effects cannot be identified,

and are in fact totally unrelated, will appear evident if it is considered that

one of them can arise only in connection with the depreciation of fixed

capital, while the other (the " reversals") is demonstrated n ? 48 exclusivelyin termsof circulatingcapital.

The above misunderstandingarises in the course of Sir Roy's attempt to

simplify my exposition by reducing two distinct cases to one. But whether

two or one, what they show is that it is not possible to define the quantity of

capital and the period of productionin a way that makes them independentof the rate of interest. These results,of course, cannot possibly" damage "

1 The term " rate of profits " is exclusively used in the book, but the review always replaces

it with " rate of interest." I have here followed the terminology of the review, instead of my

own.

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1962] CURRENT TOPICS 479

the definitionssuggested by Sir Roy himself, since the latter are explicitlymade to depend upon " a givenrateof interest (pp. 786-7). One can onlywonder what is the good of a quantity of capital or a period of productionwhich, since it depends on the rate of interest, cannot be used for its tra-ditional purpose,which is to determinethe rate of interest.

PIERO SRAFFA

TrinityCollege,

Cambridge.

CURRENT TOPICS

FELLOWSof the Royal EconomicSociety and economists enerallywillbe interested o hear that in connectionwith the bicentenaryn 1976of thepublicationof the Wealth f Nations,he Universityof Glasgowhopes toproduce a new edition of the collected works of Adam Smith. The re-sponsible ommittee f the Universitywouldbe grateful or the co-operationof any scholars nterestedn thisproject,andwouldbe glad to inform hemin more detail of theirplans and intentions.

SIR ROBERT SHONE has been appointed to be Director-General of thenew NationalEconomicDevelopmentCouncil,and SirDonaldMacDougallhas been appointed o be EconomicDirector.

IN consequenceof his new appointmentSir Donald MacDougall sunable o complete he SurveyArticleon " Theoriesof InternationalTradePolicy" that we had hoped to publishduring his autumn. Therewill bean intervalbefore he appearance f the nextarticle n thatseries.

Thefollowing avebeenadmitted oLibraryMembershipf theSociety:Andersonian ibrary,RoyalCollegeof Science&Technology,Glasgow.A. N. Z. BankLtd., Melbourne,Victoria,Australia.AustenPeayStateCollege,Clarksville, ennessee,U.S.A.Bedrijsfraadoorde Visserij,Ostend,Belgium.CentralSerialRecordDept., CornellUniversity, thaca, N.Y., U.S.A.ChristCollegeCo-op.SocietyLtd., Irinjalakuda,Kerala,India.CollegeofEducation, tateUniversity f NewYork,Albany,NewYork.Collegeof St. Thomas,St. Paul 1, Minnesota,U.S.A.ColumbiaUniversity n the City of New York, Dept. of Economics,

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