From: rob@KAMAN.COM (Rob Vienneau)
Newsgroups: sci.econ
Subject: Sraffian Revolution 2/4
Date: 16 Sep 92 00:22:34 GMT


                      NEOCLASSICAL                 CLASSICAL/SRAFFIAN
                         THEORY                         THEORY

OVERALL VISION   Allocation of scarce        Creation, extraction, allocation,
                 resources among             and use of surplus. "Viability"
                 alternatives.               of system to (re)produce.

Production       One way flow of goods       Circular flow of "commodities
Theory           from factors to consumer    produced by means of commodities."
                 goods.

Institutional    Barter economy.             Capitalism. Goods produced for
Setting          Production subservient      profit. Consumption subservient
                 to consumption.             to production.

Human decision   Mechanical. Adjust          "Creative rationality." 
making           decision variables to       Environment created as unforeseen
                 given environment.          result of human decisions.

Place of         Overall theory that         Prices of production "come out in
price theory     determines quantites        the wash" once quantities and
                 and prices.                 income distribution known.

Determinants     Supply and Demand.          Prices of production provide
of prices        Ultimately, given tastes,   moving "centers of gravity" for
                 technology, endowments.     market prices.

THEORY OF CONSUMPTION (FINAL DEMAND)

Source           Individual consumers.       Consumers and growing firms.

Determinant      Maximization of given       No regularity assumed between
                 utility functions.          prices and level or composition
                 A consumer is a set of      of output due to consumer demand.
                 "homogeneous globules of    Open to competing theories,
                 desire of happiness...in    including institutional,
                 stable equilibrium except   historical, and sociological 
                 for the buffets of          theories that allow consumers
                 impinging forces that       to learn about their desires.
                 displace him in one         (Desire need not equal
                 direction or another."      Satisfaction.)
                     -- T. Veblen

THEORY OF THE FIRM

Overall          Marshallian. Firm's are     Open, not specified. Firms are
theory/          mechanical profit           seperate power centers, create
location         maximizers. "Consumer       system by uncoordinated
                 Sovereignty," subjective    decisions. Institutional and
                 elements predominate.       sociological elements possible.

Production       Givens. Technological       No regular relationship
Functions        change reflected in         assumed between level/composition
                 exogeneous shifts.          of output and factor proportions.
                                             Provides framework for exploring
                                             technological change.

Level of         Market supply determined    Not determined by theory.
outputs          with prices. With constant  Prices of production fall out
                 returns to scale, number    after quantities are decided.
                 of firms and firm supply    Emphasizes interfirm/market
                 indeterminate.              flows.

DISTRIBUTION OF INCOME

Overall          No independent theory.      Open to several: Neoclassical?,
location         Level of factor use and     (Post-) Keynesian, Classical/
                 factor prices fall out      Marxian. Prices of production
                 of overall price theory.    fall out after income
                                             distribution decided.

Marginal         Determine income            Cannot be calculated prior
productivities   distribution.               to income distribution. No
                                             explanatory role.

MACROECONOMIC IMPLICATIONS

Long run         Impossible. Markets clear.  Possible. Markets need not
unemployment     Factors in excess supply    clear when calculating
equilibrium?     have price of zero.         prices of production.

Aggregate        Smooth, monotone            No regular relation.
labor demand     decreasing function of      Complex nonintuitive 
                 wage index.                 substitution effects.

Investment       Smooth, monotone            No regular relation.
function         decreasing function of      Complex nonintuitive
                 interest rate.              substitution effects.

Some references:

Alessandro Roncaglia, _Sraffa and the Theory of Prices_, Translated
from the Italian by Jan Kregel, John Wiley, 1975.

John Eatwell and Murray Milgate [Ed.], _Keynes' Economics and the
Theory of Value and Distribution_, 1983.