1 – Introduction

1“Modern classical political economy” is a field of research that has flowed directly from the analytical framework proposed by Sraffa (1960) and from the works of certain scholars who gravitated around Cambridge (UK) between the sixties and the eighties. It is well known that Cambridge (UK) has been a melting pot of innovatory views on fundamental issues in political economy for over 40 years. The first major strike against the predominant position came from the principle of effective demand and the general theory of employment, interest and money, formulated by Keynes in (1936). A second strike was the “capital critique” originated by Sraffa’s (1960) framework of production of commodities by means of commodities. Together with this critique, Sraffa’s book made it possible to reappraise classical political economy with a particular focus on issues concerning production and income distribution. Sraffa’s book, together with the edition of Ricardo’s opera omnia, fascinated many of his Cantabrigian colleagues, but only the younger scholars were able to grasp the real significance of his contribution. Pierangelo Garegnani and Luigi Pasinetti were two of these scholars, perhaps the first two who engaged in a deep investigation of the analytical framework proposed by Sraffa and its theoretical implications. Garegnani and Pasinetti have always worked independently of one another, and both are at the head of two rich lines of scholars who have dedicated their research to this new field. [2] The present paper aims to observe, in a comparative way, how Sraffa’s research programme has been carried out by these two leading figures among Sraffa scholars. It is undeniable that Garegnani and Pasinetti are clearly rooted in classical political economy and in Sraffa’s approach. Yet their divarication is clear: Garegnani focused on the delimitation of the logical structure of classical political economy, while Pasinetti’s focus is the analysis of structural change. Garegnani tried to connect the bare analytical framework proposed by Sraffa to the actual phenomena it can explain and the conditions implicitly required to make this effort fruitful. He described how classical analysis can be separated into two “stages” of analysis, with a particular focus on the determination of the prices of commodities and their relations with the distributive variables. To achieve these goals, Sraffa and Garegnani emphasize the necessity to consider the quantities produced as given in this stage of analysis. Moreover, they refer this analysis to a situation characterized by a uniform rate of profit. Garegnani justifies this uniformity as a result of a “gravitation” process induced by the phenomenon of capital mobility in searching for the highest return; hence he explicitly refers the entire analysis to a capitalist system. Pasinetti, on the other hand, managed to extend Sraffa’s framework to analyse the processes of structural changes of actual economic systems. To this end he developed a multisectoral system where population, technology and final consumption evolve over time in a sectorally differentiated way. Consequently, the quantities produce change as time goes by; moreover, he refers his analysis to a pre-institutional stage, where an entire structure of differentiated sectoral rates of profits is determined to meet the sectoral necessities of accumulation of productive capacity in relation to the evolution of the final demand of each commodity.

2It will be argued in this work that these research projects are not incompatible with one another; they are in fact complementary. We will see how the structural change model is built upon, and may be regarded as, an extension of the “core” equations of the surplus approach: in particular, in order to determine a structure of rates of profits connected to the evolution of final demand of commodities, Pasinetti needs to avoid any biunique (mechanical) co-determination—typical of neoclassical analysis—between prices and distributive variables on the one hand, and quantities on the other. This will be possible simply because the evolution of quantities is the object of a separate determination with respect to the relations between prices and distributive variables. In fact, when Pasinetti formulates the laws of evolution of the parameters of the system, he follows a route which is parallel (though not equivalent) to that followed by Sraffa and Garegnani.

3In this work I do not intend to provide the correct interpretation of the two authors considered, nor of their approaches. Rather, I will present, in a constructive way, what I have learned from their approaches, and what I consider a common and solid basis for grounding an economic investigation of our contemporary systems. Hence, I will be more inclined towards uncovering connections and indicating their possible integration than emphasizing the differences—which I do not deny—in their approaches.

2 – The logical framework of classical surplus theories

4For expository reasons, it is convenient to start from the reconstruction of the logical framework of classical surplus theories provided by Pierangelo Garegnani (see, in particular, Garegnani, 1984 and 2007).

5The main focus of Classical Political Economy was the determination of the size of the social surplus and of its distribution. The peculiar feature of these theories is the view that the shares of the product other than wages are determined residually. This means that once the replacements of the means of production employed and wages (pre-determined on the basis of an institutional mechanism) are deducted from the social product, what remains, i.e. the residuum, goes to profits and rents. In other terms, profits and rents arise because wages do not absorb the entire net product. This view clearly delineates a society where capitalists and land-owners have a prominent position in the distributive process. This principle can be expressed by the following equation:

6

7where Π are profits, R are rents, X is the social product, A is the replacement of the means of production and W are wages. There is a fundamental logical requirement in order to give relation (1) a theoretical meaning, i.e. to interpret it as an equation and not just as an accounting identity: all the magnitudes on the r.h.s. of (1) must be considered as given in the stage of analysis where we study the determination of the magnitude of the shares other than wages. In other terms, X, A and W must be “intermediate data,” to use a term quite recently introduced by Garegnani (2007).

8It is well known that the satisfaction of this logical requirement represented an Achilles’ heel for Smith’s surplus theory of profits, which Ricardo perceived very clearly but was unable to solve satisfactorily. The difficulties arise from the fact that X, A and W are values of aggregates with different compositions. The determination of the prices of the commodities entering them should thus be prior to the determination of the shares other than wages, but the determination of “natural” prices for Smith requires the knowledge of wages, profits and rents. Sraffa’s (1960) framework provides a solution to these difficulties, and Garegnani (1984) carefully defined the logical requirements of this determination. It is useful to briefly recall the main steps. Consider a system where commodities are produced by themselves and by labour, all capital is circulating and there is no joint production. Free competition ensures a tendency of prices to cover wages and gross profits (we are ignoring rents for the sake of simplicity). The prices of commodities must thus satisfy the following equations

9

10where p is the price vector, x̂ is the diagonal matrix of gross output of the various industries, A = [a_ci] is a square matrix where a_ci is the quantity of commodity c annually employed by industry i, where c, i = 1, 2, …, C = I (processes are represented on the rows), q is the vector of the gross rental prices (they include depreciation) of the various commodities used as capital goods, w is the wage rate and ℓ is the vector of the annual quantities of labour employed in each industry. This formulation, which recalls Smith’s notion of natural prices, [3] is still incomplete, as it overlooks the elementary fact that it is impossible to fix all distributive variables, q and w, independently of one another. [4] This inconsistency, typical of an adding-up theory of prices for which the claim of each class can be accommodated by a suitable variation of prices, is eliminated once it is recognized that in normal conditions, gross rental prices of capital goods, q, are linked to the prices of production of these goods, p, by the relation [5]

11

12where π is the uniform rate of return or of profit. After replacing equation (3) into equation (2) we obtain the usual formulation of the price system:

13

14It should be recognized that price equations (2) plus equations (3) or, their equivalent, system (4), is common to both classical and long-period neoclassical approaches. [6] What really differentiates them are the forces which regulate income distribution: the relative scarcity of factors in the neoclassical approach—expressed by the supply and demand curves which co-determine the prices of commodities and the distributive variables—or social and historical (i.e. institutional) factors in the classical approach.

15It is well known that the neoclassical determination of income distribution is affected by the logical difficulties connected with the notion of “quantity of capital,” both on the demand and the supply side. [7] In order not to undermine the validity of Sraffa’s logical construction overall, following the classical tradition, one must consider the quantities produced, x, the quantities of commodities employed as means of production, A, and the quantities of labour ℓ as given when writing price equations (4). In the Preface of his book Sraffa warns:

16

[a]nyone accustomed to think in terms of the equilibrium of demand and supply may be inclined, on reading these pages, to suppose that the argument rests on a tacit assumption of constant returns in all industries. If such a supposition is found helpful, there is no harm in the reader’s adopting it as a temporary working hypothesis. In fact, however, no such assumption is made. No changes in output and […] no changes in the proportions in which different means of production are used by an industry are considered, so that no question arises as to the variation or the constancy of returns. The investigation is concerned exclusively with such properties of an economic system as do not depend on changes in the scale of production or in the proportions of “factors.”

17In this way, once a numéraire has been chosen, it is possible to deduce from the price equations (4) the relation between the rate of profit and the wage rate. As known, when the Standard commodity is chosen as numéraire this relation takes the simple form

18

19where R = (1 – λ*)/λ* is the maximum rate of profit and λ* is the dominant eigenvalue of Ax̂^-1. Formula (5) depicts clearly the trade-off between profits and wages, which should be impossible to see by looking only at the price equations (2); in other terms, it displays very clearly the residual character of one distributive variable with respect to another. With a different numéraire, the relation between π and w takes a more complicated form, but it also shows the trade-off between profits and wages. Relation (5) (or the analogous relation between π and w entailed by the chosen numéraire) shows that income distribution must be determined outside the price equations, that is, outside the sphere of production.

20While the attitude of marginalists has been one of searching for this determination in the “factors market,” the attitude of classical economists (both “old” and modern) has been that of searching for it in the “institutional sphere.” This point has not always been clear in the literature about Sraffa’s work. One recurrent point was the idea that Sraffa’s price equations represented just one side of the economic relation, the supply side, and that they needed a set of demand equations to close the model: for example, Samuelson writes:

21

[m]y fundamental point, let it now be clear, was that Piero Sraffa sought to have but one leg to stand on. Competitive prices, everyone now knows, must stand squarely on the two legs of (1) tastes, desires, needs and distribution of endowments (in short, on consumer-demand factors), and (2) technology and production costs. At one time or another, Adam Smith (very briefly), David Ricardo, and Frank Knight (briefly), have tried to concentrate on subcases of reality where competitive prices (price ratios, and goods prices relative to factor prices) can be determined autonomously in terms of technology and costs alone: the one-leg case. What is consistent throughout the lifeline of Piero Sraffa—in 1925, 1926, between 1926 and 1930, in 1951 and 1960—is the attempt to emphasise the singular cases in which the theory of value happens to be dependent only on technology and costs independently of the composition of demand.

22While Joan Robinson writes:

23

We are concerned with equilibrium prices and a rate of profit uniform throughout the economy, but we are given only half of an equilibrium system to stand on. We need a fence to prevent us plunging off into the abyss.

24In order to set up Sraffa’s theoretical framework within the realm of classical political economy, and to outline the main characteristics of this approach, it is useful to adopt a device proposed by Pierangelo Garegnani, who enucleated the “core” of this theory, which consists in a subset of relations (equations) that, given the value of some economic magnitudes which are provisionally considered as independent variables (also called “intermediate data”), determine the remaining variables as dependent or endogenous variables.

25For “old” classical economists (Smith, Ricardo and Marx) the intermediate data are:

1. the social product, x,
2. the real wage rate, w^T = [w₁, …, w_C], i.e. a bundle of commodities,
3. the technology of the system, A;

26the relations belonging to the “core” determine the following dependent variables:

1. labour employment, E* = ℓ^Tx,
2. the shares other than wages, that is, profits—here rents are not considered— whose rate is given by [8] Π = (1 – λ_M)/λ_M,
3. the price system, p^T = p*^T,

27where λ_M and p*^T are the dominant eigenvalue and the corresponding eigenvector of the socio-technical matrix A + wℓ^T.

28The attitude of “modern” classical economists, since Sraffa (1960, § 44), is that of considering the rate of profit as the independent distributive variable. Hence, in this case the intermediate data are

1. the social product, x,
2. the rate of profit, π,
3. the technology of the system, A;

29the relations belonging to the “core” determine the following dependent variables:

1. labour employment, E* = ℓ^Tx,
2. the wage rate, w* = 1 – π/R,
3. the price system, p*^T = w*[I – (1 + π)A]^-1.

30This distinction makes clear that the relations of the “core” of the system can be adequately expressed by “necessary quantitative relations” (Garegnani, 2007, p. 186), i.e. by equations and formal relations. On the contrary, the magnitudes which are taken as given in the core, i.e. the intermediate data, are determined by forces that are less susceptible to be represented by means of formal relations.

31Obviously, no one in the surplus approach denies that there are influences and feedback relations among the various intermediate data, and between the dependent variables on the one hand and the intermediate data on the other. But these influences do not have the same level of generality and unambiguousness: they may change significantly according to the institutional circumstances and may go in both directions, partially compensating one another. These relations are thus better studied outside the “core” of the system, and in a partially different way: other disciplines, like political or social sciences, economic history, etc., can here usefully support the economic investigation. [9] For example, it is obvious that relative prices affect the composition of final output by affecting the demand of the various commodities. [10] But these effects may change according to the historical or social circumstances; moreover, they are not univocal, and can partially compensate each other. For all these reasons, it is preferable to consider the intermediate data (i), (ii) and (iii) of old classical economy or (I), (II) and (III) of modern classical political economy as determined separately from the endogenous variables of the core. Formally this is realized by considering the intermediate data as given when studying the forces that determine the endogenous variables of the “core”: (a), (b) and (c) or (A), (B) and (C).

32There are cases where some specific institutional problems could be analysed in a formal way: for example the study of gravitation of market prices around production prices, or the study of the accumulation process in Ricardian frameworks. But, again, the formalization concerns the specific problem at hand, not the working of the entire economic system. Hence, in these stages of analysis, other variables are kept frozen at some given levels: for example, the wage rate is taken as given when one studies how market prices gravitate around natural prices in consequence of capital mobility (see, for example, Boggio, 1990, p. 48; Duménil and Lévy, 1993, chapter 5; Garegnani, 1990, p. 333); again, the level of the wage rate is taken as given when one studies how profits are accumulated and new plots of land are cultivated (see Bellino, 2014, in particular § 3, and Kurz and Salvadori, 2006, pp. 110-11).

33This attitude—of analyzing the working of an economic system in different stages, each for a specific problem or situation, sometimes in formal terms, in other cases by using the instruments of social, historical and institutional analysis—is in sharp contrast with the attitude followed by neoclassical economists, which normally refer to a general model. [11]

3 – Structural economic dynamics

34More than any other, Luigi Pasinetti is probably the scholar who succeeded in building a bridge between Keynesian themes or subjects and the modern Classical reappraisal led by Sraffa. Pasinetti’s model of structural change is in fact grounded on Keynes’s principle of effective demand and on the classical theory of distribution and value. He originally presented this model in his PhD dissertation in 1963, and then published it in various versions (1965, 1981 and 1993).

35His analysis has a twofold objective:

1. to study the consequences of structural change of technology and of final demand on output, value and employment;
2. to study the conditions that have to be satisfied in order to accomplish the potential of the system concerning growth, employment and the satisfaction of final wants.

36In brief, we could say that objective i) is descriptive, while objective ii) is normative. To handle objective i) Pasinetti starts from Sraffa’s price equations and extends them to the case of an economic system undergoing a process of structural change, i.e. a change in the proportions of the various industries. Hence, some of the magnitudes that have been kept as given in the price equations here must be left free to change. But, as we will now see, this extension is done in line with the methodological requirements imposed by the logical structure of surplus theories.

37The price equations considered by Pasinetti are

38

39We are considering an economic system with I single product industries. Thus, 1 unit of commodity i requires ℓ_i units of labour and 1 unit of a capital good, specific to the commodity, i = 1, …, I (for this reason, we will call “capital good i” the capital good employed in the production of commodity i); [12] in each production period a constant proportion, δ_i, of capital good i wears out; 1 unit of capital good i is produced by λ_i units of labour. Let c_i be the units of final good c_i required by each individual as final consumption; let j_i be the individual demand for capital good i by the final sector (net investment). Let p_i and v_i be the prices of commodity c and of its specific capital good. System (6) contains 2I + 1 equations in 2I + 2 unknowns: p₁, …, p_I, v₁, …, v_I, w and π. The first 2I equations can be written as:

40

41After having chosen the numéraire, there remains one degree of freedom which expresses, as usual, the fact that income distribution is determined outside the price equations. For example, if we chose commodity ‘1’ as numéraire, i.e. if we set p₁ = 1, by substituting the first equation of (p) we obtain 1 = p₁ = (δ₁ + π)wλ₁ + wℓ₁, which engenders the following inverse relation between the rate of profit and the wage rate expressed in terms of commodity ‘1’:

42

43There remains, however, a further equation in system (6), the last one,

44

45which expresses the condition that all incomes (wages + profits) must be entirely spent.

46In addition to the price system, we have a quantity system. Let x_i and k_i be the quantities produced of final good i, and of its productive capacity; let x_N be the quantity of labour employed in all production activities. The quantity equations are

47

48System (7) contains 2I + 1 equations in 2I + 1 unknowns: x₁, …, x_I, k₁, …, k_I, x_N. It is a homogeneous system; once the condition to ensure non-trivial solutions is satisfied (see Pasinetti, 1981, ch. II, § 3), we have one degree of freedom; the quantity which is more apt to be fixed from outside is the employment level, x_N; if we want to guarantee full employment we fix

49

50where N is the amount of the labour force.

51The last equation of system (7) is

52

53Equations (6N) and (7N) together express the Keynesian principle of effective demand: wages and profits must be entirely spent in order to ensure that labour requirements employ the available amount of labour force. As we will see in brief, this condition is never automatically satisfied.

54Pasinetti assumes that all magnitudes which enter as “parameters” in the description of the industrial system of the previous section are now allowed to change. In particular, Pasinetti supposes that technical coefficients, final demand coefficients and population vary according to the following exponential functions:

55

56There remains a set of coefficients in the quantity equations (7) whose dynamics has not yet been specified: they are the coefficients of net investment in capital good c, k_cN. Consistent with his normative attitude, Pasinetti fixes them in such a way that the productive capacity of each commodity increases in line with the evolution of final demand for that commodity. This amounts to imposing the following:

57

58(see Pasinetti, 1981, ch. V, § 4).

59The dynamics of parameters envisaged by equations (9) and entails a structural change for the endogenous variables of the system considered: for prices, for sectoral output, for sectoral employment, as well as a macro-dynamic for the aggregate level of employment. This is a relevant result for a growth model (for details see Pasinetti, 1981, ch. V).

60The second objective pursued by Pasinetti in his investigation derives from interpreting the equilibrium conditions simply as relations describing an ideal (efficient) situation, where the “potential” of the economic system concerning growth, employment and satisfaction of final wants is best obtained independently of the study of the forces needed to implement these conditions in an actual system. This allows him to “separate” the level of analysis where the various conditions are described and which must be satisfied in the ideal or “natural” configuration of the economic system, from the level of analysis where the institutional mechanisms needed to achieve these conditions are described and compared. [13] We could summarize the relations that must be satisfied in the “natural” system in the five following points:

• (N1) a price system which guarantees the reproducibility of the various commodities, identified by the first 2I equations of system (6);
• (N2) a set of output levels which satisfy the final demand of each commodity, identified by the first 2I equations of system (7);
• (N3) the “macro–economic condition,” i.e., equations (6N), (7N) and (8), which together guarantee full employment of the labour force;
• (N4) an income distribution configuration which guarantees the growth of the productive capacity in each sector in line with the growth of the final demand of the respective commodity. Pasinetti envisages the fulfilment of this goal by a set of differentiated rates of profit, called “natural rates of profit,” determined by the total rate of growth of the final demand of the correspondent commodity (π_i = n + r_i, i = 1, …, I). It is possible to prove that in this case the price of each commodity becomes proportional to the quantity of labour which is necessary i) to reproduce the commodity, ii) to reproduce its means of production and iii) to expand these means according to the growth rate of final demand of that commodity. A renewed form for the theory of labour value thus takes shape in this case. Consequently, each individual receives a fraction of the net product equal to the proportion of the quantity of labour he contributes with respect to the total labour of the system (“labour principle” of income distribution);
• (N5) a natural rate of interest, which guarantees that the debt and credit relationships among individuals do not distort the income distribution process from its “labour principle.”

61The connection of the “natural” relations with actual systems is seen by Pasinetti as an “institutional” problem. In particular, as regards the achievement of goals listed above as (N1)-(N5), we can observe that goals (N1) and (N2) are normally fulfilled in capitalist systems (for details, see Bellino, 2011): free competition ensures that prices tend towards their normal levels while the Keynesian principle of effective demand aligns the output of each commodity to its demand. [14] On the contrary, goal (N3) is not automatic in modern capitalist economies; moreover, the phenomenon of structural change is for Pasinetti a force that contrasts with the fulfilment of this objective; it can be pursued by means of several policies, according to the specific situation of the system (introduction of new goods, search for new markets, public investments, monetary policies, etc). Goals (N4) and (N5) are probably never feasible, or only partially feasible, in capitalist systems; nevertheless, they may represent some sort of benchmark levels, to evaluate how far an actual system is from its “natural” configuration. [15]

4 – Two directions, one framework

62To carry out our comparison between the surplus approach and the structural dynamics research programmes, it is convenient to start with two (quite long) quotations from our two authors. Garegnani writes:

63

[W]hy take as given some magnitudes that the theory has also to determine, and are therefore ultimately in the nature of unknowns? We shall see […] below how this method of “intermediate data” has its basis in the distinction, implicit in the application of the notion of surplus to a market economy, between two fields of inquiry and the corresponding different methods of analysis. On the one hand, we have the necessary quantitative relations, which competition entails between commodity prices and distributive variables and, which, in their comparative simplicity, are of a nature allowing for a mainly deductive treatment. On the other, we have the circumstances determining what we have described as the “intermediate data”: the subsistence or, more generally, the wage, the outputs, the technical conditions of production. These circumstances were seen to be closely related to institutional and historical factors, which, because of their complexity and variability according to circumstances, prevented deducing the corresponding variables from a few basic principles as was possible for prices and profits in the “core.” Those intermediate data rather required, for their study, methods of a more inductive kind. This distinction, concerning both contents and methods, which underlies the notion of surplus, appears to be what has entailed the separation between the two fields of analysis and the corresponding logical construct of the “intermediate data.”

64Pasinetti writes:

65

In the previous chapters, the analysis has been concentrated on the theoretical scheme of what has been called the “natural” economic system of a simple […] production economy. The natural economic system represents so to speak the framework skeleton of the present theoretical construction. It is a set of relations that possess characteristics of analytical relevance and logical consistency, with strong normative properties.
But the natural economic system does not come into existence automatically. For any actual economic system, the problem arises of inventing and setting up those organizational devices – in other words those “institutions” – which put into motion processes actually able to bring the natural economic system into existence. […] The institutional problem does not need to have a unique solution, nor does it emerge once for all. By being a problem of construction of organizational devices (the institutions) in order to achieve certain results (the natural economic system), it is obviously susceptible of being faced in different ways, from place to place, from time to time, and at the variation of many external circumstances, without mentioning that the organizational field is itself subject to continuous evolution and innovation.
Moreover, an economic system does not come about in a vacuum. It presupposes a complex network of political, juridical, and legal institutions. These institutions may have been shaped through different historical processes or according to different traditions in different countries, sometimes with even stronger requirements than those behind economic institutions. With this wider institutional framework, the economic institutions must merge and intermingle, while carrying out the task entrusted to them.

66From the above quotations, we can observe in both authors a “separation” of the analysis into a more restricted theoretical level of relations (the “core” and the “natural system”), and a second level which includes in both cases the institutional level. This “separation” does not overlap for the two authors. Pasinetti’s natural system is a theoretical construction that includes the essential relations among sectoral outputs, relative prices, employment and wages, profits and interest, that must be satisfied in an economic system in order to best exploit its potential, independently of the institutional set-up to enforce these relations. Garegnani’s core is a subset of relations among the same set of magnitudes in the case of a specific institutional set-up: capitalism.

Core of a capitalist system (Garegnani) Natural system (Pasinetti) (intermediate) data dependent variables (changing) data dependent variables social product (x) employment, (ℓTx) population (xN) sectoral output (x) rate of profit (π) wage rate (w) final consumptions (c) employment (ℓTx + λTj) technology (A) prices (p) technology (ℓi, λi, δi) wage rate, profit rate(s) (w, πi) prices (p)

67The purpose of each logical construction is different; they are not alternative but complementary to one another. The core is mainly concerned with providing a description of how capitalist economies work: it thus has a positive purpose. The natural system is essentially a normative tool. Yet there are two fundamental characteristics that are common to the approaches:

1. the study of the relations among the magnitudes belonging to the “core” as well as those belonging to the natural system are carried out, in both cases, by “necessary quantitative relations” (i.e. equations), while the relations outside of the core as well as those concerning the institutional system are better studied in a separate way, in connection with social, historical, political disciplines;
2. all the parameters considered as given by Sraffa and Garegnani (see the quotation from Sraffa, 1960, reproduced here at p. 9) change in Pasinetti’s model. But there is a device that avoids these changes allowing what was left out the front door to re-enter through the back: the co-determination of prices and quantities and, consequently, the return to a “mechanical” determination of income distribution based on supply and demand forces. This is prevented by the choice to assume that the rates of change of labour inputs, of final demand and of population (n, ρ_i, ρ_ji and r_i) are independent of any other endogenous variable of the model. This formal independence is just a way to preserve the theoretical choice to provide a separate determination of some variables, which appear more subject to the influence of institutional factors. The methodology of “given quantities” and “given technology” is thus now extended to the case of an evolving economy: final consumption and technical coefficients are assumed to evolve according to a given pattern of evolution. This is a methodological aspect induced by a specific theoretical need. On this point Pasinetti highlights that

   The […] innovative methodological line of research consists in separating sharply the distinction between variables and constants from the distinction between unknowns and data. In traditional economic analysis these two distinctions tend to coincide because of the essentially static approach which is adopted: those magnitudes which are considered as unknowns are also considered as variables, and those magnitudes that are considered as data are also considered as constants. But in a dynamic context, to insist upon this coincidence makes no sense. Or rather, to insist on this coincidence is equivalent to frustrating the purpose of any investigation into dynamics.

68In solving a particular problem there is thus no contradiction in considering some magnitudes as given, even though they may change as time goes by—as in Pasinetti’s structural change model—or may be affected by changes of the endogenous variables they contribute to determine—as in the core of the surplus approach. This kind of feedback can be disregarded when there are reasons to believe that they are non-univocal, non-systematic or non-persistent.

69A common methodology is thus adopted for analysing an economic system from different perspectives: the description of the behaviour of a capitalist economy and the identification of an “ideal” configuration that constitutes a norm to orientate the actual working of system.

5 – Some concluding remarks

70Modern classical analysis is a school which has always appeared compact united in its critical attitude towards neoclassical economics. On the positive side, while at first glance the positions may appear quite un-homogeneous and discordant, this is primarily a direct consequence of the authors having developed their own research independently of one another. Nevertheless, by comparing their contributions, one sees substantial affinities regarding the methodology followed in order to keep the analytical framework coherent with the common classical matrix (the separation of an analytical subset of purely economic relations from the broader set of “institutional” relations is what prevents classical theory from getting lost within the difficulties connected with the notion of capital affecting the supply and demand approach). At this point, it is instructive to reproduce the list of the nine “quite clear characteristic features” that Pasinetti attributes to that group of scholars who became known as the “Cambridge Keynesian School” (see Pasinetti, 2007, 217-37).

1. Reality (and not simply abstract rationality) as the starting point of economic theory.
2. Economic logic with internal consistency (and not only formal rigour).
3. Malthus and the Classics (not Walras and the Marginalists) as the major inspiring source in the history of economic thought.
4. Non-ergodic (in place of stationary, timeless) economic systems.
5. Causality vs. interdependence.
6. Macroeconomics before microeconomics.
7. Disequilibrium and instability (not equilibrium) as the normal state of the industrial economies.
8. Necessity of finding an appropriate analytical framework for dealing with technical change and economic growth.

71A strong, deeply felt social concern.

72It will now be shown how the overwhelming majority of the characteristics described above are also deeply shared by the group of scholars led by Pierangelo Garegnani, who developed and systematized the modern version of the surplus approach.

731. Reality: the pure logic which supports Sraffa’s framework is never conceived as an exercise for its own sake; Sraffa’s idiosyncratic opposition to mathematical formalism was known to all of his scholars. [16] Additionally, the interpretation of Sraffa prices as the “normal positions” of the economy is a clear attempt to establish a correspondence between theoretical and observable variables (on this, see Garegnani, 2007).

742. Internal consistency. Self-evident!

753. Classics, not the Marginalists. Self-evident!

764. Non-ergodicity. The interpretation of Sraffa’s framework as a “steady state” has been rejected on several occasions. For example, normal positions around which actual (marker) prices “gravitate” are characterized by the prevalence of a uniform rate of profit: this does not exclude the possibility of conceiving a dynamics of normal positions (on this see, for example, Cesaratto, 1995).

775. Causality. It has been shown throughout this paper how specific features of the surplus approach have been obtained by a suitable choice of asymmetrical links among the relevant magnitudes. For further details on this point see Bellino-Nerozzi (2014).

786. Macroeconomics before microeconomics. The distinction between macro- and micro-economics is extraneous to the classical tradition. Pasinetti’s intention, however, is that of recalling that

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[t]he Cambridge economists caught very clearly the principle that the behaviour of the economic system as a whole is not reducible to, in the sense that it does not emerge as the exclusive result of, the sum of its single individual parts […] [t]here are many examples of fallacy of composition that the Cambridge School have highlighted, as against the attempts to extend what is true for the single individual to the behaviour of the economic system as a whole.

80The works of Garegnani and of other surplus theorists evidently fulfil this characteristic.

817-8. Disequilibrium and instability + technical change and economic growth. These are, probably, two points where the methodology of modern surplus theorists diverges, but—I argue—only partially, from that of the “Cambridge Keynesian School.” The preference of surplus theorists for using the Marshallian “short chains of reasoning,” to investigate “economic change step by step,” is undeniable (Cesaratto, 1995, p. 274). Pasinetti, on the contrary, on the basis of Frisch’s (1935-36) notion of “moving equilibrium,” [17] has studied how an equilibrium configuration changes as a consequence of a change in one or more parameters. As we saw in Section, the relevant parameters (population, technology and final demand) are supposed to change as time goes on. The possibility of slipping into a model of full interdependence (like a Walrasian model) where all variables are mechanically determined is avoided by a specification of the dynamics of these parameters on the basis of a given pattern, which replicates, in a reasonable way, long-term historical tendencies—like the supposition of reducing labour input coefficients due to technical change, or an evolution of final demand coefficients like that described by Engel—rather than by a “microfoundation” of the variations of the parameters.

829. Social concern. Self evident!

83From this perspective it can be recognized that the elements at the basis of the surplus approach as described by Garegnani are not contradictory with the analysis of structural change of industrial systems developed by Pasinetti. Clearly, Pasinetti adopts a perspective which in some way is pre-institutional. He is interested in describing the conditions that an industrial system, undergoing a process of structural change, must satisfy in order to accomplish its potential concerning growth, employment and the satisfaction of final wants. Furthermore, the logical separation, emphasized by Garegnani, of the analysis of prices and distribution from that of the quantities produced is preserved in Pasinetti’s analysis in the choice to formulate the evolution of final demand (and of technology) independently of the price system.

84We thus do not have two (or more) ways to develop Sraffa’s framework, but a unified “core” to describe the economic workings of capitalist societies and to orientate the system towards its ideal “natural” configuration.

85Recently, Pasinetti has expressed his worry about a certain negative attitude developed by the members of Cambridge school—which he called the “Cambridge prima donna syndrome”—that sometimes leads to disregarding or ignoring the works of the other members of the group in favour of emphasizing the peculiarities of their own contributions (see Pasinetti, 2007, p. 46, fn. 18).

86Without wanting to disregard the differences and specificities of the two approaches here presented, I hope the present work may assist in the convergence of the research undertaken in this school towards a common modern classical-Keynesian school.