Essays on the Prelude to the Critique of Economic Theory

This PhD thesis consists of four chapters on different topics in economic theory and empirical applications. The research questions in the first three chapters are principally based on the works of Piero Sraffa. The first chapter discusses the distinction between basic and non-basic commodities in Piero Sraffa's Production of Commodities by Means of Commodities (Sraffa, 1960) and finds that once the distribution of the whole surplus (which includes basic and non-basic goods) is treated as in Zambelli (2018), the computation of self-replacing prices and the profit rates can be made by considering the whole production system (i.e., in terms of the distribution of a surplus which is made of both basics and non-basics) and not only the basic industries. Therefore, the methodology in Zambelli (2018) enables the computation of all the self-replacing prices and profit rates as a function of the wage rate measured in terms of the whole surplus and not only as a function of the surplus of the basic system. The second chapter aims at reconstructing Piero Sraffa's monetary theory through an analysis of Sraffa's published and unpublished works. A coherent approach to monetary theory emerges, according to which money is inherently non-neutral with respect to economic outcomes, due to the institutional forces establishing the monetary standard of deferred payments. Moreover, it is shown that Sraffa was able to anticipate monetary problems that would have been discussed only several decades later in the economic literature. The third chapter investigates the conditions under which Sraffian schemes can be reduced to a special case of the Walrasian general equilibrium model, as argued by Hahn (1982). By devising a thought experiment, a neoclassical model and a Sraffian model are compared and analyzed from the perspective of Computable Economics. It is found that arguments based on the flexibility of production coefficients, the uniformity of profit rates across sectors, intertemporal specification of Sraffian schemes, and topological existence theorems of Walrasian general equilibrium are not sufficient in order to prove that Sraffian schemes arise out a specialization of neoclassical theory as claimed by Hahn (1982). Moreover, it is shown that when Sraffian schemes are set in a fully-fledged neoclassical model, including a neoclassical choice of technique and a set of consumer preferences mapped by utility functions, income distribution is still indeterminate. The fourth chapter builds on the debate on the soundness of neoclassical methods for the estimation of potential output adopted by the European Commission in pre-Covid years. The introduction of a deficit-financed conditional minimum income (CMI) to discouraged people which are outside the labor force is proposed and discussed within the commonly agreed European methodology for the estimation of potential output. By stimulating participation, this measure would bring about an upward revision of Italy’s potential output, and this in turn will contribute to generate a greater fiscal stance. It is shown that policies targeting discouraged individuals are susceptible of having a positive impact on the growth of the productive capacity in the economy. The chapter also discusses the theoretical problems and empirical pitfalls of the commonly agreed methodology.