Reconstructing Piero Sraffa's Rediscovery of the “Standpoint of the Old Classical Economists”

This chapter has a closer look at the early period of Sraffa&s;s work in the late 1920s and early 1930s. I deal inter alia with Sraffa&s;s renewed engagement with Alfred Marshall&s;s partial equilibrium analysis, scrutinizing it against the background of Pareto&s;s general equilibrium theory and showing that the (in)famous ceteris paribus clause cannot be sustained. Next, I turn to Pareto&s;s claim that economics was a “natural science” that could investigate the properties of economic equilibrium without any reference to “forces”. Sraffa investigated when the claim was true and when not and related his discussion to the approach and success of the sciences since the 17 th century. Their quantitative re-orientation was reflected also in political economy, which explained the values of commodities in terms of what Sraffa called “physical real costs” and the rate of return on capital in terms of the “social surplus”. Sraffa translated their argument into his “First” and “Second Equations”, the former pertaining to an economic system without and the latter to one with a surplus. Only the former depicts the realm of pure necessity, or “natural economy”. In the “With Surplus Economy”, on the contrary, not only physical real costs matter, but also social institutions that decide the distribution of the surplus amongst different claimants.