Lachmann on Sraffa
"[Sraffa] developed the notion of own-rates, without actually coining the word, in an appropriate setting of forward markets, though unfortunately he considered these in isolation and thus failed to realize how, in a system of intertemporal markets, the market forces tend to re-establish equilibrium once it has been disturbed. He came to interpret Wicksell's 'natural rate' as an average of 'actual' own-rates as they would exist, side by side, in a barter economy, and not as the result of the operation of market forces. He thus substituted a statistical device for an analysis of market relationships."-- Capital and Its Structure, p. 76-77
And in a footnote to this passage, Lachmann writes: "Evidently Mr. Sraffa failed to see how in a barter economy intertemporal arbitrage would tend to bring the various 'natural' rates into conformity, thus tending towards establishing the 'equilibrium' rate."
Lachmann understood Sraffa perfectly well. And he saw the solution to Sraffa's puzzle that I outlined previously.
And in a footnote to this passage, Lachmann writes: "Evidently Mr. Sraffa failed to see how in a barter economy intertemporal arbitrage would tend to bring the various 'natural' rates into conformity, thus tending towards establishing the 'equilibrium' rate."
Lachmann understood Sraffa perfectly well. And he saw the solution to Sraffa's puzzle that I outlined previously.
This is all I am prepared to say at the moment.
ReplyDeleteIf you take it at face value, then Lachmann was not correct.
ReplyDeleteThe rates that Bob and Sraffa are talking about - the rates that you do not consider to be "real" rates - will never come to be one, even in equilibrium (there will be as many as there are goods).
The originary rate in your example was uniform, but that's not what Sraffa or Bob was talking about; so, strictly speaking, the criticism by Lachmann is misplaced. The appropriate criticism would have been something like: "although the own-rates Sraffa discussed will never be uniform, they do share a fundamental underlying relationship; they are all tied together by a single originary rate of interest. That is the rate we should be interested in."
Maybe that's what Lachmann meant, but I think you're being pretty charitable if that's what you draw from above.
Jim, in fact, you think that Lachmann is not correct only because you have not actually understood the problem yet. The question on the table is NOT "do the rates Sraffa and Bob are talking about ever equalize?" The actual question is "Despite the disparity in own-rates measured this way, can we nevertheless identify a natural rate of interest?"
DeleteI understand the problem. And I agree with you on what the actual question is. I'm just saying it's hard to interpret Lachmann's own writings as evidence that he understood it this way.
DeleteWhen Lachmann writes: "Evidently Mr. Sraffa failed to see how in a barter economy intertemporal arbitrage would tend to bring the various 'natural' rates into conformity, thus tending towards establishing the 'equilibrium' rate."
...it's not evident to me that he means (as you put it): The actual question is "Despite the disparity in own-rates measured this way, can we nevertheless identify a natural rate of interest?"
Rather, it seems like he's saying on Sraffa's terms the rates should equalize, which as Bob has pointed out, is not true (there as many as numeraires).
It's not a big deal, but I think on this minor point, Bob is right.
The more important point is whether, as you point out, we can still identify a single natural rate. And, at the moment, I agree with you on this: we can. I still have some doubts: e.g. why doesn't the 10% gap you indicated get bid away by competition? But I think they're issues that require more thought.
OK, Jim, I may have been wrong in judging your position. But:
Delete"why doesn't the 10% gap you indicated get bid away by competition?"
The 10% gap is the same across all goods. Here look to Mises: people prefer present goods to future goods, ceteris paribus. This will means that future goods will be discounted vis-a-vis present goods: that is the source of the 10%. Unless our future selves are allowed to bid on the market through time travel, there is no one to bid this away!
This is going to be good.
ReplyDelete.. or totally incomprehensible.