Constant returns to scale and economic theories of value

Naqvi, Nadeem (2007): Constant returns to scale and economic theories of value.

Abstract

Jointly with Erkko Etula, Paul Samuelson [2006] claims that the “Leontief – Sraffa matrix equations for input/output must obey constant returns to scale”. However, in an unrelated work, Amartya Sen [2003] claims that Sraffa’s [1960] “analysis does not need any assumption of constant returns to scale.” In fact, Sraffa’s model cannot satisfy this property because it is impossible to define constant returns to scale in it. This claim is considerably stronger than Sen’s. The property of constant returns to scale is significant because it constitutes a line of demarcation between distinct, though interrelated, economic theories of value. (96 words)

• Item Type: MPRA Paper
• Institution: American University in Bulgaria
• Language: English
• Keywords: Constant returns to scale; Theory of Value; Relations of production; Counterfactual information; Exchange Values; Classical Political Economy; Neoclassical theory; Leontief technology
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B0 - General > B00 - General; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D51 - Exchange and Production Economies; B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B40 - General

References

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Ricardo, David, On the Principles of Political Economy and Taxation, London: John Murray, 1821, 3rd Edition.

Samuelson, Paul A. “Parable and Realism in Capital Theory: The Surrogate Production Function,” Review of Economic Studies, 29 (3) (1962), pp. 193-206.

________. and Etula, Erkko M. “Testing to Confirm that Leontief-Sraffa Matrix Equations for Input/Output must obey Constancy of Returns to Scale,” Economics Letters, 90 (2006), 183-188.

Sen, Amartya, “Sraffa, Wittgenstein, and Gramsci,” Journal of Economic Literature, 41 (4), December 2003, pp. 1240-1255.

Sraffa, Piero, Production of Commodities by means of Commodities, Cambridge University Press: Cambridge, 1960.