Economic Thought

[This is F.A. Hayek's response to Sraffa's criticism of Prices and Production.]

1.  With an article devoted to a critical discussion of my Prices and Production, Mr. Sraffa has recently entered the arena of monetary controversy. There is no denying the fact that reviewing books on money, at a time when monetary theory is in a state of violent fermentation, is not an easy, and perhaps not even a pleasant, task. I can easily understand Mr. Sraffa being a little upset at having spent so much time on a work from which he has obviously derived no profit and which appears to him merely to add to the prevailing confusion of thought on the subject. But it seems to me that, in expressing indignation without making his own position quite clear, he has run the risk of doing himself less than justice and of taking up a position which is, to say the least, somewhat confused. I am not anxious to indulge in controversy for its own sake. But it seems to me that, in replying to Mr. Sraffa’s strictures, I may be able, not only to defend myself against what appear to me to be needless misunderstandings, but also to make clearer certain matters which do present, to use Mr. Robertson’s phrase, ” appalling intellectual difficulty.” Hence I have asked the Editors of this journal to give me space for reply.

Mr. Sraffa objects that I tried to say too much in four lectures, but his criticism really demands that I should have said a great deal more. In fact, many of his objections concern points which are implied rather than specifically developed in Price and Production, this being partly due to the fact that I had discussed them in some detail elsewhere and partly to the fact that I thought that they must be sufficiently clear to an economist without further elaboration. In a short reply it is obviously impossible to discuss the relation between the general theory of equilibrium and the theory of money-one of the points on which Mr. Sraffa disagrees with my method of approach. Fortunately, however, a translation of my earlier treatment 2 of these prolegomena to a discussion of the role of money in the theory of industrial fluctuations has just been completed, and will be published before very long; so that I hope I may be permitted to refer Mr. Sraffa to this book for a reply to his methodological criticisms, and to ask him to return to the points which I do not discuss here should he still feel dissatisfied

If he does so, I should also like to ask him to define his own attitude to these problems more clearly than he has yet done. From his article one gains the impression that his attitude is a curious mixture of, on the one hand, an extreme theoretical nihilism which denies that existing theories of equilibrium provide any useful description of the non-monetary forces at work; and, on the other hand, of an ultra-conservatism which resents any attempt to show that the differences between a monetary and a non-monetary economy are not only, and not even mainly, ” those characteristics which are set forth at the beginning of every text-book on money.” I am, however, not quite sure whether Mr. Sraffa has perceived that the refutation of this idea is one of the central theses of my book. What he certainly has not seen-though I should have thought that this was a rather obvious point-is where the essential differences between a monetary and a non-monetary economy are to be sought. I have been assuming that the body of existing pure economic theory demonstrates that, so long as we neglect monetary factors, there is an inherent tendency towards an equilibrium of the economic system; and what I tried to do in Prices and Production, and in certain earlier publications, was to show that monetary factors may bring about a kind of disequilibrium in the economic system-which could not be explained without recourse to these monetary factors. I do not quite understand whether Mr. Sraffa thinks that, in order to show this, it would have been necessary first to re-state the whole of equilibrium economics. I thought that this was not only impossible within the limits of a small book, but also quite unnecessary Continue reading →