Price and incomes policy: a ‘Sraffian’ perspective

Abstract

A Sraffa-type model of price determination is proposed that will serve as a characterization of the consequences of some of the activities of a prices board that has been charged with attempting to control the rate of increase of the absolute level of commodity prices by controlling rates of increase of factor incomes (wages and profits). Specifically, the board chooses new elements for the diagonal matrix of rates of profit and for the vector of labor incomes of a set of (Sraffa-type) equations of production that have been cast into matrix form. The unknowns of these equations are the commodity prices, and with a new set of factor incomes, a new solution set of commodity prices will be generated. The problem of fulfilment of a strict positivity condition for the price solution and that of ensuring the viability of the input-output structure are examined. A possible solution to these problems derives from exclusive concentration by the board on the ‘basic’ (in Sraffa's sense) sector of the economy. A switch from attempting to control rates of increase of factor incomes to attempting to control, directly, the rate of increase in the absolute level of commodity prices is also considered.