R. F. Kahn and imperfect competition

Abstract

IThe question has often been raised as to why Keynes in The General Theory accepted the Marshallian framework of perfect competition.1 This is surprising because he was actively involved in the discussions following the publication of Sraffa's 'The laws of returns under competitive conditions' (Sraffa, 1926) which had launched a severe attack on the Marshallian theory. Indeed, he was responsible for making Sraffa's argument known to English-speaking readers. In the Spring of 1926, Keynes invited Sraffa to write for the Economic Journal an English version of an earlier article written in 1925. The Italian article, Keynes wrote, had very favourably impressed his co-editor, F. Y. Edgeworth, who had died in February 1926, before he could make the invitation himself. Sraffa's critique of the assumption of decreasing and increasing returns, under conditions of perfect competition, led to the conclusion that the 'old-fashioned' theory of cost of production, based on constant returns, was a better foundation for a theory of