The Neo-Ricardian Approach and the Distribution of Income

Abstract

This chapter is concerned with the impact of Piero Sraffa’s contributions to economic theory on the analysis of income distribution. We will proceed by first examining Sraffa’s critique of the traditional marginalist approach. We will then consider the classical approach based on the notion of the surplus that Sraffa wants to use to replace the marginalist one. Within this classical tradition, the problem of income distribution can be tackled by considering the real wage rate as determined by sociohistorical forces of custom and habit. Alternatively, there is the possibility of concentrating attention on the forces determining the rate of profits, while considering the real wage rate as a residual distributive variable. Along this line, we will examine, first, Pasinetti’s “technological-normative” conception of a “natural rate of profits”; then, the idea that the rate of profits is determined by the interest rate, which in turn is determined by monetary forces.