On the Role of Finance in Sraffa’s System

Abstract

We critically review the previous attempts to introduce money and finance into Sraffa’s price system, whose main difference is, we argue, their conception of the interest rate, either as an opportunity cost or as an effective cost of production. We examine the implications on three different grounds: (i) the formal consistency of the system; (ii) the possibilities to explicitly treat the financial industry as any other productive sector; and (iii) the validity of the so-called “monetary theory of distribution” (MTD). We then suggest a possible route, inspired by Schumpeter’s ideas on economic development, to introduce the banking sector through its role of granting credit to innovation. Unlike previous contributions, this reformulation allows us both to justify the basic nature of the financial sector and simultaneously preserve the validity of MTD.