On the Role of Finance in the Sraffian System

Abstract

We critically review the previous attempts to introduce money and finance into Sraffa's price system and identify the coexistence of two different notions of the interest rate that have not been properly disentangled: the interest rate as an opportunity cost and as an effective cost of production. We argue that the former must be present for the validity of the Monetary Theory of Distribution (MTD), while the latter is necessary to address the influence of the banking sector on income distribution. We then present a possible formalization of the banking sector that considers those specific features that distinguish its normal costs of production from other capitalist sectors of the economy.