Different methods are suited to answering different kinds of questions, and the suitability of methods/questions pairing may itself vary over time and context.

Really, it sounds more like you have a conclusion that you're trying to prove, which sometimes leads to interesting stuff, but I don't think it's normally the right way to approach many questions. If you could identify more specifically which parts of the theories that bother you (or their applications by policy makers, for example), or the specific benefits of alternative approaches (I think I can still consider myself well read and say I haven't got a clue who Sraffa or Lange are), then I think it might be easier for reponders to engage with the question.

In short, I would say that utility theory is useful for ordering options, but since real people can't often do that, it's not always realistic - people have inconsistent preferences, as much as this puts a major wrench in the first, second and third building blocks of almost all classical theory. Anyone got any better BS? It's a complicated world. Markets will tell you how much people are willing to pay for stuff, but this is not a good measure of "value" because money is very unevenly distributed.

Good question. Lange has contributed along with Hicks and Keynes to the expectation theory, namely the idea of elasticity of expectations, (see A. Lowe, "Path of Economic Growth," 1976, Cambridge Press, p. 24) that is now fundamental to neoclassical economics. In his “Political Economy” V. 1., Warsaw 1963 he sided with stability analysis grounded in microeconomic behavior rather than excess demand function. (Dobb, “Theories of value and distribution since Adam smith, Cambridge Press, 1975, p. 12; Morishma, “Equilibrium Stability and Growth, Oxford Press, 1978, p. 24). He believed that “Ideological influences do not always lead to the apologetic degeneration of social science. Under certain conditions they may be a stimulus of true objective research.” [Int. Soc. Sc. J. (UNESCO, xvi(4), 1964, p. 525; Dobb op. cit., p. 1) This leaves room that the neoclassical paradigm may not be usurped.

Maurice Dobb wrote “The true watershed of critical discussion, dividing the older and newer climates of opinion, was undoubtedly the appearance (in 1960) of Piero Sraffa’s slender but classic volume”. (Dobb, op. cit., p. 248) Sraffa disenfranchised linear production processes. One find unique elements in Sraffa not found in neoclassical economics, such as that production processes at high wages will shift back to production techniques at low wages. (Morishima, “Theory of Economic Growth,” Oxford Press, 1969, p. 26) Picking up from Ricardo that the corn-rate of profit in agriculture determined the money rate of profit in manufacturing industry, Sraffa was more into how the pie is distributed than how wealth increases. This led to the so call nonlinear w-r frontier, which implies that among other things that factors share may not equal their marginal product.

In my view, Piero Sraffa's critique of neoclassical capital theory and his revival of the surplus approach are invaluable. Although Lange was a socialist, and his accounting method was to show that a central planner could give price signals, his analysis did not extensively reveal his full heterodox intentions. Just my take.

Two kinds of critics by Sraffa are very important. In my undestanding they cannot be refuted:

(1) "The laws of Returns … " Economic Journal (1926) with respect to the neoclassical theory of firm, and

(2) "Productions of Commodities … " (1960), helping to explain the concept of the capital in a quantitative manner. This resulted in the famous Cambridge Capital Controversy and refutes the neoclassicall version of aggregate production and distribution.

All this is forgotten by mainstream economics but nevertheless valid .

Dear Tiago Camarinha Lopes,

You are right to make opposition between utility theory and more objective price theory. This is in fact a deep gap that divides classical economics and the neoclassical economics.

For the recent development of Sraffian and Ricardian theory of value, please see two of my papers below:

Conference Paper On Ricardo's Two Rectification Problems

Conference Paper The Revival of Classical Theory of Values

It is quite interesting that Nathan Weatherdon had no occasion to get acquainted with Sraffa or Lange. He has MA from Laval University. This means these two economists are attracting no interests among professors and students in that university.

As Lall B. Ramrattan put it, Lange was once a highly respected economist by his particular positioning. He was an eminent economists who had many edge-cutting researches in the neoclassical and Keynesian orthodoxy (it was the time of "neoclassical synthesis") but was also a socialist and served for the Polish socialist government after the WW 2. He had a vision of market socialism, which was not accepted in the time of Stalinist regime but became a leading idea during the market oriented socialism after mid 1960's until 1990. As an economic theorist, his main tool of analysis was neoclassical marginalist and equilibrium analysis. When the idea of market socialism faded away, he was almost forgotten by the mainstream economists. this explains why Nathan Weatherdon had no chance to hear about Oscar Lange.

Sraffa's contribution is more enduring and still a key to the fundamental innovation (or paradigm change) of economics. He was not a prolific writer but two works that Walter Oetsch cited were destructive. The first The Laws on Returns paper undermined the whole Marshallian system. The second Production of Commodities by means of Commodities book (less than 100 pages) was also destructive for the neoclassical price theory. However, the followers after him were, in my opinion, not sufficiently destructive nor constructive.

It is true that Sraffa's thin book ignited the famous controversy on capital measurement and capital reverse, but this is in my opinion not the central core of Srffa's criticism against neoclassical theory. Sraffa's standard commodity is famous. It is an interesting interpretation of what Ricardo wanted to get in pursue of invariable measure of value, but it has many weak points as Morishima criticized. When technology changes, we should not expect to get such an invariable measure.

The core of Sraffa's criticism is the neoclassical price theory itself. We can now know his lonely theoretical struggle by papers such as Gehrke and Kurz (2006) and Kurz(2012).

Gehrke and Kurz (2006) Sraffa on von Bortkiewicz: Reconstructing the Classical Theory of Value and Distribution

https://www.researchgate.net/profile/Heinz_Kurz/publications?sorting=newest&page=4

Kurz (2012) Two Critics of Marginalist Theory: Piero Sraffa and John Maynard Keynes

https://www.researchgate.net/publication/31405061_Sraffa_on_von_Bortkiewicz_Reconstructing_the_Classical_Theory_of_Value_and_Distribution

I have posted some comments on both of them.

The mains contradiction between neoclassical economics and classical theory of value is closely related to the law of demand and supply. This law existed before Adam Smith. It is a kind of common people's spontaneous science. Marshall and some others including German Karl Heinrich Rau before him reformulated this law as a cross chart of demand and supply functions. Demand was always understood as the want of goods that have their own utility. This is also an old tradition before the arrival of neoclassical era.

Smith introduced a value theory (although it was quite ambiguous) and Ricardo reformulated it into much more logically refined theory. Their contention was that prices or values are determined by production conditions and demand plays minor fluctuating role. Ricardo was a giant step but soon after his death, the old tradition replaced his theory and returned to the old law of demand and supply.

We can detect many factors that compelled this movement. One of most imporatnt event was John Stuart Mill's examination of intrernational value problem. John Mill had no intension to break down Ricardo's heritage but by an unfortunate circumstances he was led to abandon Ricardo's cost-of-production theory of value and revert to old law of demand and supply. This reversion paved a way to neoclasscial economics. Fora the details of this story, please read my draft paper

Mill's Reversion and an Origin of Neoclassical Revolution

https://www.researchgate.net/publication/305810200_Mill%27s_Reversion_and_an_Origin_of_Neoclassical_Revolution

For a further discussion on the nature of neoclassical revolution (in fact it was a counter-revolution to the Ricardian revolution), please see my question page

How do you characterize and estimate the marginal revolution in economics?

https://www.researchgate.net/post/How_do_you_characterize_and_estimate_the_marginal_revolution_in_economics

Article Sraffa on von Bortkiewicz: Reconstructing the Classical Theo...

Working Paper An Origin of the Neoclassical Revolution: Mill's "Reversion"...

 Dear Yoshinori Shiozawa,

your comments are very rich and I will carefully read the papers you have indicated. My question on comparing Sraffa with Lange means that I have come to a decisive point relating to the interpretation of Neoclassical Revolution. I overall agree with your argument on Mill's contribution to this turn, because it is in accordance with Marxist understanding that the marginalist counter-revolution against Ricardo was a political move to abandon production in favour of exchange. I am not sure if it is correct to put all that weight over John Stuart Mill, since I believe there were many authors involved in giving up Ricardo's and Adam Smith's challenge of conciliating the law of value with the generall equal profit rate in the entire economy. But anyway, this view about Neoclassical Revolution tries to restore classical surplus perspective and to forget subjective influence over prices. Before studying Oskar Lange I was following Sraffa's project to rescue objective value theory, but I am not sure if this project is entirely adequate. I think it has already accomplished its mission of bringing the Classics and Marx back to the arena. But if objective and subjective value theory are two parts of the unity, one can not decide for one against the other. Lange understood this and created a different proceedure to tackle with vulgar economics in the form of Neoclassical economics: instead of choosing between objetive and subjective value theory, he proposes a dialectical combination relating the systems of values and prices. 

 I understand your "conversion." I saw many people who were once Sraffians and left from pursuing Sraffian research program. What I learned from many  cases of these conversions is that we should not be a Sraffa fundamentalist. By Sraffa fundamentalist I mean those people who never abandon what Sraffa wrote and never attempt new development in theory.

For example, Sraffa wrote in his Preface of his 1960 book that

• No changes in output and ... no changes in proportions in which different means of production are used by an industry are considered. 

This caution is made only to avoid readers to fall in the marginalist way of thinking. Sraffa demonstrated that the theory of value does not need such virtual changes of productions as they are assumed in the neoclassical theory. However, if the output does not change for ever, we cannot analyse economic processes. Output must change when demand changes. Input proportions of means of production must change when techniques changes.

Sraffa also emphasized that constant return to scale is not assumed by citing Keynes's recommendation. Many fundamentalists loyally obey this caution and do not want to analyze what will happen in the economy, when demand and output changes and when new production techniques are introduced and so on. If we do not assume changes of outputs, what does the standard commodity mean? Input and output proportions are  changed in the standard system.

When the output changes, we must ask how the input coefficients changes. Constant returns to scale are the most simple assumption to make. Of course, we should take into account  existence of fixed machines and installations. For most of practical  argument, the cost function is a linear function with fixed cost + proportional cost. This is confirmed by direct measurement made by Joel Dean in 1940's. It is confirmed by cost accounting etc. 

Neoclassical economics opposes this assumption only because this assumption undermines its framework. Indeed, its price theory needs that competitive firms are always at the decreasing returns to scale.

However, if we want to analyze output changes and study series of changing input-output system, we lack a principle how  firms are determining their outputs. In my opinion, this principle is given by Sraffa in his 1926 paper "On the law of returns".  It is the principle of effective demand at the firm's level. A firm produces as much as demand comes at the preset price.

I have explained all of these in the paper I cited above: 

The Revival of Classical Theory of Values

https://www.researchgate.net/publication/269393496_The_Revival_of_Classical_Theory_of_Values

Fundamental Sraffians do not understand or do not want to admit these kind of new developments.  It is a simple act of killing their master. If a theory keeps its life, it is inevitable that new elements are introduced. If not, a theory cannot develop.

It is pity that  you have left Sraffa before you find a new prospect. Evade fundamentalism and be a creative theorist.

Conference Paper The Revival of Classical Theory of Values

Tiago,

what do you expect to get from Oscar Lange? Did he position any principle or theory that we cannot find neither in Ricardo, Marx, nor Keynes? As far as I know, Lange was a good and powerful economist  but he worked in the neoclassical framework  and we have little possibility to extract from him a lacking principle or theory to the reconstruction of economics.

 Yoshinori,

what I have most learnt from Oskar Lange up until now is that we must have an open mind to different approaches to economic theory. All comes down to how one consciously uses any economic theory in the interest of a social group. Lange was capable of conveting any theoretical framework into an useful tool for the struggle of the working class in favour of communism, even if the political background of that framework was a plain apologetics of the prevailing economic system. One of his greatest contributions was to throw away all Austrian economists out from mainstream economics during the socialist economic calculation debate. I think Sraffa's project has reached its limits because it can no longer influence the shape of maintream economics. The Cambridge-Cambridge controversy does not come to a definite conclusion because Sraffa's system had a specific purpose of rehabilitating Classical Value Theory. It is only a prelude. The final critique must be accomplished with a more broad and flexible approach to vulgar economics and I think Oskar Lange has, to my knowledge and considering the interest of the proletariat, the most developed approach.

Dear  Tiago,

it is nice to resume discussions on Sraffa and Lange. If we are thinking with a short time span of ten years or so, we cannot understand what is really happening in economics (not in economy) now.

I agree with you that "we must have an open mind to different approaches to economic theory." I am hoping that many young economists will be interested in Sraffa and Lange and reflect on what they have learned in their course work. Sraffa and Lange gives us a good chance to review whole structure of the neoclassical economics (including DSGE).

As for your opinion that 

• All comes down to how one consciously uses any economic theory in the interest of a social group,

I am doubtful of its validity. Of course, in some cases, we can use a theory (say a part of neoclassical theory) to defend e.g. trade protection policy for the interest of farmers. However, this opinion has a big risk that you will be a slave of the theory that you want to use for your interest.

At the end of his General Theory,  Keynes wrote:

• Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.

 I hope you will not be one of those "practical men, who believe themselves to be quite exempt from any intellectual influences." If you do not deeply reflect on theories, you have a big chance to be influenced (like at the subconscious level) by a dominant theory. It is in our case the neoclassical micro and macro economics.

It seems that you have an opinion that 

• Sraffa's project has reached its limits because it can no longer influence the shape of mainstream economics.

This is a possible estimation, but I disagree with you on this point. I will argue this point in the next post. 

Let me re-start with your opinion:

• Sraffa's project has reached its limits because it can no longer influence the shape of mainstream economics.

You are right if "Sraffa's project" stands for the project that Sraffa himself have expressed in some of his small number of publications. Although Sraffa left enormous volume of notes and it is now starting its publications, Sraffa's project must have reached its limits.

It is a bad custom of economics to think of a research project by a single person's achievement. Sraffa left steps of a giant but tracing his steps alone has surely soon arrived to a limit. More than half century has passed since his magnum opus was published. It is natural that Sraffa's project (in the above narrow meaning) reached its limits. However, if we think of Sraffa's project as a research program which can develop through time, it has not reached its limits at all.

Mainstream economics is in disarray and confusion after the global financial crisis in late 2000s. Just like the dictum "danger past, god forgotten," many economists pretend to have forgotten it, but the crisis of macroeconomics continues. Moreover, as I am arguing in Real-World Economics Blog (comments to Lars Syll's post

https://rwer.wordpress.com/2017/08/03/why-should-we-care-about-sonnenschein-mantel-debreu/), the microfoundations have been lost since the very beginning of rational expectation economics. Neoclassical economists pretend to have forgotten but it does not change the theoretical state of microeconomics.

At this confused state of (mainstream) economics, Sraffa's research program is the most hopeful theory which can counter mainstream microeconomics and thus undermine mainstream macroeconomics.

Why can I claim this bold thesis? This is the reason. There are two antagonistic theories in value theories. They are classical theory of value for one part and neoclassical theory of value for the other. But, take care! Classical theory of value is not the price theory that most of classical political economists held. Even in the time of classical political economy, there were many economists, like J. B. Say, who thought that the price of a product depends on subjective estimation of buyers. Among many classical economists, there were only two great economists who thought that values are determined by production conditions including labor productivity. They were D. Ricardo and K. Marx. John Stuart Mill was a loyal disciple of Ricardo but could not retain Ricardo's theory and conceded to old demand and supply framework. (Why does this mean that Mill conceded to subjective theory of value? I will come back again on this point.)

It is well know that Marx adopted labor theory of value after Ricardo. But it is not right to define Ricardo's position as labor theory of value. It is much better to define him as proponent of cost-of-production theory of value. Marx arrived to acknowledge production prices as normal value of market but could not renounce labor theory of value because it implied that he had to abandon his exploitation theory of surplus labor. (This is not necessary now because we have Okishio's theorem).

Ricardo's cost-of-production theory of value had a weak point. Cost depends on prices. Ricardo could not solve this problem. It was Piero Sraffa who solved this difficult problem. At the preface of his thin book, he wrote that no changes of output are considered. This short note became a kind of axiom for Sraffians and became a big obstruction for the further development of Sraffa's research program. This remark was to highlight that his theory of value does not depend at all on the notion of marginal productivity. Many Sraffians did not notice that this was only a half part of Sraffa's refutation. What Sraffa wanted to refute was the habit to "think in terms of equilibrium of demand and supply." To wipe out all demand and supply framework from value theory was the main target that Sraffa pursued.

Ricardo was explicit on this point. In Chapter 30 of The Principles, he started to point this:

• It is the cost of production which must ultimately regulate the price of commodities, and not, as have been often said, the proportion between the supply and demand. (Ricardo, Collected Works, Volume 1, p.382)

It was John Stuart Mill who "reverted" to old law of demand and supply. This reversion led new comers in England to adopt the neoclassical framework which is the equilibrium of demand and supply.

(For the short account of this history, see An Origin of the Neoclassical Revolution: Mill's "Reversion" and its Consequences

https://www.researchgate.net/publication/305810200_An_Origin_of_the_Neoclassical_Revolution_Mill%27s_Reversion_and_its_Consequences

This paper is already published as Chapter 7 of Shiozawa, Oka and Tabuchi 2017 A New Construction of Ricardian Theory of International Values.)

To have revived this thin current was Sraffa's greatest contribution to economics. However, the theory cannot stop at 1960. It had to advance forward. Many of Sraffians were very awkward and conservative in theory. They did introduce few innovations in theory and that is the reason that standard Sraffian theory stopped advancing. You (Tiago Camarinha Lopes) are right to judge that Sraffa's project has reached its limit. However, a few Sraffians continued to develop Sraffa's research program and his objective theory of value. I can say there two major developments.

(1) Theory of value

Cost-of-production theory of value was normally interpreted as long period analysis. But this interpretation is weak because this theory does not analyze what happens everyday. Fortunately, long before Sraffa's book, an idea was proposed by Oxford Economists' Research Group. It was the discovery of markup rate. If we introduce markup rates in the theory of Sraffa's value system, we can get a theory that can describe the actual prices (almost at the normal time). Then this theory can serve as a basis of Keynes's theory of effective demand.

(On this point see The Revival of Classical Theory of Values

https://www.researchgate.net/publication/269393496_The_Revival_of_Classical_Theory_of_Values

This is published as Chapter 8 in Yokokawa et. al. (Eds.) The Rejuvenation of Political Economy.)

Another big development was the new theory of international values. It is famous that Ricardo said

• The same rule which regulates the relative value of commodities in one country, does not regulate the relative value of commodities exchanged between two or more countries.

This means that Ricardo left a problem: to construct a theory of value which holds in the international trade situation. John Stuart Mill wanted to solve this problem and (probably against his wish) opened the way to neoclassical theory of value as I have pointed in the paper cited above. The problem was not noticed as problem except a few economists like F.D. Graham. L. McKenzie and R. Jones followed Graham's research program but did not completed it. It was I who succeeded in finally succeeded to build a theory of international values on the extended line of Ricardo.

(See The New Theory of International Values: An Overview

https://www.researchgate.net/publication/304717720_New_Theory_of_International_Values_A_General_Introduction

This is aslo published in Shiozawa, Oka and Tabuchi (2017) as general introduction.)

(2) Theory of quantity adjustment

It is commonly observed that producers and retailers set prices of their commodities and it is the procurers and consumers who decide how much to buy at the fixed price. What happens when each producer behave after the principle that they produces as much as products sells? It was Taniguchi and Morioka who examined when the economy's total process of this quantity adjustment can follow the slow movement of total demand. Their results were obtained many years ago. Taniguchi and Morioka each wrote a book in 1997 and 2005 respectively. Because they were published in Japanese, we are now preparing a new book in English: Microfoundations of Evolutionary Economics. My present project is to write three introductory chapters of this book.

Taniguchi and Morioka’s results are paramount, because this was the first demonstration that the market economy works without assuming unbounded rationality and infinite sight. Arrow and Debreu gave proof that a decentralized market economy can work, but their result depends on two indispensable assumptions: Human agents must be infinitely rational, and they can get information from all over the economy. The process they examined does not assume such unrealistic capabilities of human agents. Firms decide their production level for a product simply by comparing the actual reserve of the product and the moving average of past sales for several periods. There is no need for farsightedness or capacity to compute complex maximization problems. Even though the enormous network of millions of firms works in the sense that it follows the slow change of final demand flows, the significance of their result is immeasurable. Economics has at last found out how the market economy works. It is also remarkable that the main adjustment does not depend on price signals. Prices play an important role, but they are not regulators of the quantity adjustment process as most of neoclassical economists imagined.

In this way, Sraffa's research program is firmly advancing. I believe that the time is approaching that theories on the line of Sraffa's program will replace the neoclassical price theory. As this is the core center of economics, we can hope that a revolution like Copernican one will take place in economics in the near future.

Conference Paper The Revival of Classical Theory of Values

Working Paper The New Theory of International Values: An Overview

Working Paper An Origin of the Neoclassical Revolution: Mill's "Reversion"...

Dear Tiago,

I agree with you that we can not ignore the influence of demand on the formation of prices, as well as about the valuable contribution of Oscar Lange by using this economic framework of neoclassical economics in a socialist economy.

What I would like to stress, however, is that neoclassical theory contains some fundamental mathematical mistakes, the revision of which changes dramatically mainstream economics. The most obvious proof for these mistakes is that the point of market equilibrium (intersection of total supply with total demand) does not maximize the profits of firms, as this occurs at the intersection of the total supply (marginal cost) with the total marginal revenue coming from the total demand (and not with the total demand itself). This is a fundamental mistake and inconsistency of neoclassical economics, as this latter sets profit maximization as its basic presupposition.

The revision of these mistakes not only changes dramatically mainstream economics but also its major conclusions about equilibrium at minimum cost, maximization of social welfare, level of employment, etc, with tremendous socio-political implications.

Article The Mathematical Mistakes of Neoclassical Theory and its Reformation

Article The Disproof of Neoclassical Theory by Means of Its Own Means