Piero Sraffa, an influential Italian economist, has contributed toward new theories that
have challenged the classical economists. His work is known to have established the
so-called “neo-Ricardian” school of economics, which is concerned with a new theory of
value. Among many of his literary works, Sraffa, in his article “The laws of returns under
competitive conditions” focuses on how prices are determined, given the supply curve. In
his article, he merely compares and distinguishes the prevailing theories from those that
have been refuted. In particular, Sraffa states that “Marshall’s theory of value” has lost its
bearing and its prominence in the classical political economics (Sraffa, 1926, p.535).
At the beginning of his article, Sraffa mentions how the old, classical economists
determined the theory of value. He states that using a bunch of curves to merely determine
the competitive value independently is not enough (Sraffa, 1926, p.535).
Before analyzing the theory of value in depth, it is worth identifying how classical and
neo-classical economists interpreted the theory of value. The classical economists, such as
Adam Smith and David Ricardo, determined prices based on the labor input. In this case,
labor and the price of the commodity had a positive correlation. For instance, Ricardo
assumed that the value of a painting was merely dependent on the hours that the painter
put towards performing his craft. The more the hours spent, the higher was the price of the
painting (Stigler, 1958, Labor Theory of Value). Similarly, Adam Smith uses the analogy
of “Nation of Hunters” where he states that the labor required to obtain a commodity shall
determine its price, so long as that commodity is not intended for personal use but for the
intend to be exchanged for another commodity (Smith, 1776, Wealth of Nations).
Neo-classical economics has a different interpretation of the theory of value. This
economic thought focuses more on the utility as a determinant of prices. In other words,
the value of a good is not determined based on the labor input but on the consumer
satisfaction. Alfred Marshall, an influential, neo-classical economist of the 19th century,
shared this theory of value and this theory was later explicitly stated by his successor that
he appointed to carry out his work (Johnson, p1). It is important to distinguish these
theories of classical and neo-classical economies because they are buried into Sraffa’s
paper. Despite being in favor of the neo-classical economic thought, Sraffa proposes ideas
