Theoretical and Empirical Basis for the Integration of the Leontief and Sraffa Systems

Abstract

This paper shows that the price system corresponding to Leontief’s dynamic open model possesses all the properties of the regular Sraffa system. Both systems can accommodate fixed capital and problems associated with its joint utilization, transferability between industries and changing efficiencies over its lifetime can be overcome. Some empirical observations on the general relation between the rate of profit earned on invested capital, the on-cost profit markup rate and the rate of capital turnover have been presented. These form the basis for a new formulation of the dynamic price and output systems that facilitate their empirical application. The new formulation automatically incorporates imperfectly competitive industries.