Luigi L. Pasinetti (12 September 1930 – 31 January 2023) was an Italian economist of the post-Keynesian school. Pasinetti was considered the heir of the "Cambridge Keynesians" and a student of Piero Sraffa and Richard Kahn. Along with them, as well as Joan Robinson, he was one of the prominent members on the "Cambridge, UK" side of the Cambridge capital controversy. His contributions to economics include developing the analytical foundations of neo-Ricardian economics, including the theory of value and distribution, as well as work in the line of Kaldorian theory of growth and income distribution. He also developed the theory of structural change and economic growth, structural economic dynamics and uneven sectoral development.
Biography Pasinetti was born on 12 September 1930 in Zanica, near Bergamo, in the north of Italy. He began his economics studies at Milan's Università Cattolica, where he obtained his "laurea" degree in 1954. The thesis that he presented dealt with econometric models applied to the analysis of the trade cycle. As a brilliant student, he won several scholarships for graduate studies which gained him access to University of Cambridge, England (1956 and 1958), Harvard University, United States (1957) and Oxford University, England (1959) for his graduate studies. In 1960 Oxford's Nuffield College granted him a Research Fellowship that he enjoyed until 1962, the year in which he left for the University for Cambridge, called there by the prestigious economist Lord Richard Kahn.
In those years,
Years later, Pasinetti, remembering Kahn in a Memorial Service held at King's College Chapel, University of Cambridge on 21 October 1989, recalled that:
Richard Goodwin was also part of this brilliant group of Cambridge economists, and exerted the first important influence on Pasinetti. In conveying the intellectual debt he owed him, Pasinetti writes:
In 1960–1961 Pasinetti became a Fellow of King's College. Twelve years later in 1973, he was appointed Reader at Cambridge, a post that he kept until his return to the Università Cattolica Milan in 1976. In March 1963 he was awarded his doctorate degree from Cambridge University with a PhD dissertation on "A Multi-sector Model of Economic Growth". This thesis was the core of what came to be in 1981 one of his most complete books, Structural Change and Economic Growth. In 1964 he was appointed Professor of Econometrics at the Università Cattolica and in 1981 full Professor of Economic Analysis. Trips between Cambridge and Milan were very frequent during this period. In 1971 and 1975 he was appointed Visiting Research Professor at Columbia University as well as in 1979 at the Indian Statistical Institute in Calcutta and the Delhi School of Economics.
Back at his Alma Mater, Università Cattolica Milan, he was appointed Chairman of the Faculty of Economics from 1980 to 1983, Director of the Department of Economics (1983–1986) and later Director of the Joint Economics Doctoral Program (comprising three Milanese universities: Università Cattolica, Bocconi University and University of Milan) from 1984 to 1986 and again from 1995 to 1998.
The list of academic distinctions and honours he has received till now is long. The most prominent ones are: St. Vincent prize for economics (1979), President of the Società Italiana degli Economisti (1986–89), President of the European Society for the History of Economic Thought (1995–1997), Member of the Executive Committee of the International Economic Association, Member of the Accademia Nazionale dei Lincei, Doctor Honoris Causa at the University of Friburg (1986), Invernizzi Prize for Economics (1997). Pasinetti was also Honorary President of: the International Economic Association, the European Society for the History of Economic Thought, the International Economic Association, the European Association for Evolutionary Political Economy, the Italian Association for the History of Political Economy and the Italian Association for the History of Economic Thought.
Pasinetti also provided valuable contributions to several major economic journals such as editorial advisor to: the Cambridge Journal of Economics (since 1977), the Journal of Post Keynesian Economics (since its founding in 1978), Kyklos (1981), Structural Change and Economic Dynamics (since 1989), and PSL Quarterly Review (2009) to name a few.
Pasinetti was Emeritus Professor at the Università Cattolica Milan.
Pasinetti died in Milan on 31 January 2023, at the age of 92.
Theoretical contributions A mathematical formulation of the Ricardian system Pasinetti's first major contribution to economics was probably "the mathematical formulation of the Ricardian system", published in 1960 in a paper now considered classical.As Pasinetti says in Blaug (1999), p. 869, “I began by giving a mathematical formulation of Ricardo's theoretical system”. The article was published in The Review of Economic Studies, vol. XXVVII, February, 1960. In such work Pasinetti presented a very concise and elegant (and pedagogically effective) analysis of the basic aspects of classical economics.
At that time, Piero Sraffa had just published The Works and Correspondence of David Ricardo, one of the most masterful editorial works ever to be published in economics; and scholars were wondering how Sraffa's remarkable work could clarify and enrich the interpretation of Classical economics. Pasinetti's mathematical formulation provided an answer to that question, in particular with reference to two major Classical problems: the theory of value and the theory of income distribution.
On this subject, a major stimulus came from a famous paper written by Nicholas Kaldor, in 1956, where Kaldor presented a review of the history of several theories of distribution, covering the period from Ricardo to Keynes.Kaldor, 1973, cap. 10. Although Ricardo's theory (in Kaldor's paper) was without equations, it was the starting point after which economists began to explicitly see the Ricardian model as a coherent whole, susceptible to mathematical formalization.
Another influence came directly from Sraffa and concerned the relative prices of goods produced in the economic system made to depend only on the amount of labour embodied in them – the well known labour theory of value. In fact, an early draft of Pasinetti's paper was read by Sraffa, who gave his approval to almost the entire paper:
Pasinetti explains that "the more constructive approach is taken of stating explicitly the assumptions needed in order to eliminate the ambiguities"Pasinetti, 1974, p. 1. in the Ricardian model, hence, the reason for the mathematical formulation.
In this view, the most straightforward mathematical Ricardian model that can be formulated, with minimal economic complications, is the one in which only one commodity is produced (‘corn’ for instance), and where there are three social classes: capitalists who earn profits, workers who earn wages and landowners whose income comes from the rent of land. This is the way to express Kaldor's model mentioned above.Pasinetti, 1974, p. 23, footnote. Although the Pasinetti model is more general and comprises two sectors (agriculture and manufacturing), it is illuminating to start with the simplest version –a one-commodity model expressed by the following equations:Pasinetti , unlike Pasinetti , chooses this method of gradual exposure.
Equations (2.1) to (2.7) are identical to those of the single sector model, but now they bear added subscripts to differentiate the production of ‘corn’ from that of ‘gold’. Equation (2.8) presents the gold production function which, unlike the ‘corn’ production function, exhibits constant returns to scale. The parameter is the physical amount of ‘gold’ produced by a worker in a year. The next two equations show in monetary (nominal terms) the wage rate (‘corn’) per worker and the rate of profit:
where p1 and p2 represent the price of ‘corn’ and the price of ‘gold’ respectively. Pasinetti supposes that the wage rate and the rate of profit are identical in both sectors thanks to free market competition. Note also from (2.10) that only p1 (the price of corn) enters wage determination, since it is assumed that workers in both sectors only receive only 'corn' as wages; in a terminology later developed by Sraffa, ‘corn’ is the only basic commodity produced in the system. The same consideration can be made, from the opposite view, looking at (2.11), since the only capital involved is represented by advances in the form of ‘corn’. Hence K appears as multiplied by p1. The following two equations are Ricardo's implicit assumptions -that the "natural price" of any good is given by its cost of production:
Equation (2.12) allows the determination of the total monetary profitsof the gold industry. Equation (2.13) is much more important. It shows that on balance, the value of output per worker is the same in both sectors. The product of sector 1 (agriculture) is considered free of rents. To achieve this result, both the wage rate and the rate of profit have been considered homogeneous in both sectors, and the capital/labour ratio must also be considered as identical.
Pasinetti closes the model with two further equations:
Relationship (2.14) simply adopts the amount of ‘gold’ as numeràire; hence, it is equal to unity. Relation (2.15) displays the income distribution between the different social classes. Ricardo supposes that workers spend their entire wages to buy 'corn', capitalists reinvest their profits in capital accumulation, and landowners spend all their rents on luxury goods. The simplicity of this argument about consumption functions for each social class enables Pasinetti to close the whole circuit of income distribution with a single equation. Specifically, (2.15) shows that landowners spend all their income received as rents, p1R, in the buying of luxury goods, p2X2. There is no need for more equations, since "the determination of the demand for one of the two commodities (gold in our example) also determines, implicitly, the demand for the other commodity (corn), since total output is already functionally determined".Pasinetti, 1977, p. 14.
The system presented above (15 equations with 15 unknowns) displays the natural solutions of the Ricardian economic system, i.e. those solutions attained in the long term and corrected for market distortions and imbalances in the short term. Ricardo did not deny the existence of such deviations, but for his analysis, they were not the relevant issues. These solutions, furthermore, as demonstrated mathematically by Pasinetti exist, they are unique, and, moreover, their steady state solutions are stable.Pasinetti, 1974, see appendix. On the other hand, it can be demonstrated that if we take the partial derivatives of all variables with respect to K, (because the process of capital accumulation is what matters for the dynamics of the model) the evolution of the variables is consistent with the conclusions which Ricardo reached; especially with the tendency of the whole economic system in the long run towards a stationary state.
The above model has several outstanding aspects. The foremost of which is a theory of income distribution entirely independent of the theory of value. The inclusion of a new sector -and consequently the whole structure of relative prices- have not even slightly changed the way income is distributed among landowners, workers and capitalists. At the same time, prices though of course not equal to, are exactly proportional to the quantity of labour embodied in each commodity. This is a perfectly clear labour theory of value.