The Sraffa-Hayek Debate on the Natural Rate of Interest

25 Pages Posted: 21 Feb 2013 Last revised: 8 Jul 2014

David Glasner

Federal Trade Commission

Paul R. Zimmerman

U.S. Federal Trade Commission - Bureau of Economics

Date Written: July 7, 2014


Hayek's Prices and Production, based on his hugely successful lectures at LSE in 1931, was the first English presentation of Austrian business-cycle theory, and established Hayek as a leading business-cycle theorist. Sraffa's 1932 review of Prices and Production seems to have been instrumental in turning opinion against Hayek and the Austrian theory. A key element of Sraffa's attack was that Hayek’s idea of a natural rate of interest, reflecting underlying real relationships, undisturbed by monetary factors, was, even from Hayek's own perspective, incoherent, because, without money, there is a multiplicity of own rates, none of which can be uniquely identified as the natural rate of interest. Although Hayek's response failed to counter Sraffa’s argument, Ludwig Lachmann later observed that Keynes's treatment of own rates in Chapter 17 of the General Theory (itself a generalization of Fisher’s (1896) distinction between the real and nominal rates of interest) undercut Sraffa's criticism. Own rates, Keynes showed, cannot deviate from each other by more than expected price appreciation plus the cost of storage and the commodity service flow, so that anticipated asset yields are equalized in intertemporal equilibrium. Thus, on Keynes's analysis in the General Theory, the natural rate of interest is indeed well-defined. However, Keynes’s revision of Sraffa’s own-rate analysis provides only a partial rehabilitation of Hayek's natural rate. There being no unique price level or rate of inflation in a barter system, no unique money natural rate of interest can be specified. Hayek implicitly was reasoning in terms of a constant nominal value of GDP, but barter relationships cannot identify any path for nominal GDP, let alone a constant one, as uniquely compatible with intertemporal equilibrium.

Keywords: barter economy, business cycles, Fisher, Hayek, intertemporal equilibrium, Keynes, money, natural rate, own rate, Sraffa

JEL Classification: B22, B30, E30, E31, E32, E43, E52

Suggested Citation

Glasner, David and Zimmerman, Paul R., The Sraffa-Hayek Debate on the Natural Rate of Interest (July 7, 2014). Available at SSRN: or

David Glasner (Contact Author)

Federal Trade Commission ( email )

601 Pennsylvania Avenue, NW
Washington, DC 20580
United States
202-326-3345 (Phone)

Paul R. Zimmerman

U.S. Federal Trade Commission - Bureau of Economics ( email )

601 New Jersey Ave. NW
Rm. 8103
Washington, DC 20580
United States


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