In memory of Paolo Sylos Labini (1920 – 2005)*

Paolo Sylos Labini died on 7 December 2005. He was an extraordinary
individual, full of ideas and passionate about life. Many Italian and non-
Italian economists have been his friends, and many more have
been influenced by his views; but he was also a public figure universally
respected – and feared – for his moral rigour and the compellingly
concrete contributions he made to the Italian political debate.
Hailing from Puglia, in Southern Italy (although he was born in Rome,
on 30 October 1920), Sylos Labini graduated in law in Rome in July 1942
with a thesis on the economic consequences of innovations. In 1948 he
went to the United States, first to Chicago and then to Cambridge (MA), to
study with Schumpeter at Harvard University. Some years later he spent
some time in Cambridge (UK), where he worked with Dennis Robertson.
By then, Labini had already formed his own ideas looking to the major
classical economists (especially Marx, Ricardo and Smith), and to a
Schumpeter purged of all neoclassical vestiges. The love for debate and the
openness to argument which always characterized him brought Labini into
discussion with all those around him, entering into friendships that would
prove life-long. Particularly evident was his intellectual affinity with Piero
Sraffa, but he also maintained constant contact with Nicholas Kaldor,
Richard Kahn and Joan Robinson in Cambridge, not to mention John
Kenneth Galbraith, Franco Modigliani, Paul Sweezy, and many others in
the United States. Particularly close, despite the difference in their
theoretical positions, was his friendship with Modigliani, consolidated in
recent years with Sylos Labini’s contribution to the drafting of the
‘Manifesto’ promoted by Modigliani himself (Modigliani et al. 1998), and
their common opposition to the centre-right alliance led by Berlusconi.
His writings reflect his personality, in which intelligence and passion
combine in a fascinating way.
As stressed by K. Bharadwaj, a major contribution of Sylos Labini was the
comprehensive and inclusive view he took of the general process of
economic growth in terms of the interactive dynamics of market forms,
innovations and income distribution: ‘He draws imaginative insights from
the classical political economy writers like Smith, Ricardo and Marx as well
as the modern macro-theorists, Keynes and Kalecki and from Schumpeter,
the innovator himself, to blend together, in his analysis, theory and
empirically observed reality’ (Bharadwaj 1993: 11).
His main contribution came in 1956, with Oligopolio e progresso tecnico
(English edition, Oligopoly and Technical Progress, 1962). The book was thus
published more or less simultaneously with Joe Bain’s Barriers to New
Competition (1956); the two works were then grouped together in a widely
read article by Franco Modigliani (1958) and it is in Modigliani’s version
that they came to be accepted as part of the mainstream theory of noncompetitive
market forms.
However, Modigliani with his model brought Sylos Labini’s oligopoly
theory out of the original (classical) context by leaving aside the dynamical
aspects which occupy the second part of the 1956 book (Sylos Labini 1999,
Indeed, Labini’s notion of oligopoly was based on the classical
economists’ notion of competition, as freedom of entry into an economic
sector of activity. When there are barriers to entry, there is oligopoly. Thus
oligopoly becomes the general case, while competition (absence of any
difficulty of entry) and monopoly (insurmountable barriers) are but
limiting cases, quite rare in practice. Explaining the barriers to entry – their
nature and size – thus becomes the central object of the theory of market
forms. According to Labini, barriers to entry depend on the size of the
market, on the optimal size of new plants, on the elasticity of demand
(which determines by how much the price should fall, following the
increase in supply brought out by the new plant), on the rate of growth of
the market (which determines how long the fall in price will last). This
latter element introduced a dynamic aspect into the theory, which was then
(in the second part of the 1956 book) developed in order to take into
account technical change, and the implications of oligopolistic market
forms for the dynamics of the economy; mark-up pricing was also
interpreted as a rule of thumb for price changes rather than as a way for
determining equilibrium prices (Roncaglia 2006).
This line of research was further developed in Sindacati, inflazione e
produttivita` (1972; English edition, Trade Unions, Inflation and Productivity,
1974). Wages and prices are not determined in fully competitive markets;
utilization of mark-up pricing on the side of oligopolistic firms interacts
with bargaining over money wages between trade unions and industrial
confederations, affecting – together with technical change – the path of
income distribution.
These themes reappear in many subsequent contributions; an idea of the
width and depth of Labini’s analysis is provided by The Forces of Economic
Growth and Decline (1984), which remains the major reference point for
studying his economic thought.
One topic addressed in his earliest writings but developed mainly in the
1980s and 1990s is the impact of technological progress on economic
growth and its effects on productivity and employment (Sylos Labini 1981,
1983, 1984, 1993, 2005). The adoption of the classical point of view led
Labini to consider technical change as an endogenous process affected by
three economic conditions. First of all, it depends on the extent of the
market, to use Adam Smith’s expression, which represents the general
condition of the increasing division of labour and, hence, of technical
change. The expansion of the market brings into being new activities and
promotes the introduction of both new ‘capital’ goods and new
consumption goods. The product innovations often satisfy needs of a
higher order and therefore presuppose an increase in the average per
capita income (i.e. labour productivity). The process innovations improve
the productive performance and bring about a further augmentation of
output. From both sides – capital goods and consumption goods –
economic growth appears as a self-perpetuating process.
If the expansion of the market represents the general condition of
technical change, the increase of real wages and the growth of investment
represent two other relevant factors. On the one hand, increases in
productivity are both cause and effect of the long-run increase in money
wages relative to prices. As cause, the increase in productivity induces
workers to demand higher wages. As effect, firms may offset wage increases
by saving labour, either increasing the division of labour or introducing
machines. If we distinguish between industrial prices in general and the
prices of machines, in the case of wages outpacing the prices of machines
firms will find it more profitable to save labour by substituting machines for
workers. On the other hand, investment is a source of productivity growth
in so far as innovations are embodied in new plant and machinery. This
implies the consideration of the determinants of the level of investment
within the analysis of the process of technical change; if this should be
primarily demand pressure, as expressed by the degree of utilized capacity
and current profits as the source of self-financing, then in this case too the
variables are mutually related. Investment stimulates the process of
innovation and increases productivity and, in turn, an increase in productivity brings an increase of profits and then influences the level of
In support of his rejection of the neoclassical equilibrium approach in all
its variants and in favour of the classical approach, characterized by the
central importance of dynamic analysis and integration between economics
and the other social sciences, Sylos Labini offered a number of
contributions criticizing the traditional approach, and in particular the
aggregate production function. Indeed, for the latter he proposed an
original interpretation, stressing the roles of increasing returns to scale and
of what is known as dynamic substitution (Sylos Labini 1988 and 1995). In
commenting upon these findings W. Godley wrote:
They are indigestible if not, in the end, lethal to the neoclassical paradigm . . . Yet
when, having produced a destructive critique of the neoclassical production function,
he asks ‘When will economists finally accept their own logic?’ I do believe he is not
just sniping from the sidelines at the neoclassical paradigm, he is shaking at one of its
foundation stones.
(Godley 1993: 59)
Now, it is up to us to keep on shaking.
* I am grateful to Alessandro Roncaglia for his comments and suggestions. The usual
disclaimer applies.
Bain, J. (1956). Barriers to New Competition, Cambridge, MA: Harvard University Press.
Bharadwaj, K. (1993). Production and exchange processes and the formation of markets.
In S. Biasco, A. Roncaglia and M. Salvati (eds), Market and Institutions in Economic
Development. London: Macmillan, pp. 11 – 38.
Godley, W. (1993). Time, increasing returns and institutions in macroeconomics. In
S. Biasco, A. Roncaglia and M. Salvati (eds), Market and Institutions in Economic
Development. London: Macmillan, pp. 59 – 82.
Modigliani, F. (1958). New developments on the oligopoly front. Journal of Political
Economy, 66: 215 – 32.
–, Fitoussi, J.P., Moro, B., Snower, D., Solow, R., Steinherr, A. and Sylos Labini, P.
(1998). An economists’ manifesto on unemployment in the European Union. BNLQuarterly
Review, 206: 327 – 61.
Roncaglia, A. (2006). Paolo Sylos Labini, 1920 – 2005. BNL-Quarterly Review, 236: 3 – 21.
Sylos Labini, P. (1956). Oligopolio e progresso tecnico, Milano: Giuffre`.
— (1972). Sindacati, inflazione e produttivita` . Bari: Laterza.
— (1981). Technological change under contemporary conditions: an economist’s
view. Economic Papers, Dept. of Economics, University of Sydney, August. Reprinted
in Sylos Labini (1984: ch. 3).
— (1983). Factors affecting changes in productivity. Journal of Post-Keynesian Economics,
6(2): 161 – 79. Reprinted in Sylos Labini (1984: ch. 4).
— (1984). The Forces of Economic Growth and Decline. Cambridge, MA: MIT Press.
— (1988). The great debates on the laws of returns and the value of capital: when
will economists finally accept their own logic? BNL-Quarterly Review, 166: 263 – 91.
Reprinted in Sylos Labini (1993: ch. 2).
— (1993). Economic Growth and Business Cycles: Prices and the Process of Cyclical
Development. Aldershot: Edward Elgar.
— (1995). Why the interpretation of the Cobb Douglas production function must be
radically changed. Structural Change and Economic Dynamics, 6(3): 485 – 504.
— (1999). Three forms of competition: perfect, imperfect and oligopolistic. Static and
dynamic analysis. Conference paper at Universite’ d’Ete’ en Histoire de la Pense’e et
Me’thodologie Economiques, Strasbourg, 6 – 11 September.
— (2005). Franco Modigliani and oligopoly. BNL-Quarterly Review, 233(4): 41 – 8.

Marcella Corsi

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