We propose a rational reconstruction of Sraffa’s strategy for theory assessment with a focus on the issue of the realism of the premises and the role of internal logical consistency as distinct from formal rigour. Sraffa appears to follow a two-stage strategy: first, a rigorous logical reconstruction of the theory under scrutiny and the identification of its explicit and implicit assumptions; second, an accurate description of the empirical phenomena the theory, once logically reconstructed, is able to explain. The explanatory value of a given theory depends on its ability to select among the various economic forces and mechanisms in action in a given situation the one(s) that the theorist holds to be the most relevant and provide a logically consistent description of the chosen mechanism(s). No theoretical explanation of a given economic phenomenon may be considered acceptable if it is based on ill-defined theoretical notions since such notions stand in the way of an exact theoretical measurement of the magnitudes under investigation and thus prevent the theory of being correctly applied to the phenomena it was designed to explain.

Emphasis on structural change as an essential element of long-run growth in capitalist economies since the Industrial Revolution is a main characteristic of Pasinetti’s scientific work. Technical progress is the main driver of structural change and economic growth.Pasinetti integrates structural change in economic analysis by considering the double-sided nature of technical change and the interaction between the supply side (growing productivity) and the demand side (increasing per-capita income) and the evolving structural dynamics of employment and consumption. The analysis is conducted on the basis of vertically integrated sectors which may differ in the growth rates of productivity and demand. In order to maintain full employment over time, an effective demand condition and a capital accumulation condition must be satisfied. In his modern theoretical analysis of Ricardo’s machinery problem Pasinetti shows that a continuous process of structural change is a precondition to avoid technological unemployment. Furthermore, full employment has to be actively pursued by an economic policy raising effective demand and promoting research and development thus combining the insights of Keynes and Schumpeter.

Cambridge economics can still be seen as a distinctive subdiscipline, involving a revival of classical and Keynesian economics and contributing to macroeconomics, to the theory of growth and distribution, to capital theory and to the history of economic thought. Pasinetti has been a major representative of this school for more than half a century. The present essay is the concluding chapter of a Festschrift for him. It provides a synthesis of the other chapters, which are dedicated to individual aspects of Pasinetti’s contributions to Cambridge economics. It leads from the methodological foundations and the theory of prices, based on production, to the theory of investment under uncertainty and to distribution, to capital theory and to growth with structural change. This is explained with Pasinetti’s normative turn. The formal conditions for the maintenance of full employment in an economy with differential rates of productivity growth in the different sectors have to be separated from the institutions, the legal and ethical rules and the historical conditions that may be required to realise full employment. The exposition is in part critical and concerns shortcomings of neoclassical approaches, and in part constructive.

In the framework of a critical illustration of the contemporary history of economics, this chapter provides an illustration of Sraffa’s thought, from his first writings on money and banking to his book on “Production of commodities by means of commodities”. His friendship with and cultural relations with Gramsci, Wittgenstein, Keynes are considered, as well as his critique of Marshall’s theory of the firm and the notion of the representative firm. His proposal of a theory of imperfect competition and the reasons for its abandonment are illustrated. The role of the critical edition of Ricardo’s writings for the reconstruction of the Classical approach is stressed. An interpretation is provided for Sraffa’s contribution to the Classical theory of prices and distribution and for his critique to the marginalist approach.