The Sraffa-Hayek debate on the natural rate of interest

While Hayek's Prices and Production established his reputation as a business-cycle theorist, Sraffa's 1932 review of the book helped turn professional opinion against him. A key criticism of Sraffa was that Hayek's conception of a natural rate of interest, reflecting only real relationships, was incoherent, because, without money, there could be a multiplicity of commodity own interest rates, none of which is uniquely identifiable as the natural rate. Although Hayek failed to respond effectively to Sraffa, Lachmann later argued that Keynes's treatment of own rates in the General Theory undercut Sraffa's criticism. Different own rates reflect only expected price appreciation plus the cost of storage and the service flows from the commodity. Thus, according to Keynes, a real natural rate is well-defined. However, Keynes only partially rehabilitated Hayek, because a unique nominal natural rate cannot be specified.