He possessed the rarest combination of qualities - he was a most meticulous scholar, and at the same time he was also a brilliant original thinker. He was a man with an exceptional range of knowledge which extended well beyond his own professional field; a bibliophile who spent endless time in exploring the antiquarian bookshops of Europe, and succeeded, twice in his lifetime (first in Italy, and later in England), in building up a unique collection of rare books. And he spoke with equal fluency in at least four languages.
[…]
He had a subtle and very personal wit, the capacity of making wholly unexpected responses to points raised in a discussion, but above all he had the rare gift of being able to inspire his partners in conversation just by listening with shining eyes. He had that enviable quality of making his friends feel at their best in his company - he made them feel cleverer, more clear-sighted, and eloquent (and amusing) than they normally thought themselves to be.
Nicholas Kaldor on his friend Piero Sraffa
For the better part of 70 years, rumours have followed the Italian economist Piero Sraffa. Long the subject of speculation, it has been asserted that in the dying days of the Second World War, Sraffa heavily bought defaulted Imperial Japanese Government bonds. These, following the Treaty of San Francisco, being eventually honoured in full.
Though several authors have offered differing accounts of what Sraffa was purported to have done, till now, no person has been able to offer a satisfying and granular account of events.
A handful of writers, including the American investor Murray Stahl, have written about Sraffa. Stahl summed up the lack of clarity surrounding the economist in his book How They Did It: Exceptional Stories of Great Investors, by writing:
[...] this essay is unique among those included under the ‘How They Did It’ designation, because I’m not certain that Piero Sraffa actually ‘did it’.
Though at first blush it might seem peculiar that a Cambridge lecturer of economics would spend considerable time speculating in defaulted government securities, there are several observations that may be made.
First; Keynes’ involvement with securities markets has been well documented. Sraffa and Keynes were friends and colleagues, and it seems unlikely that Keynes' investing would have escaped Sraffa’s attention.
Second; as the editor of David Ricardo’s correspondence, Sraffa would have been well acquainted with Ricardo’s own speculations in government bond markets.
And third; Imperial Japanese Government debt was the subject of regular commentary in the press of the day. Any diligent reader of the English financial newspapers would have been apprised not only of the debt, but also of the regular flow of information and commentary that was published about it.
Two credible accounts of Sraffa’s investments survive. The first account comes from the economist Nicholas Kaldor, a good friend of Sraffa’s, who wrote:
Though Sraffa was the son of a prosperous lawyer, he was only able to bring a small part of his father’s fortune out of Italy. He disliked gambling, and was also against speculating on the Stock Market, not so much on principle, as out of a conviction that one is bound to lose on unsuccessful bets a large part of the gains made on successful outcomes. Hence his basic principle was to wait for the one occasion when a large speculative gain appeared to be absolutely certain, and then put all the money one can get hold of on this one gamble.
The one occasion which appeared to him to satisfy these criteria occurred during the War when the price of Japanese bonds fell to a very low level—something between 5–10 per cent of their nominal value, or not more than 1–2 per cent if one also takes the likely value of unpaid interest payments into account. He was convinced that, however the War might end, the Japanese would fulfil all their foreign financial obligations, whether they were made to do it or not.
Hence he put all his money into Japanese bonds, after careful investigation of which most of them appeared undervalued, and he must have made a gain of 40 to 50 times the money he put into it, when, after the War, Japan resumed servicing the bonds and paid the accumulated interest during the years of hostility. It is not known how much money he made on this transaction, but the College valued his bequest at £1.5 million in 1983, one half consisting of the value of his library.
The second comes from the historian Norman Stone:
The economist Piero Sraffa, editor of the correspondence of David Ricardo and re-floater of Marx’s sunken theory of surplus value, took two economic decisions in his life. He bought Japanese bonds in 1945, and he swapped them in 1960 for gold, dying a very rich man.
Whilst both are fascinating, neither account is dispositive.
Luckily, recent events, including the opening of Sraffa’s archive at Trinity College, afford new insight in to what Sraffa did, when he did it, and, indeed, how he did it.
