He was born in Turin, Italy, the son of Angelo Sraffa, a Professor in Commercial law, and Irma. He studied in his town and graduated at the local university with a work on inflation in Italy during and after WWI. Notably, his tutor was Luigi Einaudi, one of the most important Italian economists and later a president of the Italian Republic.
After a short course abroad, in 1922 he was appointed as Director of the provincial labour department in Milan, then a Professor in Political economy first in Perugia, and later in Cagliari, Sardinia, where he met Antonio Gramsci (the most important leader of Italian Communist Party). They became close friends, partly due their shared ideological views - Sraffa was at this time a radical marxist (see ). He also was already in contact with Filippo Turati, perhaps the most important leader of Italian Socialist Party, whom he allegedly met and frequently visited in Rapallo, where his family had a holiday villa.
In 1925 he wrote about returns to scale and perfect competition, underlining some doubtful points of Alfred Marshall's theory of the firm. This work was completed in an article he published the following year.
In 1927, his as yet undiscussed theory of value, but also his risky political ideas, his compromising friendship with Gramsci (that had already been imprisonned by Fascism - notably, Sraffa had brought him the materials, literally pens and paper, with which Gramsci would have written his "Quaderni dal Carcere"), brought John Maynard Keynes to prudentially invite him at the University of Cambridge, where he was initially assigned a lectureship. After a few years, Keynes created ex novo for him the charge of Marshall Librarian. Sraffa joined the so-called "cafeteria group", together with Frank Ramsey and Ludwig Wittgenstein, a sort of informal club that discussed of Keynes' theory of probability and Friedrich Hayek's theory on business cycles.
His "The Production of Commodities by Means of Commodities" was an attempt to perfect the classical theory of value, as originally developed by David Ricardo and others. In this sense he aimed to demonstrate flaws in the mainstream neoclassical theory of value and develop and alternative analysis.
There was and remains controversy about whether Sraffa's work truly constituted a refutation of neoclassical economics. Many Post Keynesian economists use Sraffa's critique as justification for abandoning neoclassical analysis and exploring other models of economic behavior. Others see his work as compatible with neoclassical economics, as developed in modern general equilibrium models.
Finally, Sraffa was associated with Ludwig Wittgenstein, who credited him with making important insights into his philosophical works Tractatus Logico-Philosophicus and the Philosophical Investigations.
Sraffa was described as a very intelligent man, with a proverbial shyness and a real devotion for study and books. His famous library contained more than 8,000 volumes, now partly in the Trinity College Library.
He became rich after a long-term investment on Japanese government bonds that he had made the day after the nuclear bombing on Hiroshima and Nagasaki; a popular story tells he had received a huge amount of money that for more than a decade he refused to invest, until he could find a "safe" opportunity. He correctly reasoned that Japan wouldn't remain a poor country too long.